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The Hon Malcolm Turnbull, Federal Member for Wentworth and Shadow Minister for Communications and Broadband, gave this speech at the launch of the Asia & Pacific Policy Studies journal on July 19. The event was part of the week-long event, Policy public: ideas, insights and initiatives until 2020.
Open markets, Open Minds and an Open Society (or why we should be more like Stephanie Gilmore and less like King Canute)
It’s an honour to be here at the ANU for the launch of Asia & the Pacific Policy Studies, the new flagship journal of the Crawford School of Public Policy.
Under the editorial leadership of Tom Kompas, Director of the Crawford School, APPS will focus on public policy research from – and about – Australia, Asia and the Pacific, with the first edition out at the start of 2014.
As the newspaper industry’s travails remind us, paper and ink are yesterday’s story, and I note with approval that Tom and his team have future-proofed APPS – it will be published electronically and free of charge, thanks in part to support from AusAID.
Public policy is ultimately the most pragmatic and applied of disciplines. But it must also be founded in rigorous thinking about economic and social behavior – big ideas about the interrelationships that have to be taken into account in successfully leading social and political change.
Rigorous empirical research based on sound precepts – studies of outcomes across jurisdictions, of what worked, what didn’t, and which unanticipated consequences arose – are the most valuable analysis and data available to policymakers considering a problem. And while we are often, but not often enough, aware of what has been tried in the UK, US or New Zealand, we typically know less about what’s been tried elsewhere, particularly beyond the OECD.
So a journal that promotes better analysis, information and a more substantive dialogue about policy within our region will be serving a practical need as well as flying the flag for Crawford.
Of course APPS is just one element in a broader plan. What was the Crawford School of Economics and Government, a highly respected but low-key institution which educated generations of economists and policymakers from across the region, has become the Crawford School of Public Policy, a multi-disciplinary flagship for ANU modeled on Harvard’s Kennedy School.
There’s a new building, a new Institute of Public Policy chaired by Ken Henry and focused on the professional development of the public service, and a new Australian Centre on China in the World, a worthy addition to ANU’s existing centres of expertise on regions and countries.
It strikes me this is very much the Australian National University’s sweet spot. The new and expanded Crawford School is located at the confluence of three currents which run through this particular university’s history, and set it apart from its Australian peers:
The first is ANU’s emphasis on research, starting with its establishment in 1946 with a remit from Parliament to study “subjects of national importance to Australia”. This research focus in large part explains why five of the nation’s ten post-war Nobel laureates have been associated with the university.
The second is a history of deep involvement in public policy, reflecting ANU’s mission and proximity to policymakers, as well as two-way flows of personnel. ANU graduates pervade the Australian Public Service, while senior public servants from Nugget Coombs and Jack Crawford to Geoffrey Yeend and Ken Henry have landed at the university after retiring from the service.
The third is ANU’s unwavering focus on Asia and the Pacific. In the 1950s and 1960s, when much of Asia was stagnant or engulfed by conflict, this commitment wasn’t the no-brainer it seems today.
The new Crawford School also takes advantage of ANU’s disproportionate share of the nation’s top policy-focused academics: people such as Ross Garnaut, Bruce Chapman, Peter Drysdale, Bob Gregory, Nancy Viviani, Peter McDonald, Warwick McKibbin, Will Steffan, Hugh White…I could go on, it’s a long list. And there are rising stars like Stephen Howes, Frank Jotzo, Shiro Armstrong and Amy King.
There is a sameness about many of Australia’s universities that I suspect will make it increasingly difficult for some to retain market share as both local and international students become more discerning, and Australia becomes less competitive because of the high exchange rate.
So to see one of our top universities think carefully about its strengths, history and character, and move decisively to differentiate itself in an important area of teaching and research, is both exciting and welcome.
AUSTRALIA’S REFORM ERA POLICY EXPERIENCE
I’ve been asked tonight to reflect on Australia’s public policy experience and challenges and some of the connections they have with our neighbours in the Asia-Pacific.
This is an interesting subject because the extraordinary boom in commodity prices and resources investment currently dominating our economy has also increasingly obscured the immense contribution of pre-boom reforms to our current prosperity.
Last week David Gruen reprised a Treasury chart which showed how improvements in labour productivity had markedly slowed in Australia and how the contribution to our growing incomes was mostly from the record high terms of trade.
So it is no surprise that the conventional explanation for our strong economic performance is all about our resources boom and the urbanization of China, India and the rest of the North Asia.
Economists should speak more about ‘liberalised factor markets’, or ‘national competition policy’ or ‘flexible workplaces ’ because there is no way our economy could have absorbed a terms of trade shock of this magnitude without the flexibility resulting from a quarter of a century of often unpopular reforms.
And we should give more recognition and credit to Australia’s success in building what must be the most harmonious, diverse and open multicultural society in the world – even though this is as critical as any other policy to our recent success.
Our terms of trade boom was largely made in China. Not only did China export deflation as the things they sold us became cheaper and cheaper, but the rapid growth in Chinese demand for our iron ore, metallurgical coal and energy was not anticipated by suppliers and so prices rose five fold, and, while off their peaks, are still at very high historical levels. A double whammy.
Those who are happy to believe the resources boom will never end are prone to speak airily about Asia’s gigantic emerging middle class and the opportunities they offer Australia. So, don’t fret, there is a second boom to take up the slack if demand for the makings of steel starts to falter just as new sources of supply come on stream. And that is looking more likely as the Chinese economy slows, inflation drops and we start to see the necessary rebalancing from investment to consumption.
And yet while we have a clear competitive advantage in terms of iron ore, coal and gas – where is our obvious competitive advantage in the other things we might sell to a Chinese and Indian middle class?
The real story is much more than China, or indeed Asia. At the centre of the great economic changes in the world today is an accelerating convergence triggered by trade liberalization and supercharged by the Internet. As people in developing countries acquire more skills at first world standards and as the Internet makes historically non-traded sectors thoroughly trade exposed, there are grave risks as well as new opportunities for high wage, developed economies like Australia.
An inexorably converging world certainly offers vastly expanded opportunities, but only for the most competitive players. Rather than reveling in this Asian-led export boom and licking our lips at the prospect of the next, shouldn’t we be using this relatively prosperous time to renew our commitment to microeconomic reform? So that once again it is productivity that is driving our competitiveness and the prosperity that only it can reliably deliver?
Productivity growth does not simply come from firms working smarter, or getting more output from each unit of labour, it comes from less productive firms going out of business and their place being taken by more efficient firms. Yet the loss of jobs often takes place in big licks – somewhere in the rich world a landmark business closes. On the other side of the ledger, growth in jobs in the advanced economies is more incremental and thus less newsworthy. Just look at the national crisis in France over the past week over Peugeot’s decision to close an uncompetitive car plant employing 6500 workers – this in a nation of 65 million.
The major debate that has been sidelined, at least in the Australian political arena, is the one about a flexible economy. It goes much deeper than just industrial relations, let alone the carbon tax. It is all about the ability to change, and change quickly.
Now change is often very unsettling – but we need to remind ourselves and our fellow countrymen that just as firms which cannot change to new circumstances will decline, and sometimes close, the same is true for national economies.
We cannot legislate to make Australian managers creative or courageous, or our industries competitive. But we as should constantly ask ourselves; what can we do to make it easier for firms to innovate, to react, to start new firms and close those that aren’t up to scratch.
Technology is accelerating the disruptive global process of what Schumpeter called creative destruction and it is not just old firms and businesses that are under threat. The makers of the Blackberry seemed masters of the handheld universe – until the smartphone arrived. Yahoo dominated search until Google – and who is to say what might come along and dethrone Google? Department stores face extinction from online retailers, linear and subscription television feels the chill wind of IPTV and every bookshop is feeling the piranhas of the Amazon nipping at, if not gobbling up, their business models.
Universities are not exempt either. If the lectures of the best professors at the world’s best universities are online how do the rest differentiate? Put another way, how do giant second tier universities continue to fill giant auditoria with hundreds of note taking students? And if the differentiating factor is more personal attention in smaller groups, how is that affordable?
Rupert Murdoch may have been thinking of his own empire when he said “The Internet will destroy more businesses than it will create.” But the goal here is to ensure that “as the old order changeth yielding place to new” Australians are riding the waves of innovation not buried in a sand bar as they break. We should be more like Stephanie Gilmore and never like King Canute.
Tonight I want to reflect on how our past success in promoting economic efficiency and competitive markets together with an open and diverse community is an example of what we need to do more of – new laurels to be won, not old ones to recline upon.
I will also touch upon on one area – school education – where several of our neighbours are doing better than us and on another area – industry policy – where we run the risk of learning quite the wrong lessons from their experience.
ECONOMIC LIBERALIZATION…AND THE BOOM
But let me return to the most obvious insight from Australia’s experience over the past thirty years, which is simply that economic liberalization – cutting protection, deregulating markets, promoting competition and introducing price signals where they were previously absent – works. And while such policies are always easy to misrepresent and never likely to be met with acclaim, if they are explained clearly, introduced gradually but methodically (and if adjustment costs are acknowledged and assistance provided where appropriate) they can be successfully achieved.
The journalist George Megalogenis has described Australia’s reform era as boiling down to politicians getting out of the way of the market by letting go of ‘four big prices’:
The price of our currency (through the float of the $A).
The price of imports relative to local goods (through reductions in tariffs).
The price of labour (through the dismantling of centralized wage fixation).
And the price of capital (through Malcolm Fraser’s deregulation of bond markets, Paul Keating’s deregulation of banking, and John Howard’s formalization of Reserve Bank independence).
Politicians are always reluctant to let go of power, but the trade-off is that open and relatively undistorted markets create opportunities and deliver faster growth.
They draw labour and capital away from less productive sectors and towards more productive ones. Removing distortions such as protection or regulation, conversely, typically reveals that the industries or sectors which were previously insulated are not in fact competitive, and that it is the rest of the community which has been subsidizing them.
All of this is well understood, and in theory should be fairly straight-forward to implement in policy. But all governments run into difficulties stripping away privilege and protection from vested interests – whether friends or foes – for the simple reason that the pain of adjustment is generally hard felt and specific while the benefits are spread across the economy and not often discerned at least in the short term.
The 1980s and 1990s suggest some of the most difficult reforms are, paradoxically, easiest at scale – when a very challenging environment allows multiple reforms to be explained and implemented in unison (with the heart-rending tales of woe from various affected interests canceling each other out).
Rahm Emmanuel’s now infamous comment, ‘never let a good crisis go to waste‘ also contains a great deal of truth. No government wants a crisis, but every government should have a sense of which worthwhile but politically awkward reforms it should pursue if circumstances permit.
Tax reform should be easiest when revenues are high, just as should water reform be easiest when dams are full…in both cases because there is more capacity to ease adjustment. However in these, and many other cases, it is often crisis and scarcity that can galvanise both leaders and the public into taking the hard but necessary decisions.
This is not unique to government of course. It is easier to restructure and reduce overheads in a business which is in receivership than in one which is enjoying high revenues and profits. The TINA doctrine is always a compelling one.
Australia hasn’t yet dealt with every entrenched interest or tackled every distortion, and in one notable area, workplace relations, the Coalition pushing a reform agenda too far and fast led to subsequent Labor backsliding which, at growing cost to our economy, turned the clock back more than a decade.
But our economy has now been expanding for 21 years without a major downturn, and it’s clear in hindsight that the recession of 1990-91 marked a decisive break from the inflation, poor productivity and instability of the 1970s and 1980s.
During the 21 years our GDP has doubled, and per capita incomes have increased by 50 per cent.
This long period of growth does not simply reflect comparative advantage in resources. If we break down the figures, in fact, we see that GDP and output per capita both grew significantly faster prior to the resources boom than they have since. The same is true of productivity.
Likewise, 6 or 7 of the 10 Budget surpluses under the Howard Government were achieved without any help from the boom (whether that is true for 2004-05 or not depends on assumptions about ‘normal‘ commodity prices, but if there was a revenue windfall from the boom, it was minimal.)
And of the three ‘bullets’ the Australian economy is said to have dodged since 1991, two pre-date the resources boom: the 1997-98 Asian financial crisis, and the OECD recessions after the Internet bubble burst in 2000. Only during the GFC can it be claimed resources helped ‘rescue’ us – and even here credit must be shared with fiscal and monetary easing, a well-supervised banking sector, and a floating exchange rate.
So far from being the root cause of our prosperity, the resources boom has actually coincided with slower growth in GDP (although incomes have grown faster than in the 1990s, reflecting our more favourable terms of trade).
There is a more subtle but important point to make about past economic reforms and the current resources boom – which is that without the former we could not be benefitting as much as we are from the latter.
A vast amount of structural change has already occurred in response to the boom, and a large boost to national income has been absorbed, without anything remotely resembling the inflation, industrial disputation or adjustment frictions that every similar boom in our earlier history caused.
Take employment in mining, which contracted through the 1980s and 1990s, when commodity prices were at historic lows, and reached a nadir of 75,000 just before the turn of the century. In the year 2000 the mining industry directly employed fewer than 1 per cent of Australians in work, its lowest share in a century.
Since 2003, however, we’ve seen direct employment in mining increase rapidly from this low base, reaching about 270,000 in May.
We hear a lot about the resource sector’s labour needs, and it’s sometimes claimed Australian workers are not willing to move to mining areas or take these jobs. It’s seldom explained that the industry has almost quadrupled its workforce over the past dozen years, and generated a tenth of all new jobs in that period, more than offsetting jobs lost in manufacturing.
Likewise, resources output as a proportion of the economy has also grown very strongly over a short period – mining and energy revenues doubled from 7 per cent of GDP in 2003-04 to 14 per cent in 2010-11. Resources firms doubled their capital spending as a share of GDP over the same period.
These are very substantial and very rapid changes in the structure of employment and output. And they aren’t in prospect, they’ve already happened – accompanied by discomfort but not by disruption in most other sectors, fairly stable economy-wide prices, and high levels of overall employment.
I don’t mean to imply that the challenges of structural adjustment are already behind us, or to diminish the pressure other trade-exposed industries face from the resources boom and high exchange rate. And it remains to be seen how the current Government’s attempt to throw sand in the gears with its 2009 re-regulation of the labour market will ultimately play out.
But to dismiss Australia’s economic performance as simply the result of Chinese demand for resources is to misunderstand how important past reforms have been in allowing that demand to be met, and the structure of our economy to adjust in response to changing demand.
ANOTHER THING WE GOT RIGHT: HARMONIOUS DIVERSITY
Australia’s opening to the world over the past thirty or forty years hasn’t been restricted to the economy. Our nation has been transformed by the comings and goings of both our people and those who have chosen to live among us.
No country in the world has such a high and diverse proportion of its population born outside its borders. And those who come here are more and more from our own region rather than from the British Isles or New Zealand. Twenty seven per cent of our population was born overseas, and in Sydney it is closer to one third.
For a long time public policy was explicitly framed to prevent this. Just like the tariffs and wage arbitration dismantled during the economic liberalization of the 1980s and 1990s, the discriminatory White Australia policy was an artifact of Federation. At the insistence of the Australian Workers Union (plus ça change…) the ALP made legislation enacting it a condition of supporting Barton in the first Parliament.
These restrictions began to be relaxed after 1949, initially under Harold Holt as Immigration Minister, and White Australia effectively ended with the Holt Government’s rewrite of the Migration Act of 1966.
Holt should receive more acknowledgement for these reforms than he does, given Labor was at the time led by Arthur Calwell, described by his own speechwriter as “the greatest and the most articulate of the red-blooded racists in the early tradition of the Australian Labor Party.” In many ways Holt is the architect of the diverse modern Australia we live in, although Whitlam, Fraser, Hawke and Howard all made indelible contributions as well. .
While most of our foreign born are still Brits and Kiwis„ the Chinese and Indians have moved up to third and fourth place respectively, and it is likely there are now almost 1 million Australians who identify as being of Chinese descent, and perhaps 500,000 identifying as being of Indian descent. Chinese is now our most spoken language at home other than English
The value these Australians can contribute as our economic links with China and India deepen is an example of the benefits of diversity. Likewise, there are numerous studies from around the world suggesting migrants are more likely to start a new venture; between 1995 and 2005, for instance, 52 percent of Silicon Valley start-ups had one key immigrant founder.
A recent paper by two Department of Immigration economists noted: “Australia has an enviable record in managing migrant entry and settling newcomers. Our overseas-born population has the lowest unemployment rate among OECD countries, and the children of migrants do as well as the native born in international secondary assessment tests, whereas they do worse in almost all other OECD countries.”
While migrant selection undoubtedly plays a big role in this, settlement policies and an increasingly inclusive and tolerant Australian community is also responsible. These achievements will be of growing relevance to neighbours in the region, such as Korea and Japan, who, with very low birth rates, are going to have to come to terms, sooner or later, with the choice of long-term and ultimately terminal decline or becoming countries of immigration as we have always been.
As Peter McDonald always reminds us, our immigration policy has been, and should always be, driven by the needs of our economy. The alternative is labour scarcity and skills shortages which, as we can see today, can become major breaks on economic growth, especially in the resource sector.
Most regrettably the asylum seeker debate has led some Australians to perceive immigration as a problem rather than an opportunity, both for the migrant and our nation.
All of us, and especially we politicians, need to be sure that the controversy over asylum seeker arrivals does not overshadow the much greater scale and importance of the national post-1945 immigration commitment, and the critical importance of building on the good work already done as we continue to assist integration and employment by promoting mutual respect and understanding among different people from different cultures.
So my submission is that two great achievements of modern Australian public policy are our success in methodically introducing market reforms, thus creating a very open and resilient economy capable of adjusting quickly to shocks, and our parallel achievement of reconciling high immigration and rapid changes in the composition of our already-diverse population with a harmonious, open and free society.
These two overarching success stories don’t imply that everything is ideal at a more granular level.
On the contrary, there are unsatisfactory outcomes in a range of areas of policy, particularly those where responsibility is shared across different levels of government. Urban planning and the provision of infrastructure in cities, the pricing and demand management of energy, the management of water and other natural resources, indigenous health, and productivity in the public sector are a few examples.
But there is one clear example where we have much to learn from our neighbours and that is school education.
Education is important to every country, but the pressure to get it right in Australia should be much more intense.
In the increasingly competitive, converging world in which we live, the only hope for high wage developed countries to stay that way is to become more productive, more innovative and more skilled. For all of that education is the key. And for those who think the miners can save us from the burden of getting smarter, they should reflect on the relatively small percentage of Australians who work in the mining industry, the importance of skills, IP and innovation in that sector, and the rapidity with which mining companies are introducing new technologies and systems to further reduce their less skilled labour component.
Since 2000 the OECD’s Program for International School Assessment (PISA) has provided a credible ranking of basic schooling outcomes at three yearly intervals across the advanced economies and a growing cohort of emerging and less-developed economies. This has brought rigor to anecdotal comparisons – and perhaps equally importantly, already led to significant changes in education policy in some jurisdictions (notably Singapore and Hong Kong) to achieve better results.
The PISA rankings measure literacy, numeracy and basic science knowledge, and therefore only provide a partial measure of education quality. And it should be stressed that Australian students have fared reasonably well, better than the OECD average, although reading outcomes declined noticeably from 2000 to 2009, as did maths outcomes between 2003 and 2009.
The most recent 2009 PISA revealed a leading group of half a dozen or so economies which appeared to be breaking away from the pack. Among them were four East Asian school systems (Shanghai/China, Hong Kong/China, Korea and Singapore) plus Finland and Canada.
On average Australian schools were behind this group (plus another half-dozen countries in maths) – but this average disguises variation by state, with outcomes from schools in the ACT and WA equivalent to the lower scores in the leading group, and Tasmania back at the OECD average
While it is too early to pinpoint the significance of materially higher levels of literacy and numeracy on a test such as PISA, there is no reason to think it won’t influence productivity and economic potential, much as there is a direct link between per capita income and average years of education across a nation’s workforce.
And as the Grattan Institute points out in its excellent report on the East Asian leaders, an equally valid reason to investigate what they are doing differently from Australia is that there appears to be no correlation whatsoever between funding and performance – funding has risen 34 per cent across the OECD and 44 per cent in Australia since 2000, with no effect on outcomes.
Tempting as it is to ascribe all this to Tiger Mothers, managers from leading East Asian systems told a Grattan conference in February there is growing agreement about effective and ineffective policies and how to measure success. I won’t repeat their detailed recommendations – they are in the report – but they included various strategies to improve teacher quality, training and mentoring, and fewer classroom hours (in exchange for larger classes).
This issue is hardly being neglected – I find it encouraging that Julia Gillard attended the Grattan event in February – but it remains to be seen how effectively our system can respond to what appears to be a simple objective: lift the performance of our weaker and middling states towards that of the global leaders by pursuing some fairly widely-accepted and well-understood (but potentially culturally-challenging reforms) to achieve it.
There is something of a unity ticket on the objective here – who can be against better school outcomes? But a big difference between our side and Labor is that we are not beholden to the teachers’ unions. The Coalition’s approach, and this can be seen already at State level, is wherever possible to devolve more responsibility to schools and their principals to hire and fire – in other words we favour more diversity and greater individual responsibility over the centralized approach favoured by big government and big unions.
Paradoxically, while we increasingly need to benchmark against better educational outcomes in Asia, the challenge for sustaining Asian growth will be to tune investment in education more effectively to achieving higher levels of development – to connect economic reform with managing higher levels of investment in education – and that’s where we have much to teach each other.
THE WRONG LESSON: PICKING WINNERS
I have often thought, as I drive past the marker of the ACT border and onwards into Canberra, that there should be a grand archway with an inscription across the top – “Rent seekers of the world unite”
This city is full of lobbyists with plausible arguments to bail out this industry or that, and full of politicians who love nothing better to “save” businesses and the jobs which depend on them…all, of course, with taxes paid by the millions of Australians who receive no such bounty.
This phenomenon is not unique to Australia!
One of the most hotly debated issues in development economics is whether the rise of Japan, the Asian tiger economies and now China has occurred because of, or despite, government intervention in its many forms. The ‘miracle’ growth of Japan and then the East Asian Tigers attracted scrutiny because they shared certain features: export-driven growth, high investment, and early reliance on labour-intensive industries before a rise up the ladder to higher value activities.
But simply because a successful firm has received state support does not prove it succeeded because of it. Some pioneering work here at the ANU suggests that the opposite was the case for Japanese manufacturing – declining industries were the most heavily subsidized as they have been in Australia.. But even if it did, the opportunity cost of the resources denied other firms is never calculated, or readily calculable.
In our region, the role of industry policies in the various fast-growing economies who people such as AWU secretary Paul Howes suggests we should emulate has varied, and in truth has rarely been proved positive or negative. Macro-economic stability and openness to technology and inward investment has been be far more important.
The Productivity Commission has always been rightly skeptical of the “picking winners” explanation for the Asian growth story. As long ago as 1990 it concluded “the more important factors explaining success are clearly the opportunities to catch up with the West, the removal of social and legal restrictions that inhibit new activities and the willingness to work hard for relatively low wages….There were successes without intervention and successes in spite of intervention. Hong Kong achieved high growth without any such policies.”
In recent years there has been growing concern within China about the way in which financial repression that diverts savings from households to government businesses is resulting in many property and infrastructure investments that would not have passed a “rigorous cost benefit analysis” to say the least.
Beginning twenty years ago the Chinese created a massive aluminium industry – now about 40% of global capacity. There are two critical factors in aluminium production – the cost and quality of the bauxite and the cost of energy. China’s own bauxite is low quality and it has no cheap, let alone stranded, sources of energy like Iceland. The industry was founded on credit subsidies and now to stay viable requires larger and larger energy subsidies. It is no coincidence that Chinese power producers are some of the least profitable in the world. And establishing a large industry which is only sustainable due to huge energy subsidies distorts the wider economy creating more negative externalities like China’s notoriously bad air quality. To cut pollution costs money which power plants can’t afford if they are barely getting by on their regulated power prices as is.
China’s strategic decision that state owned companies should acquire resource assets around the world is also running into trouble. One of the more spectacular examples is CITIC’s Sino Iron project in Western Australia which was meant to cost $2 billion to establish, but is now estimated to be on track to cost $10 billion to complete.
The point is that governments, whether Asian or Australian, simply do not have the information to enable them successfully to pick winners. Long term only free and competitive markets can do that.
But of even more concern in Australia is that the industries which seek, and get government support, are rarely those in which Australia has or is likely to develop a comparative advantage. In most cases our industry support dollars go to prop up industries whose future is questionable even in the best of all possible worlds.
Nobody likes to see jobs lost when a plant or a business closes. But with low overall unemployment, if the less productive firms do not close where will the more productive ones find their labour? Every job maintained with taxpayer subsidies, including energy subsidies, is not just a cost to the public purse but represents an opportunity cost to other firms.
And a time of labour scarcity like this is arguably the worst possible time to be supporting manufacturing unless we can honestly say that their difficulties are only transient.
The melancholy truth, as Gary Banks routinely reminds us, is that we have not yet shaken off our culture of protection and far from picking winners (a dangerous enough business) our history is that of picking and propping up losers.
One of the worst examples of direct government intervention in our economy is the National Broadband Network. This is being built by a government owned and financed company which is being established as a monopoly. Indeed Telstra and Optus are being paid billions not to use their HFC networks to compete with it.
To my knowledge there is no country in the world, other than our own, where a Government is building a new national telecommunications network monopoly and regulating to ensure that there will be no competing facilities established or operated. Indeed everywhere else in the world, and especially in our own region, a key goal of telecommunications policy is to promote wherever possible facilities based competition.
And who are we to criticize over-investment or mal-investment in Chinese infrastructure when the decision to build a nationwide fibre to the home network in our own country at a cost of scores of billions of dollars was taken without any cost benefit analysis, any critical investigation of what other countries were doing or any assessment of alternatives whatsoever?
Indeed the NBN has no budget in the usual sense of the term. The Government has not set a llimit on what it will spend. The purported $43 billion price tag is no more than an eighteen month old estimate of what the project will cost to complete – but it will almost certainly cost much more. It is like building a house with a cost plus contract … except that there are vastly more variables and uncertainties in a decade-plus long construction project like this than in building a home.
Criticism of the NBN tends to be muted by the fact that most people agree, in general terms, with the proposition that everyone should have access to very fast broadband. But the objective is not in issue – it is the way the Labor Government is going about it.
For our part, we cannot rewrite history or, unilaterally at least, rewrite contracts. So if elected the Coalition’s goal will be to mitigate financial recklessness. We will ensure that all Australians have access to very fast broadband sooner, more cheaply and more affordably.
We will prioritise those areas that are currently underserved. We will not overbuild networks that are already delivering very fast broadband (such as the fibre to the premises network in Crace here in the ACT) so long as those other networks provide wholesale access. We will be able to reduce the cost of the build considerably ( by as much as two thirds) by taking fibre far enough into the field such that the copper loop connecting to the customer’s premises is sufficiently short to enable very high speeds in both directions. This fibre to the node approach is also much faster to deploy and will enable many small rural communities to get fixed line broadband rather than fixed wireless. At the current rate of the NBN’s buildout, many Australians will be waiting more than a decade to get better broadband.
Finally we will ensure that there are no regulatory barriers to competition with the NBN’s network. Creating an overcapitalized Government business and regulating to protect its monopoly status is itaking us back to the 1950s when State Governments regulated and licensed the trucking industry so as to prevent it competing with their government owned railways. The NBN Co is an escapee from the vault, the ghost of discredited economic policy on the march again.
A closer policy dialogue with our neighbours would be an unambiguous benefit for Australia – even though in appraising policy elsewhere we have to sort carefully between models which are applicable to our circumstances, and models which either are not well-suited to our institutions, or do not in truth make a positive contribution to the outstanding economic performance we see in many of our neighbours.
In the end, the important messages for Australia to emphasize in such a dialogue are the pivotal role that open markets, open minds and an open society have played in our recent success. These are the values which served us so well during the reform era and the values that we should restore to centrality in our public policy now.
Some argue Australia in 2012 is indistinguishable from the nation Donald Horne dismissed in 1964 as “a lucky country run mainly by second-rate people who share its luck”. I disagree. Have we been lucky? Yes. But the harder we’ve worked, the luckier we’ve become – and a return to the hard work of economic reform is what we now need to ensure our luck continues.