It’s time again for weekend reflections, which makes space for longer than usual comments on any topic. As always, civilised discussion and no coarse language please.
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John Quiggin 
Alice, a lot of Australians agree with you as to what is happening to small business operators around the country-side and more needs to be done to ensure they are not a dying breed. I recommend you read Gerry Muckert’s story dated 5 Sepember 2010 ‘Australia-A butchers tale’ found at http://www.meattradenewsdaily.co.uk
Message for Jarrah (re Jarrah’s message in MOD11)
oops sorry Jarrah – last post in MOD11 was meant to be in weekend reflections. I didnt know you had taken over as moderator?. I know Im popular Jarrah but you will have to stop talking to me stat!!.
I just cant talk to you and Mosh on one post/thread per day and Id rather talk to Mosh! I have to cull you. Anny comments to Moshie on his link?
I agree with Mosh – the government (both parties) in their “too much” faith in free markets and de-regulation and so called “market reforms” have become by default, supporters of less competition and large businesses in Australia.
Sort of sting in the tail of freeing up markets isnt it? Large concentrated producers get more freedom and consumers are trapped with less choice and higher prices. Small producers are trapped with less choice and lower prices from monopsony buyers.
You could be forgiven for thinking it was just a sideways swindle from the majority to a few and ultimately harmful to our economy.
People have made the grave mistake of thinking the Australian market is big. Its not and excess freedoms have permitted excessive market concentrations whereby one or two or three existing firms gain economies of scale quite quickly acquiring lesser firms. Less competition in many sectors and higher prices is the result because there isnt enough market for competition to hurdle entry costs and duopolies and oligopolies result. Yet we try and convince ourselves or the ACCC tries to convince us “all is healthy enough in groceries etc” when the majority can see it is not, (except the denialists).
It is doing us harm and its just an example where blind faith to any one tailed ideology, such “leaving things open to market competition” (or “leaving things to the government” for that matter), just doesnt work. Its a question of balance and being prepared to sit down later, do the numbers and say “well -that didnt work or that policy did work.”. Thats not happening – retrospective analysis.
There may be a lesson in there somewhere for you too Jarrah – as much as you wont like having your libertarian dreams broken. All will not be fine at some future nirvana arrival and if you want to think like that it would be more effective to be in church thinking like that. Being a pure libertarian or a pure communist for that matter is only entertaining blind faith and its lazy because it means you dont have to work out whether its working. You subscribe but there is no warranty.
Do you agree?
Some people are now laughing at the Coalitions dreams that the private sector will roll out the broadband to country areas….I think there is a better chance of santa dropping it down chimneys on Xmas eve.
Alice, it is out of my hands but if Abbott can do penace for all his sins and get away with it, then since it is Sunday today JQ might be a bit more lenient than Jarrah. As for greens, unionists and guilds I have a soft spot for them.
Alice – Jarrah is not a pure libertarian. Nor am I for that matter. I don’t know any pure libertarians because it isn’t a puritan creed. Anarchists are a pure form of liberalism but only a few libertarians harbour anarchist ambitions. In general libertarians think the state should intervene sometimes but only where there is evidence supporting the case beyond reasonable doubt. Most wouldn’t support the NBN for example because there has never been a formally published economic assessment of the benefits and costs to determine what the project is worth. Just because a lot of progressives tickle their private parts and moan NBN doesn’t mean it’s a good thing. But show us evidence, not poll numbers, and we’ll look at it.
Jarrah – Alice can’t self moderate and JQ can’t moderate her much either so I don’t think you should bother trying. I do recall this blog having a more intellectual tone before she arrived here, but such is life.
TerjeP, maybe I am wrong but didn’t the Independents just receive confirmation of Treasury’s costings for both major party’s and Gillard was within a whisker in comparison to Abbott’s big black hole.
MOSH – so what?
TerjeP, what do you think Treasury does just sit on their backsides?
Alice, as Terje said, any aspersions of libertarian purity are wasted on me. I’m regularly denounced as a communist, a Labor hack, a Liberal stooge, a world-government-wanting killer of brown babies. I have no blind faith. Your caricature of my beliefs is as 2-dimensional as your conception of Australian politics and economic policy, voters, and market processes.
I asked for numbers, for evidence, but you have refused to provide any empirical substance to match your rhetorical over-reach. You bemoan the lack of “retrospective analysis”, but are unable to make any yourself, or to point to any that back you up.
Often you don’t even nominate a plausible means by which your claimed consequences come about.
Until you can justify claims like “consumers are trapped with less choice and higher prices”, “excess freedoms have permitted excessive market concentrations”, “Less competition in many sectors and higher prices is the result”, “the majority can see it is not”, “It is doing us harm”, your comments are just so much hot air, and beneath notice.
When you do start making reasoned arguments instead of cluttering up a serious blog with a grab-bag of left-wing boilerplate and right-wing populism, I will happily engage with you. Until then, you can have your wish and cull me from those you need respond to, and I’ll reciprocate.
MOSH – how is comparison by treasury of how much the respective major parties wish to spend in totality relevant to my comment about the NBN?
Is it accepted that more competition generally leads to lower prices?
Terje the point of treasury’s comparison is not “how much the parties want to spend”, it’s the difference between what they plan to spend, what they plan to save and what they expect to receive. Your favored coalition has its numbers out by ten billion, and their reluctance before and after the election to have their numbers looked at indicates that they were knowingly perpetrating a massive ten-billion dollar fraud on the electorate. Liberals are liars, what’s new? But it wouldn’t matter to a partisan Tory, even one who called themselves a “libertarian”.
TerjeP, as to the cost and benefits of having the NBN it is an ongoing process, but it has been estimated that ‘The difference between the allocated $16.842 billion in NBN funding and the amount of government funding recommended in the NBN implementation study, for the first five years to 2013–14 ($22.4 billion), is $5.558 billion. In addition, the difference between the allocated $16.842 billion in NBN funding so far and the initially proposed $43 billion total build cost for the NBN is $26.158 billion. That is, if the realised build cost for the entire NBN were $43 billion, the Government must allocate/determine an additional $26.158 billion of funding from available sources’. Hopefully this makes sense to you.
Gerard – the NBN has not been subjected to a CBA.
http://www.theaustralian.com.au/news/opinion/the-costings-problem-called-broadband/story-e6frg6zo-1225913536653
However I agree that both sides have been playing games with the numbers. What we need is the Australian equivalent of a Congressional Budget Office as proposed by Malcolm Turnbull. What he has called a Parliamentary Budget Office that is accountable to the parliament not the executive.
http://www.theaustralian.com.au/politics/turnbulls-budget-in-reply-speech/story-e6frgczf-1225712351491
MOSH – There has been lots of ink spilt on the cost of the NBN. However what is mostly missing from the discussion is some numbers relating to the benefits side of the equation.
Not by me it isn’t. I think there is a goldilocks effect. You want neither too much nor too little but the right amount won’t be a constant and you need a process of discovery as offered by a free market.
By the way, happy fathers day everybody.
TerjeP, as to the benefits of having an NBN just ask Tony Windsor and I’m sure he will tell you all about it. You can call on 1300 301 839 gratis.
If somebody wants to build a new road we have strict laws that require an environmental impact statement. All I’m calling for is that we should also have a strict cost benefit analysis process for projects like the NBN, with the impact on private sector investment included on the cost side of the equation. This is something that the productivity commission could capably produce if asked.
If the difference between cost and benefit is marginal I’d say don’t do it, but if the benefits clearly exceeded the costs it would be hard to argue against the initative. Of course the compentency of any CBA would always be open to dispute but this is the nature of public debate. It would be far better to have a flawed CBA than the current situation in which we have no CBA at all.
Tony Windsor is calculating the political benefit not the public benefit.
TerjeP, if I am not mistaken there was a tendering process and the private sector could not deliver. So what you are asking is a bit rich.
@TerjeP (say tay-a)
Well, no. By your analogy we should demand an environmental impact statement on all the trenches dug for the NBN (and we will probably get them; depends on council/state policy, I guess). The fact that we don’t have cost-benefit for every road, copper phone line etc tends to suggest that we don’t need a cost-benefit for the NBN. You might be right that we do need one, but your analogy fails.
Franko – most analogies fail under stress.
MOSH – that the private sector wouldn’t build it is what rings alarm bells.
No TerjeP, governments step in when the private sector fails.
MoSH, that’s kind of true, but not providing a good or service (or not providing it for a low price) is not prima facie evidence of failure. Otherwise, where is my government-provided Bluray player?
Not a lot of stress applied there!
Being economically illiterate, I don’t know if a cost-benefit would involve intangibles like social cohesion, and I’m guessing that any cost-benefit would be incapable of saying anything useful about potential decentralization and consequent easing of pressures on city infrastructure.
Yes Jarrah and the collapse of ABC Learning Centres is now Labor’s fault. As for your Bluray player well you better ask Terje where he gets his.
Fibre optic cable is a bit like the old days with connecting up a new telphone on the POTS (plain old telephone system). Someone had to accept the capital outlay and the deferred benefit; until enough connections are made and some kind of white pages book is available, the telephone isn’t terribly handy. Once the magic threshold is reached, however, then the landline telephone becomes almost essential.
The magic is in the copper lines; once laid they have been called upon to carry Morse code, voice, fax, modem, and ADSL. They have been called upon to carry voicemail, call forwarding, and so on. In 50+ years of copper line running length and breadth of the country the copper line hasn’t changed but the services carried upon it have evolved from a few bits per second to Megabits per second. [Who thought in 1970 that we would be able to watch video over copper? Probably very few people.]
A similar situation exists with the NBN: they will lay the magic fibre in the ground, providing the pipes for current and future services. Fibre optic has a ridiculously high capacity – terabits per second, and it won’t be the bottle neck for decades. As the switching technology moves to optical electronics, the switches will be able to keep increasing their speeds to support ever more demanding services. The standard electronics is where the data rate bottleneck hides – silicon-based switches simply cannot fill an optical fibre cable to capacity, and that makes the point of translation from light signal – carried on the optical fibre – to electrons in order to perform the switching function (and other functions) upon silicon electronics, the bottleneck.
Individual companies small and large have had their chance to build such a structure, quite frankly. With telephones, Mr and Mrs Collins didn’t need one or indeed want one, because there was noone to talk to anyway. Until the magic threshold was crossed. With the current situation it isn’t quite as severe as that, but the capital requirements initially are large, and SFW.
Donald – Telegraph in Australia was mostly a government initative but copper wires for residential and commercial phone services were all rolled out by the private sector until the government stole the wires through nationalisation and banned the private sector from providing phone services. There was no threshold effect holding back the private sector and when it comes to installing fibre there is no such problem because the Internet spans technologies, copper, fibre, satellite etc.
Franko – I don’t think the social externalities of an NBN are that big. Most benefits will be captured by the consumer. However in so far as there is evidence of externalities, both negative and positive, they should be included. In my estimate most externalities will be negative in the form of regime risk subsequently assumed by the private sector.
As I said, I’m ecnomically illiterate. Can you explain ‘externalities” and “regime risk”?
And (I’m risking being told I’m wrong here, prior to your explanation) how does benefits going to consumers (I’ll assume you mean consumers of the internet, not general consumers in the economy) negate the argument that fast internet confers social benefits?
On a trivial level, I have the fastest satellite internet connection currently available and I can’t use ABC’s iView, despite paying two or three times more per month for my connection than people on fibre pay. There’s no way I could do a video-based uni course, for example. I live about 80 km from Melbourne.
@Donald Oats
I expect most people would be happy to take out a loan to install broadband and to enter into a contract to repay the loan from the payments for the connection. The average cost of a broad band installation is likely to be about $4000 per dwelling. The average running cost of a fibre connection is likely to be less than the cost of a copper connection because copper is “active” as it has electricity running down the wires. It is likely to be about 5% of the capital cost or $200 a year. Fibre shines a light down the fibre and only requires power at either end. The simplest way to fund the NBN is to give loans to people who want to use the network and to attach the “ownership” of the loan to the dwelling. That is, if you sell the dwelling the person buying the dwelling takes on the responsibility for the loan. We can expect the life of a fibre cable to be at least 40 years so that is a cost of $100 a year in repayments and the government – who can issue the loans – need not charge interest on the loans. Thus for $300 a year we could have high speed connections that will carry our TV, our phone, our internet etc. – and all for no cost to the government. The only cost is the “opportunity cost” of the interest free loan but that does not show up in the governments accounts. Go to any area of the country and ask people if they were willing to take on the responsibility of such a loan and those areas where most say yes put in the broadband.
Where is the recognition that New Zealand has been hit by a major disaster? I cannot find a peep on this forum. I could not even find in the news that our PM had even acknowledged the event until I really dug for it.
Whilst the initial casualities seem low at zero killed and two seriously injured this position may not hold. There still may be more people trapped and missing. In addition, this is a huge hit to New Zealand with its second biggest city being completely devastated. The infrastructure damage runs the full gamut from houses and buildings to power, water sewerage and so on. The damage is extensive and deep over the greater Christchurch area.
New Zealand’s economy is already a mess partly due to the economist rationalist prescriptions and free market fundamentalism of the circa 1990s. New Zealand will need major help. I would suggest as a minimum that Australia should immediately pledge 1 billion Aust dollars in aid and transfer this to the New Zealand Reserve as soon as we get an effective government in this country.
@TerjeP
Interesting view of it Terje; our constitution – in 1901, mind you – had it laid out that the Commonweath Government would be responsible, to wit:
The nationalisation of the telephone system(s) began there. At Federation. Which I suspect is your point! However, not all was bad inside the PMG (Postmaster General, the federal body charged with owning and running the PTSN and other dangly bits) – the PTSN covered most parts of Australia and was well maintained. Telstra as a private concern allowed the copper to the curb to fall to pieces, with it claiming approximately 14% of the network had faults (in the copper wires) in or around 2005:
Telstra had no great desire to provide ADSL without government subsidisation to fix the copper – instead of replacing it with fibre! – and it had possibly held back maintenance to create this political pressure point for justifying their cap in hand. During the period of the great rationalisation so many linesman positions were eliminated that it was simply impossible for the maintenance crews to keep up with the new fault rates, let alone deal with the backlog. Telstra did outsource a bit of this work by that time.
Donald – federation was the enabled but actual nationalisation took a while to happen. Prior to 1901 the private sector was installing telephone services at a frenetic pace. They were not waiting for your supposed threshold to be crossed.
Franco – these terms can be looked up on sites such as wikipedia but I’m happy enough to help. Just not right this moment.
TerjeP, could you please tell me where you are getting your facts from because none of the above makes sense.
MOSH – I presume you are refering to facts regarding Australias early telecommunications industry. If so then mostly these facts are drawn from a book called “Calling the World” written by James Murray and published by Focus Publishing in 1995. Some other facts from the book for your amusement;
From page 15 of the book:-
“As in telegraphy so in telephony, the lead was taken by Melbourne. In 1877, a private entrepreneur, Henry Byron Moore, introduced to the the city not only the ‘electric speaking telephone’ but also ‘incandescent electric light’.”
From page 16 of the book:-
“In 1881 when a private telephone switching system was installed in the Merchants Exchange, Pitt Street, Sydney, Western Electric was the supplier and Harry Kingsbury was the agent.”
The government owned PMG would subsequently get in on the act. However things were not run on a commercial basis by the the government sector version. In 1908 there was a Royal Commission into the management, finance and organisation of the PMG. Chaired by Joseph Cook it became known as the Cook Royal Commission. A star witness was Alexander Graham Bell who was visiting Australia and he testified that the Australian government system compared unfavourably with the American free enterprise system. Call rates were low in Australia but Alexandar Graham Bell figured they must be running at a loss which in fact they were. The PMG having racked up a cummulative deficit of 3 million pounds since 1901, no doubt starving most of the private sector competitors to death in the process.
TerjeP, between 1854 & 1876 telegraph lines between Sydney to Newcastle, Sydney to Melbourne & Adelaide, Sydney to Brisbane, and cablegram service between England & Australia, communications between Australia & NZ were in place and all services were provided by State governments & not the private sector.
Franco,
From wikipedia:-
“In economics, an externality (or transaction spillover) is a cost or benefit, not transmitted through prices, incurred by a party who did not agree to the action causing the cost or benefit. A benefit in this case is called a positive externality or external benefit, while a cost is called a negative externality or external cost.”
An example of a negative externality might be a factory that produces smoke that causes a health cost for people living near the factory. Those people may not benefit from the factory in any way but they certainly bear a cost.
An example of a positive externality might be a fair ground that charges an admission fee but people outside get to enjoy for free the fireword display that the fair ground puts on at midnight. Those people get the benefit without paying anything for it.
~~~
A “regime risk” is the risk faced by an investor that a future government will decide to confiscate the investors investment or the associated profits either directly or by imposing some other rule change.
For example if you build a car factory to make cars and the government subsequently starts it’s own car factory and gives cars away for free then a regime risk has been realised because nobody will buy your cars and your investment will become worthless. Or if you build a car factory to make cars and the government subsequently makes a rule that says nobody can buy cars then a regime risk has been realised. Again you will make no profit.
There are risks to any investment that don’t relate to regime changes. Technological and fashion risks also may imperial an investment. However regime risks are one thing that governments can avoid imposing if they regard private sector investment as a good thing.
Generally people don’t like to invest in countries where regime risk is high. Much of Africa and parts of Asia are seen as having a higher than usual regime risk and so international investors try and avoid investing in those locations. Obviously Australia represents in international terms quite a low level of regime risk. Part of this is due to our legal framework and constitution and part of it is due to our track record. Generally the Australian government is not expected to suddenly confiscate the assets of private investors in the way that happens in parts of Africa. However governments can introduce things like a new mining tax or start their own government owned telecommunication company that undercuts private firms on price. These things may deliver a benefit to the community but they also discourage private sector investors and so they also entail an associated cost to society beyond the actual financial cost of the initative.
A government acting rationally and in the public interest would seek to weigh up the cost and benefits of any action before proceeding, and then only proceed if the benefits outweigh the costs. The productivity commission was established to undertake such work but can only do so on matters refered to it by the government. The government has not asked the productivity commission to undertake such an assessment of the NBN. It should.
Worth noting is that government action in one industry can have a spill over effect into other industries. Confiscating factories will discourage investors not just in manufactoring but also in mining and farming. We shouldn’t over play the risk represented by the Australian government of recent years but change happens at the margin so we ought to ask that our government makes changes with caution.
Yes I agree. I said so at comment #29.
MOSH – the point of my comment was to refute the claim by Donald Oats that there was a threshold effect that discouraged the private sector from providing telephone services. There was not. Private telephone exchanges were being installed before the government got in on the act. If his threshold problem was real then private exchanges would not have been built.
No Terje, you are making it up as you go along and seem to be confused.
Terje, I spoke too soon you are correct in relation to the first telephone exchanges being in private hands for it was opened in Melbourne in August 1880 and operated by the Melbourne Telephone Exchange Company.
MOSH – yes it’s first manager was Henry Byron Moore who I mentioned in comment #37. It was owned by private investors.
Terje, just so there is no more confusion, lines remained in government hands but complaints of high cost and poor service led to the Victorian Post Master-General taking over the operation of the telephone system in 1887. In other words the government only acted after the private sector failed to provide a proper service. Have a good night.
So you’re sticking to the narrative that says the government is all benevolent and kind and the private sector is all bad and wicked.
Ikonoclast – the NZ Government appears to have a special fund to deal with emergencies such as those currently being experienced in Christchurch. The Kiwis are a resilient people with a lot of good sense. The reason that there weren’t hundreds of deaths is because the houses and buildings are built with earthquakes in mind. The Shaky Isles is more than a nickname. The Pakistanis need our help more.
@TerjeP
Actually Terje, I don’t think that they were installing at a “frenetic pace”, as you put it. While it is certainly true that private companies were installing telephones, they weren’t necessarily in the business of telecommunications. Rather, they were in other businesses but could see the advantage of connecting up the senior staff across sites. Eventually some dedicated players in telephony surfaced, and undertook the task of supplying the necessary exchanges to build more flexible networks for paying clients. Even so, by the time of federation, the number of circuits available was miniscule, and concentrated upon non-mass-consumer markets, ie upon industry and government but not Joe Bloggs at home.
Just after federation there were 33,000 across Australia, according to the web site I referenced in an earlier response. Hardly reflects a frenetic pace of installing telephone services in the 30 to 40 years before federation, if 33,000 is all they got to by 1901. It is no wonder that the colonials were agreeable to handing over all the telephony assets to the federal government; the pre-federation colonies couldn’t afford the infrastructure to connect so few phones!…. 😛
@Donald Oats
Damn! Correction to second paragraph, first line:
“Just after federation there were 33,000 phones…”
Donald – the first exchange in 1880 had 23 lines in the first year. Seven years later it had 887. That is an annual growth rate of 58%. That is reasonably frenetic.
From 23 to 33000 in 20 years is an annual growth rate of 44% per annum for the industry as a whole. Still a cracking pace. To be accurate state governments had entered the market by 1887 so not all growth from 1887 to 1901 was by the private sector. In fact the government sector was using it’s power to squeeze out private operators.
And in 1901 the population was only 3.8 million so already the service, still a luxury service to be sure, had a penetration of 1 line per 115 people. I think that is impressive for a new technology. Even if you didn’t have one in your own home you probably knew of people that had the service and may even have access to the device. Edmund Barton had one in his home and one at his office.
To reiterate my point, there was no threshold effect that held back the private sector. They got on with the job of providing telephone services to consumers within four years of the device being invented. Within three years of news of the device arriving in Australia. At a time when the superintendent of the government run telegraph service (Edward Cracknell) descibing the telephone as a mere “Yankee toy” the private sector was up and running.