This is a job for the Freedom Commissioner

The Minerals Council of Australia has just published a report it commissioned from Sinclair Davidson of the Institute of Public Affairs, responding to campaigns to encourage divestment from coal. What’s most interesting is the suggestion that Corporations Act and the anti-boycott provisions of the Trade Practices Act could be employed to silence critics of the coal industry. The relevant section, from the conclusion

Finally, the campaign may contravene the letter or the spirit of the Corporations Act. While activists argue that wealth portfolios without fossil fuel stocks perform just as well as those with fossil fuel stocks, the reality is that failing to hold a well-diversified portfolio has substantial economic costs in the form of higher risk and lower returns. So if investors make valuation errors based on the divestment campaign and relinquish high-performing stocks, a breach of the Corporations Act may have occurred.

There is a potential role for the Australian Securities and Investment Commission to examine whether the stigmatisation of the fossil fuel sector via the divestment campaign is a breach of the [Corporations Act].

The divestment campaign would amount to an unlawful secondary boycott if environmental activists were covered by those [anti-boycott] laws. They are seeking to restrict coal mining in Australia by targeting a critical supplier to the sector.

There are quite a few points of interest here. The most obvious is the threat to freedom of speech, something that ought to be of interest to Freedom Commissioner Tim Wilson, formerly of the IPA. In this context, it’s worth noting that campaigners against wind farms (notably including the IPA) would be potentially subject to the same kinds of penalties.

More generally, there’s the question of the anti-boycott provisions and the Trade Practices ACT in general. These provisions involve fairly substantial infringements on freedom, primarily for the benefit of business. The law originally focused mainly on protecting small businesses against a variety of anti-competitive practices of big firms. That sounds good, but there’s an equally good case to be made that the market should be left to sort itself out in such matters, or replaced by public provision when it can’t. The extension of Trade Practices Law to cover unions (under the Fraser government’s Section 45D) and public services (under National Competition Policy) makes the Trade Practices Act one of the central legal instruments for the imposition of market liberalism.

Note: Again, no personal attacks, please. There’s more than enough to criticise in the substance of this piece.

35 thoughts on “This is a job for the Freedom Commissioner

  1. Davidson’a legal argument about the Corporations Act is pure chutzpah. He has no legal qualifications and is guessing about the way courts would apply the act. To prove a criminal offence, the prosecution has to show that the accused are (1) deliberately of recklessly (mens rea) spreading information to investors that is (2) false or materially misleading (falsity). These are stiff tests. Davidson’s view that a balanced portfolio including fossil assets is best is only his expert opinion, not a fact.

    The whole mutual fund industry is based on stock picking, the almost certainly fallacious view that investment experts can do better than a diversified index fund run by a simple algorithm; are these fund managers criminals? It’s certainly arguable that fossil fuel companies are bad bets for long-term investors like universities, churches and pension funds. McKibben and friends honestly believe this. I’m inclined to agree with them. If I wrote to my old college urging divestment on financial as well as ethical grounds, I would not be trying to mislead the bursar.

    Davidson’s argument also assumes that investors are intermediaries with a fiduciary duty to maximise returns. Principals are free to divest on ethical grounds, and damn the yield. Some corporate bodies like churches are expected to apply an ethical screen rather than maximise returns. It’s plausible that the same holds for Harvard ($32 bn) – a charitable, tax-privileged foundation – and the Norwegian state rainy day fund ($700 bn), which is accountable to Norwegian electors.

  2. The people with the real case to answer are the climate criminals who lie about and deny the dangers of fossil fuel emissions. When environmental and climate disasters increase further (the deterioration of climate has already begun) let us hope that class actions are begun against the large, recalcitrant fossil fuel corporations and that these actions are successful and bankrupt them.

  3. Liberal MPs both federal and state have backed ‘economic sabotage’ laws for opponents of old growth logging
    Saying unkind words against an unsustainable industry would get you thrown in the slammer.

    The coal industry painted themselves into a corner when they predicted carbon capture and storage would be a goer. Perhaps they’d rather forget that as it acknowledged CO2 as a pollutant. When carbon constraints go they still have every advantage since already built coal power stations make the cheapest electricity. Enjoy it while it lasts.

  4. Perfect. This theory is called the Squeal Test.

    It’s the best evidence yet, that the divestment campaign is working.

  5. The “letter or the spirit of the Corporations Act..”

    Whatever that may be. Most product sold by entities complying with Corp Act have risks and conditions specified in the required Product Disclosure Statement. So for a breach of said Act to occur there first has to be a breach of the PDS. Most people flick through the PDS and skip the bad bits until it all turns nasty.

  6. “Hoist by their own petard”, perhaps? (striving for a non-football metaphor here)

  7. @James Wimberley

    Quite right, Davidson has no legal qualifications and is therefore unable to make any significant comment on the law. At least I would have thought he would have supplied some legal reference in support of his thought bubble.

    For a more expert opinion this was put to the Howard GovtIncluding some informed discussion regarding directors fiduciary responsibilities towards investment returns.

  8. From the above doc it seems quite easy for boards to include social or environmental charter into companies constitution.

  9. “The extension of Trade Practices Law to cover unions (under the Fraser government’s Section 45D) and public services (under National Competition Policy) makes the Trade Practices Act one of the central legal instruments for the imposition of market liberalism.”

    The Trade Practices Act (now Competition and Consumer Protection) 2010 contains Section 45DD which explicitly allows boycotts on environmental grounds.

    It may be S.D.’s attempt to give his paymasters an idea as to what changes in law would be required because he writes conditionally: “The divestment campaign would amount to an unlawful secondary boycott if environmental activists were covered by those [anti-boycott] laws. They are seeking to restrict coal mining in Australia by targeting a critical supplier to the sector.”

    Pursuing a lobbying campaign to convert the “if” to an “is” then, as you, JQ, note, there would be an immediate conflict with the anti-wind turbine “activists”.

    Any ‘error in valuation’ could at most be relevant for agents, who make investment decisions on behalf of others in an institutional environment where only monetary returns count (ie Finance).. Investment decisions by individuals are governed by their preferences (a primitive in G.E. theory); “freedom of choice”. (A similar point has been made by James Wimberley @3 above.) But in an institutional environment guided by a conceptual framework where individuals’ preferences and natural resources are taken as the unquestioned relevant notions (axioms), ‘errors in valuation’ by agents are known as ‘the agency problem’. Agents act in accordance with their own preferences instead of the preferences of their principals. (GFC provided plenty of examples, ComBank at present).

    John, I find it impossible to comment without any reference to the author in question; it is all too far out of mainstream, including G.E. theory, with or without financial markets, complete, incomplete, partially segmented, perfectly competitive or otherwise. Surely this body of literature cannot but be relevant for discussions on ‘market liberalism’.

    IMHO, S.D is promoting corporatism or economic rationalism or some other ‘isms’ (IPAism?) that are inconsistent with the primitives in the theoretical framework often associated with market economics.

  10. Also this from the AFR

    Buckley says fund managers for a long time resisted the idea of cutting coal from their portfolios, saying they did not have a mandate to do so and needed to earn the maximum return.

    “But what I think Martijn Wilder from Baker & McKenzie has made very clear in his paper about fiduciary duties, you actually have a fiduciary duty to invest sensibly for the long term,” he says. “That is your number one criteria. The number one criteria is not to maximise returns this week, this month, next month. It is actually to maximise the sustainable returns for the long term.”

    Professor of Commercial Law at Melbourne Law School Ian Ramsay says the Minerals Council would face very high thresholds in proving whether any anti-coal activists had ­broken the law. To do so, he said, it would have to prove the statements by environmentalists were materially false and misleading.

    “You also need to prove that the ­environmentalists who made the statements or disseminate them don’t care whether the statements are true or false or that they know or ought reasonably to know the statements are materially false or misleading,” Ramsay says.

    “Again, it may not be easy to prove this. And a third requirement is that the statements are likely to induce someone to buy or sell financial products, or else the statements have the effect of reducing the price for trading in financial products on a financial market.”

  11. Right wingers do like to push their interests by running scare campaigns and this is what the hue and cry over some “breach of Corporations Act” amounts to.

    As rog noted – an action would need to demonstrate “false and misleading” and probably would need to show an ulterior motivation.

    The risk of such action would be sparking off a legal saga compared to the MacDonalds Case in the UK some years back.

    So just take this as another example of the tactics of right wing capitalists as they try to use various provisions to force their economics onto the rest of humanity irrespective of the harm it does to civilisation in the long run.

    Laughter is the best medicine.

  12. i’m probly being an idiot


    are they trying to say i’m not allowed to not buy their shares?

  13. Wasn’t Davidson behind an attempt to get a ban on products marketed as fair trade? Never had the slightest chance of getting up, but had the potential to force Oxfam (where the products were bought) to spend money that would otherwise have gone into poverty elimination. I imagine this is the same thing – if you can make the Minerals Council and environmental groups each spend millions fighting something in court then the Minerals Council comes out ahead.

  14. Surely we can see whether there is any substance to Davidson’s assertions by assessing actual portfolios (e.g. those of big LICs) by including and excluding their coal investments and comparing them to a. random portfolios with and without coal and b. the All Ords or other appropriate indexes? Empirical results trump assertion almost every time.

  15. Interesting how the so called libertarians so easily become spruikers for restrictions in the face of vested interests and pay cheques. Freedom of expression apparently is sacrosanct except when advocating for renewable energy over coal, or public policy changes to reduce tobacco, or action against racism, or …(insert socially progressive idea here)…

    I love how the tribal right are indignant if you call them on inconsistency but then they go ahead and provide ample evidence to support the criticisms leveled against them.

  16. Without contradicting anything above one might also observe that campaigns to divest in assets or place constraints on credit to certain classes of asset fall under, from the point of view of equity holders, political risk. People are entitled to campaign for the management of financial institutions to prefer one class of assets to another, and the fact that political risk may attach to one of them is something that ought to be considered, even if the board of a public company is pursuing the duty one has to maximise returns to equity holders.

    Providing the equity holders are kept fully informed in a timely way of management strategies bearing upon the value and returns and risks associated with the assets of a particular enterprise, they have no basis for complaint against boards.

    Recently, Tim Cook, CEO of Apple, facing a complaint from some shareholders of the climate denier persuasion about Apple’s policies of supporting clean energy, and their view that this was sub-optimal, responded that those who felt that this way ought to sell their shares as soon as possible.

  17. From the “Executive summary/key points” of the Davidson report:
    “Importantly the divestment campaign assumes that investors do not understand the risk of the investments that they undertake. As such they are incapable of pricing the risk within their portfolios.”

    Here Davidson is condescending toward the logic of divesting investors. He neglects to include social and environmental capital considerations for “pricing the risk within their portfolios”.

  18. Barnaby Joice was on the radio talking of his plan to stiffen penalties for breaches of private property by animal welfare activists ;- who are gathering (free of charge ) information in the hope of improving efficiency in the free market for animal products by helping consumers make informed choices.

  19. @rog
    Thanks rog for the reference. It confirms that Davidson doesn’t know what he is talking about. The report also discussed stock options (which dilute the equity of shareholders) and political and philanthropic donations, which a narrow Gradgrind fiduciary doctrine would exclude.

  20. rog and James Wimberley, I am a little lost now.

    According to the quote from Sinclair Davidson’s executive summary, Davidson does not say the divestment campaign is unlawful with respect to the Trade Practices (now Competition and Consumer Protection) Act, 2010. He says the divestment campaing would be unlawful if environmental activists were covered by those [anti-boycott laws.. To quote:

    “The divestment campaign would amount to an unlawful secondary boycott if environmental activists were covered by those [anti-boycott] laws. They are seeking to restrict coal mining in Australia by targeting a critical supplier to the sector.”

    Professor Ian Ramsay, Uni Melbourne, talks about the Mineral Council.

  21. @Ernestine Gross To prove that the divestment campaign was a breach of section 45D of the Competition Consumer Act the coal industry would have to prove that the campaign has caused a substantial loss or damage and they would have to be able to separate the effects of the campaign from other factors.

  22. Statements of the form ‘X would be unlawful if it were covered by a law against it’ are always true, by definition. This is so obvious that anybody who goes to the trouble of making such a statement must have an ulterior motive. In this case the ulterior motive is obviously to insinuate that there should be a law against it while trying to evade any appearance of incurring the onus of explaining why there should be a law against it.

    I find it helpful to be able to detect and understand weaselly tactics like that.

  23. On this matter Minister Billson noted

    you can of course run a direct information scheme, but not a campaign that threatens a business with loss or harm, so it depends on the conduct itself

  24. @J-D

    Well done. It is a very important service that you do to point out that this is most rational explanation of the motivation that leads to this self-serving cognitive style. These weaselly tactics could be quite opaque to the person who is presenting them – they could be – so lets not be too cruel to those less able than ourselves.

    I was wondering, just last night, if this strange behaviour – strange that is, if it was emanating from a rational and intelligent person – is evidence for the idea that these people have descended into cultism, and then this morning I saw this:

    “There have been some notable cults in Papua New Guinea and now one has emerged much further south.

    It’s called the Carbon Tax Repeal Cargo Cult and it has the natives of Parliament House not just restless, but shouting and whooping.

    There were signs the cult was emerging last week as Tony Abbott started talking about all the good things that would come if Labor’s toxic carbon tax was axed.

    The cult gained momentum on Monday when legislation to repeal the tax was introduced, for the second time.

    On Tuesday morning the government cultists had some preliminary skirmishes with their Labor and Green enemies over how the first stage of the ritual should be conducted.”

    There is a bit more at “The New Daily” from Don Woolford.

  25. Also, it’s worth considering how the divestment campaign can constitute a breach of the CCA

    The object of this Act is to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection

    Choice argue that section 45D on secondary boycotts limits rights to free speech and therefore does not protect consumers rights to freely express their opinion. They reference the Chris Berg doc “Freedom of speech means freedom to boycott”.

  26. @J-D

    “Statements of the form ‘X would be unlawful if it were covered by a law against it’ are always true, by definition”


    “This is so obvious that anybody who goes to the trouble of making such a statement must have an ulterior motive. In this case the ulterior motive is obviously to insinuate that there should be a law against it while trying to evade any appearance of incurring the onus of explaining why there should be a law against it.”

    It is one possibility. See my comment @ 11 above: “It may be S.D.’s attempt to give his paymasters an idea as to what changes in law would be required because he writes conditionally…” Another possibility is that S.D. wishes to draw attention to the current Act. (referenced @11). Another possibility is that he does not know or does not wish to use theoretical knowledge about ‘competitive private ownership economies’.

    Prof Q. went straight for the jugular regarding changing the law (conflict with Mrs Newman’s anti-wind turbine campaign – very awkward regarding advisers!)

    It is really the last possibility I mentioned above which irks me. According to his own report to the Mineral Council, Sinclair Davidson is “Professor of Economics, Finance and Marketing”. It is the reputation of economists I am interested in rather than his knowledge of law.

  27. @Ernestine Gross

    You are justified in suggesting that I should not have been so categorical about the motive, although the other possibilities you suggest do not exclude the one I indicated (or each other): there may be more than one motive.

    The insinuation that there is something wrong with the position of environmental activists without accepting the onus of making a case for that conclusion may not have been the only motive; it may not have been a motive at all. But it is an effect, whether it was intended or not.

    Once the effect has been noticed, it’s possible to go on and say ‘Maybe it’s true that environmental activists are seeking to restrict coal-mining in Australia; the assertion is made as if there would be something wrong in their doing that; but is there? would there be anything wrong in environmental activists seeking to restrict coal-mining in Australia?’ The way the section quoted from the report is written, it tends to lead away from direct confrontation with this question; but if the subject is going to be raised, then that question should be directly confronted.

  28. The idea of a cargo cult was mentioned above. Modern orthodox (neoclassical) economics is very much a cargo cult. It effectively posits that goods and services can be produced without any consideration of material and energetic input requirements and without any consideration of wastes and environmental degradation. It posits that wealth comes from an economic system which is free-standing from dependence on any other system. In other words, it holds that the economic system is independent of the biosphere and independent of the laws of thermodynamics.

    It achieves this by false accounting at the most basic level. The destruction of natural capital like forests, soils, wild fisheries, the climate system and all the bio-services and waste absorption services provided by the environment are not counted thus their destruction is not accounted for. Drawing down on natural capital faster that it can self-repair and re-accumulate is really exactly the same as drawing down on a bank account faster than earnings replenish it.

    If the account started out very large (as indeed our natural capital was before the industrial revolution), it can take a long time to draw down the capital. However, if outgoings are growing exponentially, the process rapidly esacalates and “hits the wall”. For example, if world economic growth is 5% that is a doubling of the economy every 14 years. If the economy reached 50% of the biocapacity of the earth to sustain it in 2000, then in 2014 it reaches 100% of the sustaining biocapacity. Various estimates actually place our economy currently at about 150% of the earth’s capacity to sustain it. This means we are in overshoot mode and rapidly drawing down on (destroying) our natural capital. Overshoot presages collapse.

    There’s an old saw: “Processes that can’t continue indefinitely, don’t.”

    There are any number of unsustainable processes going on now in the money economy and these reflect the pressure from unsustainable processes in the interaction of the real economy with real (& declining) resources. One example is the decline of real wages relative to prices. Of course, this cannot go on indefinitely at the financial level or the average wage(s) will not sustain the average household. The great pressure to institute such unsustainable trends comes from the neocon push to increase inequity (more money going to profits and less to wages) but it also comes now from real world resource depletion pressure.

    Costs of raw materials are escalating. The more or less permanent change from oil at $25 or $30 a barrel to over $100 a barrel is an example of this. Mineral prices will follow as highly concentrated ore bodies are mined out and miners resort to much lower quality ore bodies. Indeed, with regard to the procurement of energy and minerals, a point will be reached where the cost of energy input to obtain output becomes prohibitive in both energetic and financial terms, at least in our current conventional economy.

    The above will remain the case unless we can switch to a ubiquitous resource economy. Ubiquitous resources are those everywhere in the biosphere in free state or useable state. Examples of some ubiquitous resources (counting both energy and materials) are sunlight, wind, tide, water*, silicon, carbon (organic or not), sodium chloride, calcium carbonate, rocks (in general) and maybe iron.

    An economy running on ubiquitous resources would use solar power, wind power, tidal power, carbon fibre construction and epoxies. Iron might be abundent enough for continued steel use. We probably will have to develop carbon nano-enineered replacements for rare earths and conductive metals, if this is possible, to run an electrical economy (which form of power is our only hope).

    * Note: Fresh water is unevenly distributed and is running out. “Fossil water”, that is water in aquifers, is running out rapidly and our rivers and lakes are drying up from over-use. A country like Australia could implement, if necessary, solar and wind powered desalinators at many sites on the coast where hinterland water fails or is needed in the hinterland itself.

  29. @J-D

    I wasn’t trying to suggest you should have phrased your argument differently nor am I not aware of the potential media management strategy (long hand for spin). I’d like to challenge Sinclair Davidson on his notion of ‘free markets’ and Economics. Unfortunately, he hasn’t entered the discussion on JQ’s blog.

    Note, in his executive summary he talks about the “sophisticated argument” presented by the alleged campaigners. This is where I suspect he falls down.

    I’ve learned over time there are many aspects to any ‘campaign’ from any direction. I just try to contribute from the perspective of my area. If Sinclair Davidson writes a report as a private individual with specific beliefs, then I’ll shut up – its free speech only.

  30. Ikonoclast, we’ve had a protracted argument about ‘neoclassical economics’. This term means different things to different people and, more importantly, there is an overlap between some ‘stuff’ in neoclassical economics and models which take the finiteness of natural resource very seriously (axiom). There is also some ‘stuff’ in neoclassical economics which is useful in real life (eg various elasticity measures). It seems to me the term ‘neocons’ would be quite sufficient to label the dogma you are arguing against, and rightly so, IMHO.

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