From the desk of Nick Ford

"Hollande’s plan to tackle soaring French unemployment by swelling the size of the public service is..."

Thu, 09 Feb 2012 21:08:00 +1100

“Hollande’s plan to tackle soaring French unemployment by swelling the size of the public service is anathema to the thrifty chancellor, who is keen to see eurozone governments cut their spending. […] But even more worrying for Merkel is Hollande’s pledge to renegotiate her precious, prized treaty that will force all eurozone countries to follow a rigid budgetary discipline.”

- Karen Maley, Business Spectator

It’s an election year for France, and that’s proving to be bad news for Germany’s chancellor Angela Merkel. Her current counterpart in the Élysée Palace, Nicolas Sarkozy, is largely in lock-step with the Germans. But Sarkozy is facing an uphill battle for re-election. He will likely be succeeded later this year by the socialist candidate, François Hollande. And Hollande is far less receptive than Sarkozy to the German push to reform Europe.

Of particular concern, as Karen Maley notes, is that Hollande will seek to renegotiate a new Eurozone fiscal pact — agreed only last month — that would, among other things, bind governments in the single currency union to budget deficit caps. Hollande wants to water down the treaty, which would essentially render it useless in promoting the kind of fiscal restraint that Berlin is seeking.

Unsurprisingly then, Merkel is hoping for a Sarkozy win. Indeed, she is effectively campaigning for her man in Paris. But with Hollande in such a commanding position in the polls, the risk is that Merkel will simply end up poisoning the future Franco-German relationship.

Have I got a Proposition for you

Thu, 09 Feb 2012 20:54:00 +1100

Have I got a Proposition for you:

This week, California’s gays and lesbians had reason to celebrate. An appeals court upheld an earlier ruling that a controversial measure to ban same-sex marriage in the state was unconstitutional. The measure, ‘Proposition 8’, was a citizens-initiated referenda that passed in 2008. Religious and conservative groups had championed the measure as a means to overturn a ruling from the state’s Supreme Court that had opened the door to gay marriage in California less than a year earlier.

As legal scholar Noah Feldman writes, not all is good news for advocates of same-sex marriage. The appeals court’s ruling is narrowly defined: it doesn’t establish a right to gay marriage. Rather, it ruled Proposition 8 unconstitutional strictly on the basis that it took away from gays and lesbians what had previously (though only briefly) been an equal right to marriage. Hence, if the matter is appealed again to the federal Supreme Court, the justices there will not be asked to judge whether gay marriage is itself a constitutional right, but solely whether Proposition 8 introduced discrimination on the basis of sexual-orientation to something where an equal right had already been created.

Then again, there are no guarantees this matter will end up in the US Supreme Court. The Californian government was not a party to the appeal — the groups that brought the action may not be recognised by the Court. But in an election year, some conservative justices may be chomping at the bit to hear the case anyway.

Rates on hold, future uncertain

Wed, 08 Feb 2012 21:16:00 +1100

Rates on hold, future uncertain:

Yesterday’s decision by the Reserve Bank of Australia to leave the cash rate unchanged apparently stunned many market watchers. In a survey undertaken by business news agency Bloomberg, 24 out of 27 macroeconomists reckoned the RBA would cut rates by 25 basis points. Why were so many ‘informed’ analysts left with egg on their face?

As Alan Kohler writes, a pure analysis based on the core economic indicators would suggest the RBA’s call was inevitable. Inflation is moderate (the key target for the central bank), unemployment is low, and Australia’s economy is growing. But Kohler also notes that there are serious concerns about the economic health of the retail and manufacturing sectors, which loom large on the east coast. And storm clouds from overseas — both Europe and the United States — still linger on the horizon.

In the mean time, the RBA’s decision will likely mean overseas investors continue to park their capital in Australia. Indeed, in the immediate wake of the RBA’s non-decision, the Australian dollar shot up against major currencies — it’s now worth 1.08 US dollars. Perhaps to the chagrin of exporters and domestic import-competing industries, the Aussie’s strength continues to provide a moderating influence on inflation — making future rate cuts even less likely. But that’s no guarantee: most analysts still expect the cash rate to go down in the near term. Then again, they thought the same about yesterday.

The challenges of airline mergers

Tue, 07 Feb 2012 18:19:00 +1100

The challenges of airline mergers:

Corporate mergers can be complex affairs even when the businesses involved are small in scale. Different firms have different internal practices, and harmonising these can be uncomfortable for workers and consumers alike. Different pay and conditions for the two workforces will take time to streamline. Technical systems can be incompatible, requiring wholesale changes in how data and information are generated, stored and accessed. And beyond these tangible aspects, the cultural aspects of bringing together two different groups of people who may have different values and priorities are seldom easy to overcome. The stakes become greater still when the entities involved are subject to heavy regulation.

Aviation mergers take these challenges to a whole new scale, as this profile piece by Bloomberg Businessweek demonstrates. United and Continental Airlines announced their merger back in 2010. And the process of bringing together the two behemoths of America’s skies is still far from complete. The airlines still essentially operate as two separate divisions. Much progress has been made: there is now one flight control system for both the legacy United and Continental fleets. And by March, it is expected that customers will finally be processed through a single passenger management system. Those flying with the airline will surely be hoping that the March switch-over goes as smoothly as last year’s flight control merger.

It hasn’t always been this easy. The first evidence of the merger for passengers came when the merged entity (also called United) picked one brand of coffee for its two airlines. After an exhaustive, bureaucratic decision-making process over several months — involving various layers of management — the near-universally agreed choice ended up proving a disaster, when passengers served coffee on legacy United’s fleet found their caffeinated brew was watery. Why? Because the equipment on the old United planes differed from those on the old Continental planes. Oops.

"Is the Labor leadership issue a bizarre beat-up entirely confected by the news media? Certainly not...."

Tue, 07 Feb 2012 17:46:00 +1100

“Is the Labor leadership issue a bizarre beat-up entirely confected by the news media? Certainly not. Is it an unstable and shifting situation, which may lead to a challenge, and which is notoriously difficult to report? Absolutely.”

- Lenore Taylor, Sydney Morning Herald

In response to claims that the media is whipping up a frenzy over the Labor party’s leadership, some journalists have raised their heads above the parapet to defend their profession. Lenore Taylor of the Sydney Morning Herald is one, insisting that the seemingly basis speculation in fact reflects an inherently complex, fast-moving political situation. While Kevin Rudd doesn’t have the numbers for a challenge, Julia Gillard also can’t count on having a solid base of support either. There is a large bloc of potentially swinging MPs who are willing to consider alternatives — whether it is Rudd or somebody else.

Still, there’s something wrong with this picture. Taylor asserts that the rapid change in momentum in 2010, from Rudd to Gillard, made a coup inevitable. But momentum doesn’t exist in a vacuum. It is fuelled by media coverage. That is precisely the intent of the Rudd camp — to use the media to create the appearance that Gillard is toast, and that Rudd in turn is the only viable option to succeed her. For journalists, there should be a difference between objectively reporting facts and allowing yourself to be a central tool that drives the story. Much of the recent coverage seems to be far closer to the latter than the former.

The unnamed sources briefing journalists may be senior, well-informed and largely reliable. It doesn’t mean they’re not playing the media for fools though.

"While there is a recognition that it is important for Greek politicians to be seen by voters to be..."

Mon, 06 Feb 2012 20:20:44 +1100

“While there is a recognition that it is important for Greek politicians to be seen by voters to be putting up a fight, there is a growing fear that all the political grandstanding could backfire, and plunge the country into bankruptcy.”

- Karen Maley, Business Spectator

The job of Greece’s prime minister, Lucas Papademos, is not a fun one. As a technocratic appointment, he has no political backing. Hence, passage of legislation requires the parties represented in the Greek parliament to agree with his proposals. Of course, if they were political winners, they’d probably fly through. But there is nothing palatable about the measures being imposed on Greece is exchange for ongoing financial assistance.

The current sticking point is enforcing cuts to wages — a strategy of internal devaluation to boost Greece’s competitiveness. Antonis Samaras, leader of the centre-right New Democracy party, has complained that the country’s creditors are ‘asking for more recession than the country can take’. If the leaders fail to agree, then there is a real prospect that further bailouts will be halted. That would almost certainly prompt a total Greek default by March.

The problem, as Business Spectator’s Karen Maley reports, is that Greece has consistently over-promised and under-delivered since it was first sucked into the current debt crisis. Greece has frequently failed to meet agreed deadlines, and targets for a variety of measures have slipped away. Even if the latest impasse is resolved, there will surely be another one soon enough. How long before the inevitable strikes, and Greece is rendered broke by its squabbling politicians?

Speculation falls short of facts

Mon, 06 Feb 2012 19:56:44 +1100

Speculation falls short of facts:

When I tuned into the ABC’s ‘Insiders’ programme on Sunday morning, I’m quite sure I could have been watching a replay of virtually any edition from last year. The dominant topic of conversation for the nation’s political journalists is leadership — specifically, the leadership of the governing Labor party. Report after report after report has told us that Prime Minister Julia Gillard’s position is terminal; that members of her party are agitating for a change of leaders; and that her predecessor, Kevin Rudd, is set to back a stunning comeback.

It would be nice if there were even a skerrick of evidence that any of this is true.

But as Ben Eltham writes, while there are myriad articles and commentaries on the topic, no one has gone on the record to say that leadership change is imminent. True, you can’t take a politician at their word at the best of times — by the time they publicly admit that a change of leader is being considered, the said leader is already lying on the floor in a pool of blood. However, after nearly a year of speculation about Gillard’s prospects from unnamed sources, Eltham argues that there’s surely a point at which journalists should question the merit of continuing to publish the same stories without any proof of their validity. Fiction can often be more interesting than facts — but that’s no grounds for the media to substitute the former for the latter.

"Berlin is as much a problem as Athens. The two countries are two sides of the same euro coin."

Thu, 02 Feb 2012 20:11:14 +1100

“Berlin is as much a problem as Athens. The two countries are two sides of the same euro coin.”

- Oliver Marc Hartwich, Centre for Independent Studies

There has been much commentary about why German chancellor Angela Merkel is wrong in her dogged determination to impose austerity measures across Europe. And Oliver Marc Hartwich has another column in Business Spectator today expressing much the same sentiment. Seemingly nothing new to see here.

However, there is new insight in Hartwich’s article, as he examines why Germany seems so incapable of listening to the widely available analysis. And perversely, it’s because it might be in their interests to keep the likes of Greece and others in Europe’s ‘periphery’ dependent on Germany. The alternative is to allow the rest of Europe to become more competitive, thereby bolstering their own economies. That sounds good, but from the German perspective, it weakens their relative advantage. Of course, the collapse of the Eurozone would be no picnic either — so the Germans want to avoid that outcome too. But there is a difference between averting armageddon and promoting prosperity. While there is a gulf between the two linguistically, the distinction in policy terms amounts to a very fine line. Europe’s future depends on how well Merkel sticks on her chosen side of that line.

The tent embassy revisited

Thu, 02 Feb 2012 20:04:44 +1100

The tent embassy revisited:

The most recent Australia Day offered a reminder of how contentious some issues are in Australian politics. When opposition leader Tony Abbott responded to a question about the Aboriginal tent embassy in Canberra by suggesting that it might be ‘time to move on’, it unleashed a robust response just hours later at a glass-walled restaurant within spitting distance of the Indigenous protest site that was marking its 40th anniversary that day. As is now well established, Abbott’s comments were only considered offensive by the protesters because they were misinterpreted — those at the tent embassy had been whipped up in a frenzy at suggestions (perhaps by an insider from the prime minister’s office, or a related party to them) that Abbott had called for the tent embassy to be shut down.

Still, even as the facts have become clearer, some still reckon the reaction from the tent embassy’s defenders was justified. In a rather jumbled diatribe produced for The Age, researcher Russell Marks criticises Abbott for daring to offer an opinion on the merits of persisting with the tent embassy. On different occasions, Marks acknowledges that Abbott’s remarks were ‘factually accurate’ and ‘technically correct’. But apparently being right isn’t a justification for answering a question at a press conference. (Never mind the fact that if Abbott had declined to answer the question, it might well have provoked much doubt and more damaging commentary about Abbott’s intentions.)

Particularly offensive is the underlying argument that somehow it’s somehow ‘racist’ for Abbott to even express a view on indigenous political affairs (as represented by the tent embassy). First of all, as a political figure himself, Abbott is probably able to form an impression about whether a particular strategy is working well or not. It is deeply regrettable that indigenous disadvantage remains such a serious issue today — but the fact it persists 40 years after the tent embassy was erected suggests that there might be more productive approaches that would be worth considering. Second, it implies precisely the kind of divisive sentiment — an ‘us and them’ approach — that Marks himself seeks to condemn.

For a European future, just add German consumers

Wed, 01 Feb 2012 21:02:03 +1100

For a European future, just add German consumers:

Europe’s leaders might be relieved that the European Central Bank has stepped in to try and fix up the mess that national governments have created. Refinancing operations launched by the ECB in December have successfully reduced the interest rates owed on the debts of some embattled governments relative to the mighty German bund. But just because the arteries of Europe’s financial system are no longer quite as clogged does not mean that the patient has been healed. Make no mistake, Europe still faces a massive crisis.

Despite some evidence that policymakers recognise the need for pro-growth measures (such as structural reforms), Europe’s recovery prospects are being hamstrung by an ill-targeted focus on austerity. Yes, massive budget deficits need to be pared back over time. As Martin Wolf writes, key to this story are the economic imbalances within the Eurozone. Germany is warranted in resisting efforts to convert the Eurozone into some kind of transfer union, where prudent Germans are forever left to backstop profligacy elsewhere. But as if to make an example of the merits of austerity, Germany too is cutting its relatively modest budget deficit, when there is absolutely no need for it to do so. In fact, its consumers should be spending more — not less — to help boost intra-European trade. German belt-tightening is entirely counterproductive, and prevents the necessary rebalancing between the competitive (Germany, the Netherlands) and the uncompetitive (Spain, Italy).

Citing arguments by Christine Lagarde, the head of the International Monetary Fund, Wolf contends that Europe’s austerity drive should not be an across-the-board proposition. Rather, the adjustment process must be facilitated by a selective approach to fiscal policy. If the German government doesn’t want to hand over bucketloads of money to other European governments, then cutting spending at home is the opposite of what is needed. Instead, it should give more money (in one way or another) to its own people so that they can in turn spend it on goods and services, many of which will come from elsewhere in the region. A bubbly German economy is necessary to boost optimism in the Eurozone, and help lift its debt-ridden neighbours out of their malaise.

"Maybe second only to Greece, Spain is Europe’s most notorious instance of a broken labour market. In..."

Wed, 01 Feb 2012 20:57:50 +1100

“Maybe second only to Greece, Spain is Europe’s most notorious instance of a broken labour market. In Spain, as in many other failing EU countries, “structural reform” means “labour-market reform” — and “labour-market reform” is a euphemism for confronting the unions.”

- Clive Crook, Bloomberg View

Virtually anywhere in the world industrial relations is a contentious issue. Employees want long-term certainty about employment and wages so that they can confidently plan and live their lives. Employers seek flexibility in how they use their workforce so that they can respond to changing business and economic conditions. Some countries do relatively well in achieving a balance. In other places, the system is woefully lopsided.

Take Spain as a contemporary example. As Clive Crook writes, its two-tiered system of ‘permanent’ and ‘temporary’ employees was a piecemeal measure designed to give wiggle room to companies. But bargaining arrangements are collective across industries and provinces — not specific to individual firms. Permanent workers, enjoying a high range of privileges, are virtually unsackable. Temporary workers, by contrast, are dropped at the first sign of trouble. Unsurprisingly then, in the midst of an economic crisis, unemployment is surging in Spain — it now exceeds 22 per cent. Most of those on the dole queue were temporary workers, who are generally younger workers too (having entered the system after labour reforms) Why would an employer choose to lock in a young worker on a permanent contract when they have potentially decades of employment ahead of them, with all the obligations attached to that? Meanwhile, companies are unable to change the legally-enforceable benefits of the permanent workforce. So, employment falls off a cliff, but wages barely budge. There are a range of other perverse effects, as Crook notes, but the fundamental problem is that inflexibility means that employers ultimately face far higher costs than many of their foreign competitors. Collectively, this limits Spain’s economic growth prospects, which also impairs its ability to respond to the debt crisis it now faces.

Hence, labour market reforms are being advocated as an important step to unlocking growth potential in Spain (as well as Greece and other sclerotic European economies). Crook notes that the battles the Spanish government now faces have been fought and won their counterparts elsewhere throughout the world. Spain has previously squibbed on serious reform, and will again face heavy union resistance to change. But as Crook also argues, the current crisis — and Spain’s unemployment rate, which dwarfs comparable statistic in other Eurozone members — also highlights just how dysfunctional the current system. This isn’t a battle between employers and employees. It’s about the fundamental inequity between (permanent) workers and the unemployed.

No time to bask in the Sunshine State

Wed, 01 Feb 2012 20:48:25 +1100

No time to bask in the Sunshine State:

Another primary down, another win chalked up for Mitt Romney. And this time by a thumping margin — some 15 percentage points ahead of his main rival for the Republican party’s presidential nomination, Newt Gingrich. But with the Florida primary behind us, the campaign enters something of a lull — apparently there won’t be another televised Republican debate for three weeks. Oh, the horror. But there’s still plenty of voting to come. Within the next couple of weeks, the number of primaries and caucuses completed will have more than doubled — Nevada, Colorado, Minnesota, Missouri and Maine will all go to the polls. But none of this is particularly exciting according to political analyst Jeff Greenfield. So, to keep himself occupied, he’s turned to the arcane rules that dictate the nomination process, culminating in the Republican convention (also to be held in Florida) in August.

The current race is particularly bitter, with Romney and Gingrich likely to continue their slugfest for months to come. Pundits expect that February will favour Romney, but that with a swag of southern states voting in March, Gingrich will score plenty of wins. Then there are the differences in what the primary or caucus results mean in each state. Some states (such as Florida) run a ‘winner takes all’ system — that is, the candidate who claims the most votes gets all the state’s delegates at the August convention. (The delegates, in turn, vote at the convention on who the party’s presidential candidate will be.) But in most states, the delegates are distributed more closely in proportion to the number of votes won by each candidate (though there are plenty of differences in how this is done). This means that lots of close contests will limit the capacity for any candidate to take a decisive lead. And at the same time, Romney’s landslide win in Florida doesn’t have any greater significance mathematically than if he’d won by a handful of votes. (That said, there will no doubt be an important psychological boost for Romney and his supporters from having ‘momentum’ on their side again.)

And then there’s the convention itself. The anti-Romney forces backing Gingrich and Rick Santorum (another conservative candidate) could yet wreak havoc at the convention. Greenfield suggests Gingrich backers might try and rewrite parts of the party platform, or force their own vice-presidential nominee. It’s worth noting that many predicted a bruising battle at the Democratic convention four years ago when a scrappy young fighter named Barack Obama rattled the party’s presumptive nominee, Hillary Clinton. But the race was well and truly over before then, and the Clinton forces graciously acquiesced. One of the leading Republicans might mount a similar retreat this time. Then again, Gingrich is not Clinton, and Romney does not inspire in the way Obama did. Better to keep the popcorn on standby.

Reform is more than whacking the rich

Tue, 31 Jan 2012 19:37:19 +1100

Reform is more than whacking the rich:

The United States is slowly but surely exiting the recession it plunged into dramatically during the global financial crisis. But recovery hasn’t stalled rolling outrage about banker bonuses, nor the worldwide ‘Occupy’ movement in its fight against corporate greed. The political dynamics don’t appear to have changed much either. Politicians are still pondering how they might close a gaping budget deficit. And it’s an election year. So President Barack Obama (a Democrat) has signalled his priority: wealthy Americans aren’t paying their ‘fair share’ of tax, and should contribute more to the federal government. And in his corner is one such wealthy American, Warren Buffet (a legendary investor also known as the ‘Oracle of Omaha’), who has decried the fact that he pays a lower share of his income in tax than his secretary does.

Republicans are horrified at this ‘class warfare’. And as Douglas Holtz-Eakin writes, aside from the political theatrics, they have a point. Holtz-Eakin (who, it should be disclosed, is a Republican-aligned economist) points to research that suggests that the average effective tax rate among millionaires is commonly around 30 per cent — the level that Obama has signalled is his target rate for the rich. It’s “a problem that doesn’t exist”. Holtz-Eakin also argues that tinkering at one particular policy setting is a waste of time when the whole system is broken. Indeed, that notion is something that both sides of the aisle can seemingly agree on — no one believes the US tax code is well designed. The problem is that Democrats and Republicans can’t agree on how the system should be reformed.

To my mind, asking wealthier Americans to pay more tax is not particularly objectionable. Where I am critical is the argument being presented by Obama — that shaking down the rich will remove any need for the rest of the country to contribute more. This is a folly. The US budget deficit is too large to be closed solely by raising the highest marginal tax rate. So long as politicians fail to grasp this point, then all the debate about America’s tax system will count for nothing.

"It is essential that European governments support the economy during a phase of private-sector..."

Mon, 30 Jan 2012 21:01:06 +1100

“It is essential that European governments support the economy during a phase of private-sector deleveraging to avoid what would otherwise lead to a deep depression.”

- Wolfgang Münchau, Financial Times

The popularity of austerity with Europe’s policymakers is plain for all to see. However, the merits of such an approach are far more questionable. Efforts to cap national budget deficits in the region have been described by Wolfgang Münchau — and apparently those he speaks to — as ‘quite mad’. Such measures as ‘pro-cyclical’ — they force governments to cut spending (or raise taxes) during downturns. This is self-defeating: if governments withdraw, then at least the short-term effect will generally be to exacerbate recession.

Greece is a contemporary example of this effect. Indeed, with every step the Greek government takes to balance its books, it finds the target moving further away — despite harsh cuts in spending, Greece has consistently failed to meet its deficit targets. And yet countries in debt-induced turmoil follow the same prescription.

Now the new Spanish government, led by Mariano Rajoy, is headed down the same path. It has committed to deficit targets of 4.4 per cent in 2012 and 3 per cent in 2013. But Rajoy is committing to public sector debt reduction at the same time as Spain’s private sector is deleveraging on a massive scale. That process has been ongoing since 2007, and has been largely offset by the government’s balance sheet swelling. Münchau regards that as warranted and sensible. By cutting debt now, the Spanish government threatens to deepen the recession the country is already facing. Such prolonged pain, in Münchau’s estimation, is a far greater threat to the Eurozone than concerns about high debt levels.

"Many Liberal MPs would, quite properly, have assumed there would be a conscience vote. …..."

Mon, 30 Jan 2012 18:13:34 +1100

“Many Liberal MPs would, quite properly, have assumed there would be a conscience vote. … Indeed, there has never been a substantive policy issue (as opposed to a procedural one) where Labor has had a conscience vote and the Liberals have not.”

- Amanda Vanstone, former Liberal MP

Last year, the Labor Party’s national platform was changed to endorse same-sex marriage. But that was only half the battle. It was announced over the weekend that a group of parents with gay sons and daughters are now launching a campaign to convince Liberal leader Tony Abbott to offer his MPs a conscience vote in the event of a private members’ bill being put up to amend the Marriage Act. One poll found that a strong majority of coalition voters wanted their MPs to be offered such a right. (Who knew there was quite so many liberals in the Liberal Party these days?) And now a prominent ex-Liberal MP has thrown her support behind the conscience vote movement.

In an op-ed for The Age, Amanda Vanstone (a minister during John Howard’s reign as prime minister) argues that Abbott risks putting many in his party — and in the wider electorate — off side. He declared that there would be no conscience vote for Liberal MPs late last year, after the parliamentary session for the year had ended, and therefore without consideration from the party room. His justification was that all Liberal MPs went to the last election on a platform to preserve the notion of marriage being between ‘one man and one woman’. But as Vanstone notes, that commitment wasn’t debated by coalition MPs either — it was Abbott’s call to begin with. The problem for Abbott then is that, as someone already identified as a devout conservative with strong Catholic values, he looks like his faith is driving policy judgements — something that leaves many Australians (who are largely secular-minded) decidedly queasy.

It is commonly noted that a conscience vote is not strictly necessary for the opposition. Unlike in the Labor Party (where the principle of unity dominates), Liberals are entitled to cross the floor without retribution. That said, frontbenchers are expected to tow the official line — were they to vote out of step with the leader’s wishes, they would also have to resign their post. Hence senior Liberals who are also philosophically liberal, like Malcolm Turnbull (the party’s communications spokesman), would be left with the unenviable position of choosing between principle and power. A conscience vote would conveniently (for them) square that circle.

Textbooks and Apples

Mon, 30 Jan 2012 18:05:24 +1100

Textbooks and Apples:

As many parents and students know, paying for new textbooks — whether for high school or university — can leave a wallet feeling decidedly lighter (or a credit card painfully overloaded). So many will have been delighted at the prospect that the cosy ‘cartel’ of textbook publishers was going to be cracked wide open by tech giant Apple. This month, Apple announced a new model for distributing textbooks via its popular iPad tablet device. Their digital books would be cheaper than the hardcopies stocking shelves, and would also allow individual schools and faculties to produce their own course material to match their syllabuses.

But hold the (i)phone, warn the editors at Bloomberg View. They note that the picture isn’t quite as rosy as Apple, and its supporters, are making out. For a start, the fixed upfront cost of buying an iPad has to be factored in — while well known, they certainly aren’t ubiquitous (even among young consumers who might be regarded as more tech-savvy). And Apple’s digital textbooks, because they are easier to produce, could render cheap second-hand textbooks obsolete more rapidly. In fact, rather than break apart the limited supply of textbooks, Apple looks to be carving out a new — and potentially lucrative — monopoly for itself. Its digital textbooks will essentially only be compatible with Apple devices (tough luck for those who are Android users), while Apple will claim a 30 per cent slice of the sales revenue from all digital textbooks sold. Given public funding of education systems, and direct subsidies for many students, the already wildly profitable Apple would be getting a decent bite at some serious tax dollars.

One way around this, as the editors propose, is to require all education institutions that receive taxpayer money to support ‘open’ digital resources. That would allow for platform-neutrality (so if you own one of Amazon’s Kindle readers, but not an iPad, you’re not going to be penalised). But it presumably would also weaken the benefits to Apple, since its capacity to make money from digital books would be reduced — you wouldn’t need to buy an iPad in the first place, but you also wouldn’t need to buy texts using its own controlled marketplace (through which it is able to take its 30 per cent cut). To a large extent, innovation in this area is virtually inevitable — as people become more accustomed to reading books on digital devices, they will surely come to expect the ability to study using those devices as well. But without profit, producers’ innovative drive will be lessened. The question here is, would insisting on a more competitive platform be better (at least from taxpayers’ perspective) than allowing Apple’s model to flourish now?

Why I'd vote no

Thu, 26 Jan 2012 12:42:00 +1100

For many, Australia Day is a day to celebrate — to catch up with friends over a barbecue (and likely more than a few beers) and watch the cricket (or the tennis, though no Australian players are left in the tournament). But for Indigenous Australians, Australia Day is a dark reminder of their history. It marks the day that white settlers colonised what was then regarded as an empty, unowned land — terra nullius. For many of Aboriginal and Torres Strait Islander heritage, this was not settlement but an invasion.

Fast forward over two centuries later, and modern day Australia remains unsure of how to promote reconciliation between Indigenous Australians and those whose descendents have come to this continent’s shores since 1788. The latest initiative, in a report released this month, is to amend the federal constitution to — among other things — officially recognise Australia’s first peoples.

Changing the wording of the constitution requires a referendum. And the track record of referenda in Australia has not been hugely successful. The most recent referendum — held in 1999, asking whether to divorce Australia from the (British) Crown and become a republic — was just the most recent of many referenda failures. Of the 44 referenda held since 1906, only 8 have passed. So from the outset, the odds of any constitutional changes succeeding in a new referendum do not look encouraging.

The precise proposal that will ultimately be taken to voters is as yet unclear. (And no date has been set for when any referendum might take place.) But the Expert Panel on Constitutional Recognition of Aboriginal and Torres Strait Islander Peoples has presented its preferred changes to the government. In summary, the proposed changes — if adopted — would:

repeal section 25, which allows state governments to disqualify people of a particular race from voting
repeal section 51, clause xxvi, which grants the federal government the right to pass laws in relation to any race
insert a new section (51A) to officially recognise Aboriginals and Torres Strait Islanders as the original occupants of Australia
insert a new section (116A) to explicitly prohibit racial discrimination
insert a new section (127A) to recognise English as the ‘national language’ of Australia, while also acknowledging that Indigenous languages were the country’s ‘original languages’.

The panel has also recommended that any vote be a single ‘yes’ or ‘no’ vote, rather than a series of votes on the individual proposals.

There is much to commend in the intent of the proposed constitutional amendments. On balance though, were a referendum to reflect the expert panel’s recommendations without alteration, I would vote no.

Why amend the constitution?

As a starting point, it is useful to understand what purpose the constitution serves. For some countries, the founding articles are taken to be something of an uplifting document that binds a nation, and defines its identity. The Australian constitution is far more modest. It is a legal document that few Australians have even bothered to read. Indeed, there is seemingly widespread misunderstanding about what the constitution covers in even broad terms. Many, for instance, would be surprised to learn that the role of prime minister — the country’s political leader — is not even mentioned in the constitution.

A rather dry, dull document, the constitution establishes the basic mechanics of government, including the separation of powers between the parliament, the executive and the judiciary; and the respective responsibilities of the federal and state governments. Even in this relatively narrow regard, the constitution has shown itself to be remarkably flexible. (Or, if you prefer, those charged with interpreting the constitution have made it incredibly malleable.) Over time, elements of the document have been interpreted so broadly that the constitution’s practical application may in parts be unrecognisable from its original intent.

There is seemingly no appetite for wholesale root-and-branch constitutional reform. Hence, in the absence of comprehensive efforts to modernise the document, the best changes are likely to be the most minimal ones (limiting the potential for unforeseen knock-on effects). Some of the changes proposed by the expert panel are in keeping with this theme — those that would remove clauses that are sources (or potential sources) of discrimination against Indigenous Australians. But others are more substantial. This is not a prima facie reason for rejecting them, but it does justify somewhat greater caution. In particular, given how the constitution has been interpreted over time, active clauses that establish new rights and obligations should be carefully assessed for any unintended consequences that may emerge in future.

Removing sources of discrimination

In my mind, the two least controversial aspects of the panel’s proposed constitutional amendments relate to the ‘race powers’ of sections 25 and 51(xxvi). As noted above, the former would allow for state governments to disqualify people of a particular race from voting. The specific consequence of section 25 is that people of a disqualified race would not be contribute to the population of that state — or, in turn, the country — for the purposes of calculating the appropriate number of parliamentarians in the federal House of Representatives.

The idea that any state government might exclude any group of people because of their background would abhor any fair Australian. For this reason, it is also something unlikely to occur in the modern age (thankfully), and therefore the consequence of repealing section 25 is limited in practical terms. On principle alone, it is a section that should probably go.

Repealing section 51(xxvi) might have somewhat greater practical effect. This clause grants the federal parliament the power to pass laws in relation to any race. An earlier referendum (one of the handful successfully passed) previously amended this clause, removing an exemption for Indigenous Australians. It should be noted that this did not mean that no laws could be passed in relation to Indigenous Australians — rather, the constitution explicitly left this responsibility to state governments.

If section 51(xxvi) were to go, it could theoretically result in various Commonwealth initiatives to combat Indigenous disadvantage falling by the wayside. But this seems unlikely.

The federal government already influences policy well outside the powers exclusively granted to it in the constitution (for example, health and education). Primarily, this is achieved through funding arrangements — handing over money to the states on the condition that they spend it in a certain way. It is improbable that state governments would voluntarily forgo the funding attached to federal Indigenous programs.

But to mitigate the potential for any friction between federal and state governments in relation to Indigenous policy matters, the expert panel also proposed that the federal power be retained — though in a more limited form — in a new section (51A, see below).

Ending the ability of parliament to pass laws in relation to any race would of course have effects beyond Indigenous outcomes. Conceivably, any federal initiative that might address the specific circumstances of those of a particular racial background would be covered by section 51(xxvi). But removing the clause would not prevent any such initiatives from existing. Some might be protected by the constitution on other grounds (for instance, clause xxvii relating to immigration). And anything else would still be achievable through a negotiation between the federal and state governments. Moreover, it is hard to imagine that any program that is regarded as beneficial — such as those targeting disadvantage — would be challenged, let alone that any challenge would actually succeed. So, once again, repealing section 51(xxvi) seems unobjectionable.

Prohibiting racial discrimination

To reinforce the initiatives to repeal the ‘race powers’ sections discussed above, the expert panel has proposed a new constitutional provision to prohibit racial discrimination. The proposed section 116A states:

(1) The Commonwealth, a State or a Territory shall not discriminate on the grounds of race, colour or ethnic or national origin.

(2) Subsection (1) does not preclude the making of laws or measures for the purpose of overcoming disadvantage, ameliorating the effects of past discrimination, or protecting the cultures, languages or heritage of any group.

In principle, I am in favour of prohibiting discrimination, and have no objection to such a prohibition being expressed in the constitution. But this particular proposal raises two concerns for me.

First, racial discrimination is just one form of discrimination. Including a prohibition of racial discrimination in the constitution implies that other forms of discrimination are less significant. That seems hard to justify. Gender-based discrimination (historically against women), for instance, has the potential to affect half the country. We have legislation to protect women against such discrimination, just as we currently do to prevent discrimination on the basis of race. On what basis should the Racial Discrimination Act be regarded as insufficient?

On the other hand, religious freedoms are already enshrined in the constitution — while other ‘rights’ are not. The fact that some gaps may persists is not necessarily a reason to stop attempts to fill particular voids. Ultimately, this is a broader issue of whether Australia requires a ‘bill of rights’, along the lines of the US Constitution — a matter well beyond the remit of the expert panel in this case.

The second concern is that the effect of subsection (1) would seem to be undermined by subsection (2). The intent, quite reasonably, is to ensure that efforts to address the hardships experienced by specific racial groups are not barred by the constitution. Except that any government action could surely be packaged in such a way to meet subsection (2), even if in reality it was a deliberate attempt to discriminate against a racial group. It would simply be a question of defining the ‘purpose’ of a law or measure. The consequence is that many initiatives would be the subject of legal challenges. (The federal ‘intervention’ in the Northern Territory’s Indigenous communities would surely be a prime candidate.) Rather than clarify the rights of different racial groups, this section may in fact muddy the waters.

Of course, legal challenges are part and parcel of many government programs, regardless of whether they are constitutionally enshrined or not. Concerns that these might occur are not of themselves a reason to oppose a constitutional amendment, although they should encourage the proponents to reflect on whether their proposed amendment is the best way of achieving their goal. I don’t think that it is.

Altogether, section 116A is not a proposal I would vote for on its own. At the same time, its downsides are too modest to outweigh a package including other changes that would be broadly desirable.

Recognising history and culture

My greatest reservations about the expert panel’s recommendations relate to the proposals to explicitly recognise Aboriginals and Torres Strait Islanders and the role of English and Indigenous languages.

Taking the former first, the proposed section 51A states:

Recognising that the continent and its islands now known as Australia were first occupied by Aboriginal and Torres Strait Islander peoples;

Acknowledging the continuing relationship of Aboriginal and Torres Strait Islander peoples with their traditional lands and waters;

Respecting the continuing cultures, languages and heritage of Aboriginal and Torres Strait Islander peoples;

Acknowledging the need to secure the advancement of Aboriginal and Torres Strait Islander peoples;

the Parliament shall, subject to this Constitution, have power to make laws for the peace, order and good government of the Commonwealth with respect to Aboriginal and Torres Strait Islander peoples.

As mentioned above, section 51A would in effect replace section 51(xxvi), although limited to Indigenous Australians rather than all races.

But unlike the existing clause, section 51A may also impose specific obligations. In particular, the fourth provision relating to the ‘need to secure the advancement of Aboriginal and Torres Strait Islander peoples’ is not restricted exclusively to the disadvantage experienced by those groups. Indeed, conceivably, it suggests that their interests be advanced even if they were generally the most wealthy racial or social group in the country. This, plainly, is not a situation that is likely to present itself any time soon given the profound disadvantage that they currently endure. But a constitution is a long-term document that is difficult to change, and should be drafted with all possible eventualities kept firmly in mind. This proposed section fails that test.

More broadly, I am not sure that the constitution is a document that should establish ‘recognition’ of specific groups. This is not a ‘mechanics of government’ issue. Nor are we establishing an ‘unalienable right’ that ought to be protected from the passing whims of legislators. As the heading to this section states, this proposal relates to the ‘Recognition of Aboriginal and Torres Strait Islander peoples’.

At the 1999 referendum, it was proposed that a new preamble to the constitution be introduced, which (among other things) would have given recognition to the history of Indigenous Australians. Although that proposal, along with the effort to make Australia a republic, failed, to my mind the preamble seems a more suitable place to ‘recognise’ Aboriginals and Torres Strait Islanders than a specific section or clause in the constitution proper — which may impose some legal obligations above and beyond mere recognition.

As there are no clear responsibilities to be established here (except to the extent that it enshrines the right of the federal government to make laws in this area), and while there are practical uncertainties about how this section could be interpreted, I am not inclined to support section 51A.

I have greater concerns still about section 127A, in relation to the recognition of languages.

(1) The national language of the Commonwealth of Australia is English.

(2) The Aboriginal and Torres Strait Islander languages are the original Australian languages, a part of our national heritage.

Australia does not have an ‘official’ language, even though in practical terms Australians are English speakers. This is not unusual. Neither Britain nor the united States have an officially recognised language. By contrast, New Zealand recognises English, Maori and New Zealand Sign Language. Essentially, it would seem that this proposal is modelled on New Zealand’s recognition of languages.

It is not in any way clear to me what benefit would be obtained from recognising a national language. In fact, as a proudly multicultural society, one of our features is that a great many Australians from migrant backgrounds speak languages other than English in their homes and communities. In a liberal democratic society, that is their right.

This provision does not of itself deny that right. (Of course, in legal terms, no such right exists. I use ‘right’ in a de facto sense rather than de jure.) But it has the capacity to undermine it. It suggests a supremacy of English over other languages — including Indigenous tongues, though to a lesser degree given their secondary recognition in subsection (2). I’m uncomfortable with this notion. I worry about what it means for the diversity of different language-speakers within this country, and the potential for those with poor English skills to feel excluded by such a measure.

Perversely, the reason for including subsection (1) — recognising English — is to facilitate the inclusion of subsection (2). Simply put, the constitution would look a bit odd referring to Indigenous tongues without any reference to the main language spoken in Australia. But it is for this reason that the whole section seems gratuitous.

Given the potentially divisive nature of recognising English over other languages, and the lack of clear reason for recognising languages at all in the constitution, I would most certainly vote against this proposal.

The prospect of ‘yes’

As it stands, my best guess is that a referendum on this suite of constitutional amendments would fail. Aside from the concerns I’ve outlined above, it is unclear that the opposition would support the referendum — and, historically, constitutional changes flounder without bipartisan support. Recognising this, the panel recommended that the government work with all parties and independents in the parliament to craft a proposal with their full backing. That will be no easy feat (and the outcome of any such process might not look much like what has been offered up so far).

The panel has almost certainly crafted these proposals with the knowledge that there might be doubts about the merits of some of them. They have recommended that all the amendments be voted on as part of a single referendum question. My assessment is that this has been driven by a view that support for the least contentious measures will overwhelm concerns about other amendments. I suspect that this is a mistake, given Australians’ historic conservatism (not in a political sense, but in a change-averse sense) when it comes to altering the constitution. In reality, the doubts will likely cause voters to reject the package entirely — as has occurred so many times before.

Assuming these proposals are put up in a referendum, my preference would be that they are voted on in separate questions rather than rolled into one question only. Notwithstanding the possible interaction between repealing section 51(xxvi) and inserting sections 51A and, to a lesser extent, 116A(2), there is no reason to presume that the failure of any single measure would fatally undermine any other measures that might succeed. The two measures most likely to succeed independently — that is, repealing both of the ‘race powers’ sections (25 and 51(xxvi)) — could certainly stand on their own without fundamentally altering laws and programs currently in place. At the same time, they would limit the scope for discrimination against Indigenous Australians (or indeed people of other races) to ever occur in future. (The only uncertainty relates to what would happen if introducing section 116A succeeded, while repealing section 25 — which is clearly discriminatory — failed. I suspect section 116A would preclude states from passing any laws that would trigger section 25. But I am not a legal expert.)

The meaning of ‘no’

If there is one vote on the whole package, as the panel has recommended, it is useful to examine what the consequences of an overall ‘no’ vote would be. In practical terms, very little. Although Indigenous Australians in general suffer high levels of disadvantage on many metrics, there is no clear evidence that they are being discriminated against. This is a credit to past efforts to break down the legislative and cultural barriers that Aboriginals and Torres Strait Islanders have historically faced.

But many — quite reasonably — regard this as insufficient. The symbolism attached to reconciliation efforts is very powerful. In the eyes of many, these kinds of initiatives are a way of atoning for past sins. As such, a ‘no’ vote would inevitably be regarded by many Indigenous Australians as a slap in the face. It would be a setback for the reconciliation agenda — of which constitutional reform is just one step on the road, rather than the endpoint. Setting aside the practical effects (or lack thereof), a rejection would clearly ‘look bad’.

While it is easy to dismiss symbolism, perceptions matter enormously. The refusal of John Howard’s government through the 1990s and 2000s to say ‘sorry’ to Indigenous Australians for past injustices engendered much hostility. When the then Prime Minister Kevin Rudd apologised in 2008, there was an emotional outpouring by many Australians — Indigenous and non-Indigenous alike. Many regarded that apology as an important first step in a ‘healing process’. And despite fears that the apology would be used as a basis for initiating legal proceedings to claim compensation from the government (a concern that I shared), this threat does not appear to have materialised.

No one ever suggested that ‘sorry’ was all that needed to be said or done — after all, four years later, Indigenous disadvantage sadly persists. But many saw it as a necessary offering in order for Australia to one day achieve complete reconciliation. At the time of the apology (and the years leading up to it), the significance of symbolic measures is something that I overlooked. But I now realise that these gestures are integral to building confidence and support for other concrete steps to improve outcomes.

A referendum rejection would produce deeply unfortunate symbolic consequences — perhaps more severe than the symbolic value of them passing. This is why I sincerely hope that this package is not put to the electorate.

Symbolism, important though it is, is not a strong enough reason to vote ‘yes’ in a referendum. These are lasting changes, which may have wider consequences than the expert panel has envisaged. The public debate in the months, even years, ahead should seek to bring these to the fore, and work out the best ways for them to be overcome. In some cases, this may mean that a constitutional amendment is not the best option. In other cases, it may require wording changes to the current proposals. Whatever the outcome, this is an important process that should invite the participation of all Australians — including, importantly, the ongoing involvement of Indigenous communities.

There is much to admire about this country. But the plight of Aboriginals and Torres Strait Islanders is not one of them. Recognising the historic role of the first Australians will make little tangible difference on the ground in highly disadvantaged Indigenous communities today. But the intangible matters too. And now that the process has been started, the idea that we mightn’t follow through on any constitutional changes is too damaging to contemplate. This proposal isn’t the right one. But there is scope now to craft a successful path forward.

Copyright, censorship and an American-led digital world

Thu, 19 Jan 2012 18:12:12 +1100

Given how dominant US websites are on the internet, the proposed Stop Online Piracy Act (SOPA) and Protect Intellectual Property Act (PIPA) would — if passed — have global implications. And with worldwide website ‘blackouts’, commentary on the subject has hardly been limited to the United States. Bernard Keane hasn’t let the loss of Wikipedia slow down his efforts to pump out a column on the subject, raising his concerns about the bills and how media titans are tackling the issue.

I’ve got to be honest, it’s not the most compelling piece of writing on the subject. For instance, quibbling over statistics about how much online piracy is taking place is a rather moot point — the fact is, piracy exists. Attacking the dubious origin of figures trying to quantify the trend may be satisfying, but it doesn’t change the parameters of the debate. Much closer to the mark is the lack of innovation within the entertainment industry. As Keane notes, the big players had every opportunity to set up their own digital distribution channels. But their negligence left the door wide open to the likes of Apple (iTunes), Spotify and Netflix. (Indeed, the evidence suggests that the availability of these legal channels has helped to dampen down illegal file sharing.) The old guard might be bitter about having to share the spoils of their business with new upstarts. But at least there are spoils to share — and in some senses, the old media companies can claim little credit for that given their own foot-dragging.

None of this is to suggest that content owners don’t have a right to protect — and profit from — their intellectual property. Indeed, it’s important for them to do so, because otherwise they will not bother to invest in content development in the first place. If no one were to ever pay for what they download, then there would be no commercial incentive to produce music, movies, TV shows, software, books and so on. (Yes, some would still exist — many musicians don’t expect to make money from their art, many coders contribute freely to open source projects — but output would be vastly lower, less diverse and arguably of lower quality.) The question is, in the digital world, what copyright enforcement measures are need to ensure the benefits of content production are realised at the lowest overall cost to society? Given the onerous burden that would be placed on internet service providers and major content disseminators — like Google, Wikipedia and Facebook — SOPA and PIPA certainly don’t seem to be the best answer.

"The unfortunate truth is that if you want to change Washington DC, you have to buy it. And the big..."

Thu, 19 Jan 2012 18:09:00 +1100

“The unfortunate truth is that if you want to change Washington DC, you have to buy it. And the big online internet companies, especially web-facing ones, have failed to pony up.”

- Mat Honan, Gizmodo

You might have experienced some difficulties over the past couple of days getting access to your favourite websites. Wikipedia was ‘blacked out’ from Wednesday for 24 hours, while other popular sites like Reddit and Wired ‘censored’ their content. Even Google got in on the act, slapping a big black block over its famous logo when its homepage was viewed by American users. The reason for these protests are two bills being developed in the US Congress — the Stop Online Piracy Act (SOPA) and the Protect Intellectual Property Act (PIPA) — that would impose new obligations on ISPs and websites in relation to their users having unauthorised access to copyright-protected content.

I won’t pour over the details about SOPA and PIPA each mean — there are plenty of explanations elsewhere — but it suffices to say that the two bills have got a lot of people fired up. Over at technology website Gizmodo, Mat Honan is one. He points the finger of blame for SOPA/PIPA at major online players, because they have failed to band together to lobby against such legislation on Capitol Hill. That might seem harsh on the surface — this ‘black out’ campaign has been pretty high profile, and already seems to have succeeded in convincing several congressional representatives (Democrats and Republicans alike) not to back the proposed laws. But Honan notes that even if SOPA/PIPA fail, there will be further efforts to come, because the media and entertainment industries are very powerful and well resourced, and will continue to fund hefty lobbying campaigns. (There should be little surprise that the lead lobbyist for the Motion Picture Association of America — a backer of the proposed measures — is a former high-profile senator, Chris Dodd.) Unless ‘the internet’ gets in the game, its capacity to influence events in Washington may only be eroded over time.

Evidence: too hot to handle?

Thu, 19 Jan 2012 18:03:19 +1100

Evidence: too hot to handle?:

Americans (chiefly those in the states bordering the Gulf of Mexico) face hurricanes. New Zealanders and the Japanese worry about earthquakes. And in much of Australia, we worry about bushfires. Without wishing to make light of the tragic toll they can inflict, natural disasters are part of the world we inhabit. But as inevitable as they are, we still try everything we can to stop them — or at least to minimise the impacts they have on us.

As Philip Gibbons notes, while many can offer up their own ‘solutions’ to mitigate risks, few bother to check the evidence to see if they work. In the case of bushfires, Gibbons concludes that many of the options commonly touted don’t have much merit. For instance, the Black Saturday bushfires of three years ago would not have been substantially lessened by more ‘prescribed burning’ (ostensibly to eliminate potential fuel for fires, but often too far away from where they would make a real difference). By contrast, greater clearing of vegetation surrounding homes would have offered significant protection. But this strategy puts a large onus on individual homeowners to safeguard themselves — less appealing than expecting the government to do the job for you. Furthermore, people move in to the bush often because they want to be surrounded by nature. That aspiration is kind of spoiled when you clear out all the nature.

And that’s at the core of the problem: for all the beauty of the environment, there is plenty of danger too. Those who live in the bush can’t take the good without the bad.