Where have all the public services gone?


Where have all the services gone?
Gone to corporates every one.
When will they ever learn?
When will they ever learn?

A year or two back, where I live, the local water provider received approval to increase the price of water. It had been involved in major infrastructure spending to enhance the local water supply, so some increase in price seemed justified, but hidden in the details was a line that part of the price increase was to offset ‘losses’ incurred during the drought some years earlier. A water company makes ‘losses’ during a drought! — wtf!.

Obviously it sold less water during the drought: it had less water to sell and the government had imposed water restrictions to conserve what water we had. What is the alternative? — that it continues selling water as if there is no tomorrow to keep up its profit and we run out well before the drought ends. For the life of me, I can’t see the logic in that. The body I am talking about is still fully owned by the government and pays an annual dividend to government but like many public utilities these days it has been ‘corporatised’. (Corporatisation is often used as a prelude to full privatisation but the evidence suggests that many government-owned bodies that have been corporatised are just as efficient, and profit-making, as any private company and have a history of paying healthy dividends to their government.)

Unlike America, which has a history of privately owned services, Australia has a tradition of government provided public services including, not just health and education, but transport, utilities (energy and water), even financial services (the original Commonwealth Bank). In recent decades our governments have been backing away at a rate of knots from the provision of such services in the name of ‘the market’ but does it make sense?

In the case of the water provider, if it had still been a purely public utility (that is providing a public service) losses during a drought would be a non-issue because it is in the public interest to sell less water and preserve what is left as far as possible. Why should a water supply be put in the hands of a private (or commercially-oriented) supplier when it is an essential service for the community as a whole? No community will survive long without water but it is now a commodity on which to make a ‘profit’.

Transport services provide the classic difference between private and public provision.

A private provider will operate, or continue to operate, those services and routes that it deems profitable. Occasionally it will run less profitable services but only to maintain the goodwill of its customers.

By contrast, a publicly run transport service is there to do just that, provide a necessary public service whether or not it is profitable. Prices that contribute to meeting running costs are justified and a public provider is more likely to offset loss-making services by the surpluses reaped during peak hour services (cross subsidisation). One issue is which costs should be taken into account in fixing prices? I recall from the 1970s, in the days when complaints about the NSW rail network running at a loss were being made, that there was a small article buried on about page 12 of the Daily Telegraph that during that year the railways actually made a profit on ‘operating costs’ — the ‘loss’ arose from the fact that loans were still being repaid, some to British banks dating back to the 1800s when the NSW railways were being established.

In an effort to offset the ‘losses’ many rail services were cut and lines closed. Regional services in particular were hard hit. That didn’t mean there were no people in those areas who needed the rail service, just not enough to ‘justify’ its continued operation. People became more reliant on cars. Some farmers lost freight services and had to turn to heavy road transport companies (that relied on making a profit, not providing a service). Of course, this pushed higher costs onto local councils to maintain the regional road network, which no doubt meant an increase in rates. So the loss of a service does not come cheap!

In a modern society, electricity is almost as essential as water and is being made more so by the many services now being provided on-line. The ATO no longer routinely distributes printed tax return forms (you have specifically to request one) and is encouraging people to do their return on-line but without electricity that would be impossible. So we now need electricity not only for energy needs — heating, cooking, light — but to participate in our society and use government services.

Despite that, some electricity services are now privatised and the rest operating on a commercial basis. In other words, a profit is being made from goods and services which I have no choice but to use.

In my view, much of the privatisation of public services came about because governments had avoided long term planning for the assets. Water, transport, electricity, health and education services require major infrastructure. There is obviously a capital cost in establishing that infrastructure and also in its ongoing maintenance, but there comes a point in time when the infrastructure needs replacement or major upgrading.

The time when much privatisation took place seems to have been that point where governments faced the replacement or upgrading costs. Instead of having planned for it over the life of the infrastructure, governments had not put money aside, always expecting they could meet it out of general revenue at the time — until they realised they couldn’t. (Although, ironically, they often poured money into the enterprises to prepare them for privatisation.) Of course, they could borrow but they were already running up debt and in the face of the political pressure to reduce debt, felt constrained. Privatisation was supposedly a double win for governments to the extent that they made money from the sale and off-loaded the expense of upgrades and replacement. John Quiggin has shown, however, that, in most cases, there wasn’t a significant financial gain to the governments over the medium term as compared to keeping the service in government hands. Whatever the financial outcome, they reduced public services.

The problem with much of this privatisation is that it is occurring in what the economists call ‘natural monopolies’, where it is more efficient to have a single supplier of a good or service to the many, rather than many providers each supplying to the few: for example, it is wasteful to have three different water companies each constructing pipelines past every house to provide ‘their’ water. The neo-liberal economists supporting privatisation have overcome this by ‘disaggregation’. Just see how they have split electricity and rail: electricity is split into generation, distribution and retail; and rail has been split into the rail networks (the tracks) and the actual services (trains). This allows them to privatise parts, if not all, of the system.

In relation to electricity, John Quiggin points out that this approach means economies of scale and economies of scope are lost. There is evidence that the so-called competitive electricity market, with many retailers now competing for customers, has led to a large increase in non-productive staff — involved in management, human resources, administration and marketing, not in electricity production or distribution. Whereas a single state-owned provider needed only one set of administrative staff (and no marketing staff), now each separate company needs a set. Previously the state-owned body operated the generation, distribution and sale of electricity (some even had their own coal mines). Electricity prices are extremely volatile, partly because electricity cannot be stored, and can vary from a few dollars to a few thousand dollars per megawatt/hour depending on the time of day. When a single entity handled the whole supply chain, that volatility was more easily absorbed. Now it is in the interests of the generators to keep supply as low as possible (that is, the minimum necessary to meet anticipated demand) so as to maintain the highest price but that becomes a cost to the retailers (and hence consumers).

The reason often quoted to support privatisation is that competition will ensure the lowest prices and more efficient and better services meeting customer needs. Consider, however, the privatisation of ports and airports that has taken place. There are not six port facilities to choose between in Brisbane or Port Kembla, or four or five airports, capable of handling commercial jet flights, to choose from in the capital cities, so there is no competition — they are monopolies. In such situations the government has to retain a regulatory responsibility just as it does for any monopoly that exists in the market: even economists acknowledge that regulatory responsibility exists in regard to monopolies so that the monopoly power is not used to set prices at what the market ‘will bear’, rather than the price being controlled by competition. If the government still needs to regulate, why privatise in the first place?

One argument, often put without question and without supporting evidence, is that private enterprises are more efficient than government enterprises. Economic theory apparently suggests that this should be so but factual evidence often suggests otherwise. Productivity in the electricity industry has not increased as fast as across the economy overall, partly a result of the increase in non-productive staff (discussed earlier). There are many examples of so-called efficiencies and productivity gains coming primarily through lower wages and lesser non-wage conditions. This is effectively a ‘gain’ to the private provider but a ‘loss’ to the worker — and, if we follow ‘middle out’ economics, a loss to the economy. Losses to the economy are magnified when the new private owner is an overseas company, as is often the case, and most of the profit leaves the country. These are ‘social costs’.

Other ‘costs’ occur when private operators incur debt, either to make the purchase in the first place or to provide infrastructure improvements after they own it. The cost occurs here because governments can raise money by issuing government bonds at a lower rate than companies can obtain finance through financial institutions or equity (shares). These higher costs are inevitably passed on to the consumer.

When efficiency is measured in dollar terms, we can end up with examples like this. In the USA in the 1980s and ‘90s, medical waste was disposed of by private companies. Normally this should be done by high temperature incineration but the private companies decided it was more efficient (cheaper) to dump it at sea. When dangerous material started washing up on California and New Jersey beaches, the public became aware of what was happening and, of course, there was an outcry, forcing the governments to intervene and legislate tighter controls.

In Europe the arguments for privatisation seem to have changed slightly. While ‘efficiency’ remains central, two new arguments have been added: ‘strengthening financial markets’ and ‘reduction of public debt’. Reduction of debt was always on the edge of this debate, at least so far as governments were concerned, but, following the GFC, it appears it is now becoming more central in economic arguments. And I think there is hypocrisy in economists suggesting governments should act to ‘strengthen financial markets’ — isn’t that interference in the market?

Basically, privatisation means the government has less ability to direct the provision of services for the public benefit, which essentially means, in the case of many of these type of services, ensuring reliability and quality. Under public ownership many electricity systems included built-in redundancies to ensure safety and reliability of supply. In market terms this is a ‘waste’ of resources but ‘redundancy’ is a critical issue for safety and reliability: almost every commercial aircraft in the world has duplication of many systems (redundancy) because safety is critical, even for commercial success. For areas where safety is less critical, the market will certainly see redundancies as pointless but, in services like water and electricity, it is reliability that is the critical issue and some redundancy may be necessary to ensure that. There is evidence that the privatisation and corporatisation of electricity supplies has led to less reliable supply. If the emphasis is on the efficient allocation of resources to achieve profits, then reliability may move down the list of priorities. Maintenance, also necessary for reliability, is one of the first aspects to be downgraded as it is ‘efficient’ to maintain only to the minimal level necessary to deliver the service. For example, in SA in 2001:

There were 500 outages in January 2001 alone. Unions claimed that the 900 workers employed to check and repair powerlines in 1991 had been reduced to about 300, whilst maintenance crews were reduced from 270 to 90.

The problem with the shift of many services to a commercial or profit-making basis is that public benefit is overlooked and government loses some control over its policies, just as in the example of making up for the ‘loss’ of water sales during a drought. Similarly, we were previously being encouraged to reduce our energy consumption in a bid to reduce greenhouse gases. If electricity consumption is reduced two things happen: some of the infrastructure may become redundant and a loss is incurred by the generators, meaning companies will increase the price of energy to make up for the loss both in consumption and from ‘wasted’ assets. But even in economic terms that is a ‘price signal’ that may counter the policy intent of reducing consumption because people may well say what is the point of reducing consumption if every time we use less, the company puts the price up to cover the ‘loss’. People may still reduce consumption based on the higher ‘price signal’ but no longer as much as they would if they felt there was a ‘moral obligation’ or a ‘community benefit’ (when they know everybody else is acting in the same way) in doing so. If these were public assets, governments should, in accord with both policy intent and public benefit, allow people to benefit (lower bills) from the effort they make to reduce consumption, which would send a positive ‘price signal’ that reducing consumption is good. When it is privatised there are conflicting messages: a government policy saying use less but the private provider saying consume more or, at the least, not rewarding people for using less.

A significant change that can occur was expressed in relation to health care in an editorial in the New England Journal of Medicine in August 1999:

Our main objection to investor-owned health care is not that it wastes taxpayers’ money, nor even that it causes modest decrements in quality. The most serious problem with such care is that it embodies a new value system that severs the communal roots and Samaritan traditions of hospitals, makes doctors and nurses the instruments of investors, and views patients as commodities.

To my mind, that is the main danger of privatisation, not economic arguments but what it is doing to our society. The neo-liberal economists argue that the only responsibility of the CEO and board of a company is to maximise returns for shareholders. That may work providing consumer goods in the market, when people have a clear choice whether or not to buy, but when it comes to water, electricity, health and education, in which people have no real choice, surely there must be a public interest criterion. The neo-liberal economic approach says no.

Governments need to step back from this privatisation fiasco that places financial markets and shareholder interests above the public interest, particularly in relation to the ‘natural monopolies’. It was once seen that such natural monopolies were the ‘natural’ province of government but no longer. Governments have bowed to the market and the neo-liberal economists promoting it, to the detriment of society, not to its benefit.

It is not too late to turn back. Although in many cases it would mean governments having to buy back what they previously owned, that is what has happened in some countries as the failures of privatisation became apparent. The UK government had to re-take the rail track network when private owners were not maintaining it as well as they should (a brief history here). The NZ government also had to buy back its rail network. In NSW, an attempt at privatising the Port Macquarie Base Hospital was a disaster and the government had to bring it back under the public umbrella. They are but the tip of the iceberg.

You would think that with so many failures, and with the supposed benefits of privatisation not eventuating, that governments would have learned by now but the words of King and Pitchford in 1998 still apply today:

… governments at both the state and federal level in Australia appear to pay little attention to the reality of privatisation, preferring to follow their own rhetoric.

What do you think?



We are all victims of short term expediency


In Australia, politicians are elected for either three or four year terms. The conventional wisdom is that the first year of their term is working out what they want to change — usually masquerading as ‘fixing up the mess’ left to them by their predecessors. The second year (and third where applicable) is when they implement what they consider to be their ‘mandate’ and the last year is when they try to convince a majority of the voting population that they are better than the other side. While there are various claims that they are making plans for the future, usually the plan is do nothing and hope they won’t have to make the unpopular decision at some time in the future when the need for the policy or infrastructure is urgent due to their previous lack of planning.

In contrast, when you go and get a home loan the usual commitment is somewhere between 25 and 30 years — although the property industry tells us that, on average, loans are refinanced or properties traded on another one within ten years.

Politicians of all persuasions claim they plan for the future. The last ALP Government in Queensland developed a plan for the state in 2020 — known as ‘Towards Q2’. According to the publicity booklet:

Our plan has been framed around five ambitions for our entire state, covering our economy, environment and lifestyle, education and skills, health and community.

The rationale for the forward planning included being better prepared for events such as the millennium drought, that threatened the water supply of a number of communities across Queensland in the early and mid 2000’s, and the subsequent flooding in 2011 and 2012. When Campbell Newman’s LNP Government came to power in 2012, it scrapped the ‘Towards Q2’ document but then created their own ‘Queensland Plan’, which is supposed to guide development, infrastructure and policy in the state until 2030. After the cost of co-ordinating ‘focus groups’ across the state — invariably attended by government ministers and senior public servants — internet sites for comments and other methods of consultation, the ‘Queensland Plan’ developed some foundations:

These foundations are: Education, Community, Regions, Economy, Health and wellbeing, Environment, People, Infrastructure and Governance.

The Queensland Government has recently issued a response to the ‘Queensland Plan’ — responding to a proposal it was instrumental in creating! If you can see large differences between the ‘Towards Q2’ ambitions and the ‘Queensland Plan’ foundations, please leave a comment below the line and educate us all!

In New South Wales, building the North West Rail Link to Castle Hill and beyond is underway. This train line, which was first announced in 1998, was originally to be a branch line from the current system at Epping to service a rapidly growing area of Sydney with inadequate road transport. (Even though buses can run express, they are still on the same roads as the private vehicles.) Wikipedia gives a history of the announcements and political games that have been played out to get to where we are now: and as you would expect, the ‘glossy’ website for the project sings the benefits of the scheme for all.

What the website doesn’t tell you is that the tunnels they are building for the North West Rail Link are too small to fit the existing Sydney double deck electric trains! Effectively it will be a separate network, which may one day go through a second Harbour crossing and continue to Blacktown.

If that’s not enough, while ‘Transport for NSW’ operates the existing rail network, Melbourne’s private train operator Metro will operate the north-west service under a contract — so the chances of co-ordination between the two distinct networks are likely to be pretty remote.

But wait, there’s more. The existing Epping to Chatswood train line is to be converted to take the North West Rail Link to Chatswood! So you have Sydney’s newest rail line being changed so the existing trains won’t fit, taking passengers from the north west of the urban area every four minutes in peak hour to a station requiring passengers to change to trains using the existing double decker carriages and then going across the Harbour Bridge on tracks that are already almost at capacity. Does this exercise in stupidity have anything to do with the ALP originally announcing the plan and the Liberal Government starting construction many years later?

The federal government is not exempt from the theory that we are all victims of expediency. Kingsford Smith Airport in Sydney’s east is Australia’s busiest airport. The Australian government sold it off in 2002 to Sydney Airports Corporation Limited (at the time a subsidiary of Macquarie Bank).

It has been recognised since the 1940’s that the demands on the current airport would outgrow the ability to deliver, as the existing airport is land locked. Over the years there have been a number of studies and promises that would deliver a second airport for the Sydney region — somewhere between Newcastle and Canberra. Wikipedia’s page describing the saga is worth a read for details. When the Howard Government sold off Kingsford Smith Airport, it agreed to a clause in the contract that the operator would have right of first refusal to build a second airport in the Sydney basin. Ben Sandiland’s excellent ‘Plane Talking’ blog on transport issues (predominantly aviation) has discussed this issue on a number of occasions — one of them is linked here. Note the spokesman for the Sydney Airport Corporation is the same Max Moore-Wilton who was Prime Minister Howard’s Secretary of the Department of Prime Minister and Cabinet.

The Abbott government announced on 15 April 2014 that Badgerys Creek would be the site of Sydney’s western airport. The commencement of the negotiation period with Sydney Airport Corporation was announced on 18 August 2014.

Ironically, the same New South Wales government that is crippling the potential of the North West Rail Link to operate in conjunction with the rest of the Sydney Trains system is funding the construction of the South West Rail Link, which does connect to the existing system at Glenfield and will pass very close to the Badgerys Creek site — using the same double deck trains that service Kingsford Smith Airport but apparently are not good enough to service the north west of Sydney.

Deputy Prime Minister Warren Truss made the announcements regarding Badgerys Creek Airport. He is the member for Wide Bay, based on Bundaberg in Queensland. He should be aware that Australia’s newest airport is located 15km west of Toowoomba — known as Brisbane West Wellcamp Airport. This privately built four-engine-jet-capable airport is privately funded by the Wagner family (who have a history in quarrying and construction businesses) and commenced construction in 2013. Qantaslink will operate a service (with Dash 8 aircraft) from Wellcamp to Sydney from November 2014. Badgerys Creek in contrast will commence construction in 2016 and not be ‘fully operational’ for a decade. While there will inevitably be greater design requirements for a capital city airport, such as Badgerys Creek, than there would be for what is effectively a regional airport such as Wellcamp, why is there such a difference in the construction times? The airports are built to the same standards.

So, if there is little difference between the ‘Towards Q2’ and ‘Queensland Plan’; if Sydney’s north west looks like having an ineffective train service which will also emasculate the rail system across Sydney; if Sydney’s second airport is still a decade away despite ‘planning’ being undertaken for over half a century (and the locals can build one in Toowoomba in under two years); are we being well served by our politicians’ ability to plan for our future?

Devising a plan or strategy for a significant period into the future is not an exact science. There will be dramatic events that affect every plan; from personal illness to global financial meltdowns. To suggest for a minute that politicians can ‘do planning’ any better than anyone else and therefore should be exempt from the expectation that plans will change is ludicrous. However, above we have three examples of planning by politicians that fail to build on previous work; rather they seem to be deliberately white-anting previous planning processes, all of which had significant time, effort and cost expended on them.

In a world where governments are telling us they have to make hard economic decisions, sack tens of thousands of staff, cut back on ‘non-essential’ services and live within their means, why do we accept that significant plans are thrown out when ‘the other side’ gets into power?

While there is an ideological difference between the ALP and LNP in Queensland, rather than scrap the ‘Towards Q2’ consultation and process (with its significant public and private consultation), wouldn’t it have been a better idea to suggest that the existing planning cycle be extended?

Building new railway tunnels too small to fit existing rolling stock is similar in action and intent to the various states having different rail gauges in the 1800s through to today. Any economic and practical analysis of the experiences caused by the ‘break of gauge’ issues throughout the 19th and 20th centuries would tell a rational observer that, even if there is a real issue with the operation of Sydney’s train fleet due to the double deck design, creating a separate system and converting parts of the current system won’t fix anything in the short or long term.

Both sides of politics have ignored the problem of the western Sydney airport for too long. The Howard government stymied the development by giving the first right of refusal to the purchaser of the existing airport, who clearly is not in favour of building a ‘greenfield’ site over maximising return on the existing site. The ALP government commissioned another study into the location (coincidentally a number of ALP-held federal seats were in western Sydney) and Abbott’s government announced it will take a decade to build — and, by the way, he won’t fund a rail connection, the most efficient method of accessing the western Sydney site from the east.

All of these decisions indicate short term expediency wins every time. Regardless of the colour of the politicians in power at the time, those who participate in the public input sessions (be they ‘town hall’ style meetings or ‘internet surveys’), collate the documents and discuss the pros and cons of various options with the politicians, almost invariably do so with dedication and commitment to making a better Australia.

That the advice is not followed for any better reason than that’s what the other side did is criminal. That’s why we are all victims of short term expediency.

What do you think?



Is the free market free?


On 2 September when the Senate passed the repeal of the mining tax, the legislation included a considerable slowing of the process to increase superannuation for workers. Senator Lazarus for PUP, and Finance Minister Mathias Cormann, both emphasised that this gave individuals more money in their own pocket. Cormann went so far as to suggest people could now decide what to do with their extra money:

"This is not an adverse, unexpected change as it will leave Australian workers with more of their own money pre-retirement which they can spend on paying down their mortgage, spend on other matters or save for their retirement through superannuation as they see fit," Finance Minister Mathias Cormann told the Senate.

That is a classic liberal, or now neo-liberal, approach to economics: that people should be entirely ‘free’ to decide how they use their money with no government interference. Carried to its logical extreme, there would be no government involvement in health or education services, leaving that to private providers in the market and allowing people to decide how much of their own money they wish to spend on health and education. If you want higher quality health and education services, then you have to choose to pay more for them, or pay less and probably get a lesser service.

A recent issue shows how the market can directly impact health issues. In relation to a female chronic condition called endometriosis, a drug is available specifically to control the condition but it is not yet sold in Australia, although readily available overseas. The manufacturer, Bayer, does not yet believe it would make a profit from selling it in Australia (although it is ‘assessing the feasibility of introducing this product to the Australian market’). Even the AMA said its introduction to Australia was a commercial matter. When the operation of a free market can affect people’s health in this way, one has basis to question the ethics or morality of the whole economic system.

But that is the freedom of a free market, as neo-liberal economists see it.

Economics has drawn on the two basic approaches to freedom discussed in my earlier piece ‘Whose freedom?’: the freedom of the rational person to make their own decisions and choices; and the freedom that comes from there being no interference or coercion in making those decisions and choices.

Classical economics is pinned to ‘rational choice theory’ that assumes individuals always make prudent and logical decisions that provide them with the greatest satisfaction and are in their best self-interest. The pillars of this approach are self-interest, omniscience (‘perfect information’) and conscious deliberation. Adam Smith also created the ‘invisible hand’ whereby this rational self-interest actually creates benefits for others and for society at large, which is the basis of the ‘trickle down’ approach in economics.

The very concept of ‘the market’ is based on the idea that people freely interact, and freely exchange goods and services. In this concept, I exchange my labour for other goods and services and money has become the medium of exchange: it allows my exchange of labour with one person to be used, through the use of money, for exchanges with other people. [Although most economists state that money is not a ‘good’, there is a market for money so it must also have the characteristics of a ‘good’, not just a medium of exchange; in which case, it is the ‘good’ I receive for my labour and then exchange.] But the emphasis is that people freely and rationally make the decision to exchange because each party expects to gain from the exchange, a gain that provides ‘utility’ — or ‘satisfaction’, ‘pleasure’, ‘personal welfare’ (each words that have been used at different times to explain the economic meaning of ‘utility’).

The first glaring fallacy is that in classical economics this is based on a person having ‘perfect knowledge’ of the market, of all goods and prices, and being able to rationally assess that knowledge and make the best decision that meets their needs. ‘Perfect knowledge’ is, however, an impossibility: theoretically, if knowledge was perfect there could only be one rational decision that it would lead to, and that is clearly not the case.

There has been much work in the latter half of the twentieth century, and in the current century, that questions the classical approach, with many works showing that knowledge in the market is imperfect and even that people do not always make rational decisions — decisions can be influenced by emotions, by peers, by previous decisions and experiences, and so on.

Some have argued that it is this less than perfect information that actually leads to distortions in the market and market failures. Hayek and the ‘Austrian school’ recognised imperfect information in the 1940s and argued that each person has only a little information but maintained that it is a free market that efficiently allows each person to use what information they have. On the other hand, firms can raise prices or lower wages because they recognise the greater cost to the consumer or the worker of obtaining the necessary information that may lead them elsewhere: for example, a worker accepts a lower paid local job rather than undertake the effort (‘cost’) to search far and wide and relocate to a higher paid position.

There was also the classical view of ‘perfect competition’ which would produce the best possible outcome for consumers and society. Under perfect competition there would be only one price for equivalent goods because the market demand would be equal to the market supply (an equilibrium). When a good is first produced it may reap super profits for the initial providers but the high price attracts other players into the market, increasing supply, driving down the price, then driving some suppliers from the market, until it moves to equilibrium. This is one reason some economists think that ‘bubbles’ are not a market failure but are self-correcting. (It would also appear to be the underlying economic reasoning for the constant creation of new products, as firms try to obtain that initial advantage, and super profits, in the market.)

In this perfect world of rational buyers and sellers, of ‘perfect information’ and ‘perfect competition’, there is no need for advertising or branded goods. The model doesn’t exist in the real world (although it is argued by some that the money markets, and trading in items like tea and coffee come close) but it is still used as a model against which economic judgments are made. It is at the heart of the argument that unemployment comes about because the labour market is not ‘free’ (being subject to interference by government regulation, like minimum wages, and unions) and that, if it was completely free, wages would settle at a level where there was no unemployment.

All the ‘perfect’ models that make economics work lead to the fact that it is not operating in the real world. Many economic theories use ceteris paribus (‘all things being equal’), meaning they work unless other matters intrude — such as the real world. No doubt that gives rise to the joke that, for economic theory, the real world is an exception. It also means that it takes no account of the real-world social issues that impact freedom and therefore an individual’s capacity to participate or ‘compete’ in the so-called free market.

The neo-liberal economists lay claim to the John Stuart Mill approach to freedom:

The only freedom which deserves the name is that of pursuing our own good in our own way, so long as we do not attempt to deprive others of theirs, or impede their efforts to attain it.

They certainly place a lot of emphasis on the first part of Mill’s statement as an integral part of a free market. They partially cover the second part with their view that their ‘perfect’ free market allows people to enter and leave as they choose without cost (despite the reality that there is usually a ‘cost’). But, to my mind, they pay very little attention to the third part, regarding not impeding the efforts of others to attain freedom. In other words, they basically cherry-pick the concept of freedom and use only those parts that support their ‘free market’.

This is reflected in the approach to private property which is considered essential to a well-functioning free market: a means of managing resources (all forms of resources, whether natural, produced or intellectual). It is, however, actually a constraint and creates a basic anomaly in economic theory. One person’s ownership of a resource obviously limits the extent to which others can access it, but the economists argue that without private ownership there would be constant conflict over resources: in essence, private property provides a peaceful means to make resources available. The extent to which that resource is ‘desired’, or is valued by others, will be reflected in its price.

Private property is also essential to the concept of the market itself. To exchange something in the market, I must own it in the first place and the other party must also own what they are exchanging. The logic of this seems apparent when one considers what a thief may offer for exchange: we undoubtedly consider that not to be a fair exchange because the thief does not actually own the item of exchange — or does he? The thief clearly has ‘possession’, so there must be a logical difference between ‘ownership’ and ‘possession’ in the economic system. When one considers the history of conquest around the globe, it is easy to argue that what in many countries is called ‘ownership’ is in fact only ‘possession’. Take Australia for example: non-indigenous Australians possess the continent but do they own it? That question is, of course, central to the land rights debate.

It goes back to history and C B Macpherson’s argument that political freedom came before economic ‘freedom’ and was first obtained by the property-owning elites who then used it in their own self-interest. And it also goes back to history in the sense that much modern ownership is based on past dispossession of previous owners, and yet the economic system is based on the modern possession not the historic ownership.

So there is an illogicality in the underpinnings of the economic system and it is prefaced not on freedom but an historical loss of freedom imposed on others. It is essentially a system imposed by the ‘winners’.

That loss of freedom continues in the modern economy.

Some economists like to consider that their discipline is a science and, like the natural sciences, ‘value free’, but that ignores they are dealing with social issues which inherently have cultural values driving them; and also ignores that the entire field of economics is culturally derived and culturally driven. And they ignore that their whole economic system relies on the basic social value of trust. The thief is able to exchange the item he has only because we normally trust people to undertake a genuine exchange. The shopkeeper trusts us to pay for an item when it is handed over and/or we trust the shopkeeper to hand the item over when we have paid — otherwise we would either be there all day negotiating who should first begin the exchange, or we would need to have enforcers in every store to oversee the exchange. Without trust the ‘cost’ of exchange would become prohibitive. The economists tend to say that such social issues fall outside their field of study, yet their whole system depends on them.

By ignoring the social implications of the market, they ignore Mill’s dictum that freedom includes not impeding the freedom of others. This actually distorts their view of the ideal that there should be no government interference in the market. Putting those two together they can come up with this:

Consider the case of a black woman who wants to rent an apartment from a white landlord. She is better able to do so when the landlord has the right to set the rent at whatever level he wants. Even if the landlord would prefer a white tenant, the black woman can offset her disadvantage by offering a higher rent. A landlord who takes the white tenant at a lower rent anyway pays for discrimination.

According to this line of thinking, rent controls (in the USA) reduce competition based on monetary exchanges and increase competition based on personal characteristics: because the landlord is restricted in what rent can be charged, he then pays more attention to personal characteristics in selecting a tenant. How can we have any faith in people arguing that it is the lack of a free market that leads to discrimination?

The obvious flaw is that the black woman may not have sufficient money to offer a higher rent. And, if she has to pay a higher rent than a white person might to obtain the same apartment, isn’t that also discrimination? — but that doesn’t seem to exist in the thinking of the neo-liberal economists. They take the view, as explained in the ‘Whose freedom?’ article, that ‘lack of means’ is not a lack of freedom and they completely overlook that it may well be historical circumstances, an historical lack of freedom, that has created the current lack of means. There is no room in economic theory to overcome the economic injustices of the past. If economics can’t address economic injustices, then surely governments should, but not so according to the neo-liberal economists for that would be interference in the market.

‘Lack of means’ overlaps with the whole concept of competition. The economists argue that competition allows the real value of items, to individuals, and through them to society, to be determined (despite the fact that their ‘perfect competition’ actually leads to no competition). Thus, the auction of a house produces a price that reflects the personal value given to that piece of real estate by the individuals at the auction. If, however, I am outbid because another individual has greater means, I have surely had my own freedom to satisfy my self-interested ‘utility’ curtailed. I obviously look elsewhere in the market, so for the economists I still have freedom, but that original competition has impeded my freedom by imposing greater costs (information search) to continue looking for a house and, if those greater costs start exceeding my means, I may give up looking altogether (which is something the government needs to consider in its approach to younger jobseekers). Giving up is still a rational decision because the individual has decided that the cost of gaining more ‘information’ has reached the point of outweighing the benefits. (Note that ‘cost’ here, and in much of economics, is not just monetary but may include physical effort, time and other resources.)

Neo-liberal economists deride the old mercantilist view that any increase in means can only come at the expense of others but there is still an element of that in their ‘competition’. Competition is not necessarily fair when the resources and means are unequally distributed by private property and the historical accidents that led to it. There is, therefore, no real freedom in competition. But what the neo-liberal economists won’t admit is that it is competition, not freedom, that is fundamental to the economy they have created. Although my costs may increase or I lack means, that does not mean I am not free to make other choices, just that I have lost the competition. So it is not really a system about freedom but about protecting the competition’s winners.

In a short piece like this, I obviously cannot do justice to the full range of economic thinking. I have focused on a few key aspects of classical economics partly because that is what the neo-liberal economists returned to when they rejected Keynesian economics.

All is not lost because there are many new economic approaches, including Modern Monetary Theory (see 2353’s post here) and ‘middle out’ economics (see Kay Rollison’s piece here). There seems to be growing exposure of these ideas and they offer some hope for a new approach to economics but, unless they accept Mill’s dictum on freedom in full, not just in part, and allow a role for government in ameliorating economic injustices, the free market will still not be free.

What do you think?



Jesus was a refugee


I regularly drive past a Christian church in a suburb of Brisbane that has a reputation for being a ‘nice’ area. When I drive past as a service is concluding, the attendees are going to their newish model cars to return to their homes that, if they live in the same area, are worth more than the median price across the City of Brisbane. While generalisations are frequently incorrect, the attendees at the service seem to be older and more conservative than the general population: in this case, however, the area usually votes for the conservative side of politics so the generalisation probably has some merit. A week or so ago the message board outside the church carried the message: ‘Jesus was a refugee’. As I drove past, I thought that it was an interesting statement to make in a ‘conservative’ area and, being on a sign outside a church, they probably have the evidence to support the assertion as well.

The Political Sword usually stays away from religion — and this piece won’t go there either except to question why conservatives invoke ‘their god’ as a basis for their ethics and morals while promoting actions that are diametrically opposed to those promoted by their religious beliefs.

Let’s start with the obvious one. Prime Minister Abbott is a practising member of the Catholic Church, as are a number of his ministers. Regardless of the display of wealth from the Vatican (something that it seems is being addressed by the current leader of the Catholic Church), members of the Catholic Church around the world do some amazing things to help their fellow humans live better and more fulfilling lives. For example, the Sisters of Mercy’s website details a number of programs with worthy aims, such as eliminating human trafficking and assisting the homeless. Funding for these actions comes from the operation of commercial enterprises such as the ‘Mater’ or ‘Mercy’ Hospitals.

In contrast, Christian Abbott and atheist Gillard (and you could argue that as ‘ten pound poms’ they were economic refugees) led the race to the bottom on treatment of refugees by imposing increasingly draconian conditions in the treatment of people who literally risk all to create a better life for themselves and their families — with assistance from the ‘out there’ Christian Kevin Rudd. How are the actions of any of these people in accordance with Christian morals and ethics?

Not that Australia’s leaders are alone in overtly claiming to have a moral and ethical compass derived from Christian beliefs while observation of their daily actions would suggest otherwise.

Nearly a millennium ago, the Pope of the time (Urban II) called upon the armies of Western Europe to go to war against those in the Middle East who followed the Islamic religion. The Islamic people then vowed to wage a holy war (jihad) against the Christians. The Western Europeans continued their crusades to the Middle East until the 16th century after which they were ‘distracted’ by the Reformation. Clearly both sides in the conflict thought that ‘God’ was on their side.

The Reformation was the commencement of the rise of the Protestant churches within the Christian ethos. Until the 1500’s, if you were a Christian, you were a Catholic. While there were some theological differences between the different branches of Christianity, the Reformation was in part due to perceptions of corruption within the ruling elite of the Catholic Church (the Curia) and a subsequent lessening of political influence enjoyed by the Pope.

The American Civil War (1861 to 1865):

… resolved two fundamental questions left unresolved by the revolution: whether the United States was to be a dissolvable confederation of sovereign states or an indivisible nation with a sovereign national government; and whether this nation, born of a declaration that all men were created with an equal right to liberty, would continue to exist as the largest slaveholding country in the world.

Yet, religion played a part in this battle over equality versus slavery, as reflected in the speech President Lincoln gave at his second inauguration in 1865, a month before he was fatally shot. The relevant section is quoted below:

Each looked for an easier triumph, and a result less fundamental and astounding. Both read the same Bible and pray to the same God, and each invokes His aid against the other. It may seem strange that any men should dare to ask a just God's assistance in wringing their bread from the sweat of other men's faces, but let us judge not, that we be not judged. The prayers of both could not be answered. That of neither has been answered fully.

The history of conservatives marginalising their own people while claiming to be representing all, as Lincoln was suggesting above, continues in the USA. The USA, however, also has a long and proud history of ‘protest songs’ that question actions taken by, usually, Republican Presidents such as Nixon, Bush the elder and Bush the younger. It is easy to suggest that Bob Dylan made, and is still making, a living from protest songs. The Dixie Chicks suffered severe criticism for prefacing a song at a London concert with criticism of George W. Bush sending troops to Iraq and contemporary pop musician Pink released ‘Dear Mr President’ during the term of George W. Bush — it still resonates today.



This piece started with a reference to an outwardly conservative Christian church in suburban Brisbane and its statement that Jesus was a refugee. It seems that humans have a long history of discrimination against those who we perceive are not our equals. Superficially we’ve looked at Christians’ treatment of Muslims nearly a millennium ago, treatment of slaves in the USA and, in recent history, those that are less fortunate than the majority. It seems that traditionalists have commenced these battles — and progressives have railed against them.

So what is the difference between the Abbott and Gillard families coming to Australia as economic refugees in the 1960’s and current refugees attempting the trip from our northern neighbours?

Is the answer superior genetics?

Genetically, Abbott, Gillard or Rudd’s personal gene pool is very similar to that of any other person alive.

If it is religion, the differences again are not that great.

Like Judaism and Christianity, Islam teaches that there is one God in the universe, giving Muslims a monotheistic worldview Also like Judaism and Christianity, Islam teaches about the ministerial office of the prophet, although not all of these faiths agree on who is, and who isn't, a prophet. For example, Christians believe John the Baptist was a prophet and Jews and Muslims don't. And Muslims believe that Muhammad was a prophet, yet Jews and Christians don't. All three faiths also believe in an afterlife, although the makeup of those destinations can be immensely different from each other.

Both faiths insist that you must be a practising member of the faith to enjoy the ‘afterlife’. Muslims and Christians also share similar beliefs regarding how they live their life on earth will affect their ‘afterlife’ (here for the Muslim belief and here for the Christian version).

If the reason for the failure to address the arrival of refugees with humanity is because we as a nation didn’t ask them to come, then the Indigenous people of Australia didn’t ask the English to invade in 1788 (and it’s a pretty good bet to surmise they themselves didn’t ask permission some 40,000 years earlier), just as the English and French most likely didn’t take the opinions of the ‘first peoples’ in the US or Canada into account either.

Is it because those of the Muslim faith want to take over the world? If you believe the media, maybe: it is more likely, however, that only a small radicalised group within that religion has such lofty aims. Don’t forget the Catholic Church was responsible for the Crusades to the Middle East (which occurred for a period of around 400 years) and that up until very recently the Catholic Church claimed the only way to ‘salvation’ was to be a practising member of the Catholic Church.

It doesn’t make sense that anyone or anything can support two diametrically opposed arguments at the same time to the elimination of all other arguments — as Abraham Lincoln alluded to in the inauguration speech discussed here. In a similar way, those that use a religious book promoting living a good and just life to justify murder, rape and pillage (such as routinely demonstrated in the religious wars that have engulfed parts of the world in the past millennia) have to be dishonouring the text they claim to be a fundamental belief.

Who demonstrates the morals and ethics of their chosen religious text better? Is it the conservative political leaders who stand by and watch people starve or suffer ill health or the Sisters of Mercy and other religion-based organisations that actively channel profits from provision of services to help those less fortunate? Is it those conservatives who suggest that ‘stopping the boats’ is a worthy aim or those that suggest that Jesus was a refugee and accordingly we should assist and care for those that have felt the need to make the refugee journey? Is it the conservative people who invade a country and impose a rule of law or those with religious beliefs that go about their daily lives and attempt to help someone in need? Without being religious, I know where my vote would go. It isn’t to the conservatives.

What do you think?