Lesson One: Break the Regulatory Shackles
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The August 2016 decision of the Federal Court to award $3.3 million under the Native Title Act to traditional owners who were dispossessed of their land has once again made indigenous affairs a hot topic.
But land justice is a deeper concept than offering indigenous people piecemeal monetary compensation. We need a permanent solution that immediately improves Aboriginal outcomes across a variety of indicators such as life expectancy, employment, and incarceration rates. Aboriginal people have a life expectancy about 10 years less than non-indigenous Australians, are more likely to be unemployed and are 13 times more likely to be imprisoned. It is true that British colonisation and the human rights abuses of previous governments have created tremendous harm to indigenous peoples past and present. For this, appropriate reparations must be made. The current native title system tends to approach the problem by proscribing “traditional owners” who are often senior elders within a group of Aborigines. Moreover, native title can only exist to the extent that there is no superior title to the land (for example, by mining companies or farmers). In practice, its scope is limited. The effect of the present system has been to hamper the entrepreneurial talent of Aborigines living in remote communities. By now, we could have seen many Aboriginal millionaires who could have helped their communities in a far more effective manner than inefficient government programs ever could. Instead, remote communities today are bastions of poverty. In the 1967 referendum, a resounding majority of Australians voted to give the federal government power to make laws with respect to Aboriginal people, wherever they lived in Australia, and to include Aborigines in national censuses. The change aimed to foster a coordinated approach that bypassed the divergent policies of individual states. Today, however, it seems as if less Commonwealth imposed uniformity would have been better. While the referendum was excellent at achieving symbolic outcomes, it has allowed the federal government — for more than two decades since the second Mabo case —- to avoid taking the hard decisions that would lead to progress. In particular, legislation limiting Aborigines to communal ownership of land must be abolished. Giving individuals private ownership of land (a capital asset) is one of the proven means of generating wealth. Freehold title would allow aborigines collateral for investments or housing. If an individual property rights framework were set up, groups of Aborigines could still collectively join together and retain cultural elements. At the same time, those who wished to integrate into the mainstream economy would find it easier to do so. The Commonwealth government should immediately cede control of the bulk of its powers relating to Aborigines to the states. Decentralised federalism is the surest way to accommodate the diverse range of local circumstances that must be taken into account when formulating indigenous land rights policy. The states should conduct surveys of 90 percent of Crown land, and after consultation with historical residents and traditional owners, should randomly allocate each Aborigine over 18 years with a voucher that entitles them to an equal plot of this land (for example, one square kilometre). As some will have received land not suitable to their individual purposes, the states should then manage a barter system to allow Aborigines to trade vouchers until they reach suitable agreement among themselves. The land they now own is freehold, and they should enjoy the same rights as any other Australian. The Aboriginal participants must agree, however, to not launch any future legal claims trying to claim more land. Also, the constitution should be amended so that all reference to race powers is deleted and all laws specifically dealing with Aborigines should be repealed. Henceforth, they must be treated the same as other Australians and must not be provided any special privileges or race-based quotas. Handing back government land to the descendants of the first Australians would significantly reduce the scope of government and remove much of the bureaucracy that has benefited from the native title “industry.” The cost savings achieved would mean income taxes could be reduced for everyone. Second, it would finally give legal title that is not inferior to Aborigines, to use as they see fit. The paternalist mentality driving current indigenous policy would be ended, and there is potential for a major macro boost to the economy. My proposal avoids continuing indefinitely the blame game for poor outcomes and unleashes the productive force of capitalism. Real land rights are what all non-indigenous peoples enjoy. Why should Aborigines be any different? Originally published at The Spectator Australia (20 September 2016). IT IS understandable that Martin Feil (Business, 13/9) opposes free trade on the unfounded argument that it helps "large bullies".
One cannot, after all, expect commentators like Feil to argue government should leave businesses alone, as that would negate the reason for their existence. Indeed, their very jobs would be in limbo if they were to argue for an industry policy that is based on a hands-off approach. An admission that Australia should be left free to develop its own comparative advantage would be to negate the supposed informational advantage "experts" such as Feil possess. In reality, Feil and other industry commentators cannot predict where Australia is most efficient and productive, nor should they need to. Feil will not tell readers of the copious amounts of public choice literature that discuss the incentives powerful lobby groups and commentators have in attracting more attention to their area of specialisation. Most revealing is his discussion of the "virile partnership between the industry and government" in the US. When experts advocate closer links between industry and government, consumers should beware. [Letter to the editor published in The Age, September 27 2006] The big spending promises made by the Liberal-National Coalition and the Labor Party during the recent Australian election campaign show once again that neither party is serious about reining in government spending.
Australia has a public debt of $400 billion. Cutting back on spending is essential if we want to avoid the need to increase taxes on future generations. However, the lack of political will has paralysed any serious effort to take charge of the situation. Both major parties have wasted political capital going after recipients of Newstart unemployment allowance or grandmothers on aged care payments. For example, the Turnbull government supported a bill to crack down on jobseekers who unreasonably refuse offers of employment. This is not exactly a winning strategy since these welfare constituencies are firmly entrenched and – rightly or wrongly – have strong emotional appeal to voters. Witness, for instance, the massive public support for Duncan Storrar, an Ausstudy payment recipient, who rightly complained on ABC’s Q & A television show that politicians aren’t raising the tax-free threshold on the lower end of the earnings scale. Storrar received $60,000 in donations after a crowdfunding campaign was launched to help him with living expenses. The Aussie battler has always had a special place in Australian culture. As a result, it makes little sense to argue for spending cuts that target dole recipients or the disabled. An austerity program premised on making the lower and middle-class give up benefits will face huge resistance. Instead, slashing politicians’ salaries is likely to have broad populist appeal. So, too, is attacking the privileges enjoyed by lobbyists and special interests. A campaign against wealthy elites who siphon millions of taxpayer dollars under the radar is likely to be more successful. Both parties have spent lavishly on politicians and bureaucrats and have handed out millions in subsidies to favoured lobby groups. In effect, Labor and the Coalition have worked the system to their advantage at the expense of taxpayers. The Australian Parliament has authorised generous perks for politicians who are among the highest paid in the world. Federal legislators have received subsidies to buy personal investment properties and attend weddings. Here’s an idea for a campaign: pay politicians no more than the average Australian full-time wage — about $75,000 per year. It is simply disingenuous to argue that politicians must be paid high salaries in order to attract the best and the brightest or that their workload is so intense that they deserve to be paid more. If the state of New Hampshire in America can get by with paying legislators $100 a year, why can’t we? Another potential campaign: stop shelling out taxpayer dollars for useless things. To name a few examples, the Victorian company Palm Products received $360,000 of taxpayer money to develop a coffee travel cup. The old Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education spent $14,000 to buy a coffee table. Finally, the Australian Institute of Sport spent $500,000 on a new logo? And why not scrap grants to companies that contribute directly or indirectly to climate change? Aren’t we supposed to be in the midst of a global warming crisis? All these examples show that cutting spending doesn’t have to be hard. It just requires identifying the areas on which Australians agree. Is there any doubt that voters would respond more favourably to reducing public servant salaries and eliminating corporate welfare than they would to tightening payment eligibility for perceived needy recipients like Storrar? Anyone concerned with government spending and its potential to lead Australia off a fiscal cliff should realise that cracking down on welfare payments means setting aside taxpayer funds to chase a never-ending stream of fraud. Ensuring compliance with rules isn’t cheap. It also sets dangerous precedents for privacy invasion; for example, when a private company such as eBay is asked to hand over customer data to Centrelink for cross-referencing. This is yet another reason why it makes more sense to go after the elites first. In the short-term, it may be better to stop wasting time and money chasing after dole recipients and let them keep their benefits. In the long-term, putting in place policies that create attractive jobs will encourage them to shift into the workforce without having to chase them with draconian bureaucracy that invades privacy. To stimulate job growth, however, taxes must be lowered and unnecessary regulations abolished. Since these free-market policies aren’t easy to get widespread agreement on, why not start small? By picking fights with elites, and obvious rip-offs like a $14,000 coffee table, there is actually a chance of winning. After all, politicians, bureaucrats and politically connected lobby groups are vastly outnumbered by ordinary voters. Originally published at OnlineOpinion.com.au Imagine you are an entrepreneur. As a businessperson, would you start a venture where you were forced to pay workers $100 an hour, a rate which is well beyond what you could earn from them? No — you wouldn’t open a new enterprise if you were guaranteed a loss. Therefore, the only businesses that will thrive under such conditions are those which are sure to recover the cost of labour plus the cost of capital, and also compensate themselves for the enormous risk of opening a business in the first place. This argument, which is persuasive with a $100 per hour wage rate, can be repeated incrementally down the ladder. Labour economists have devoted much effort to empirically estimating the effects of minimum wage legislation on the employment levels of various age, race and gender groups. It is now widely agreed that increases in minimum wages do reduce employment opportunities, especially among teenagers. Perversely, the minimum wage ends up hurting those it is supposed to help. It is clear that the poorest and unskilled labourers are the ones who are crowded out of organised job markets when minimum wages are imposed. One textbook example comes from 1980 in Zimbabwe, where a government decision to set a minimum wage of $45 a month backfired dramatically, causing the dismissal of more than 5,000 workers. Studies on the subject of poverty have found that minimum wage legislation has only a minor effect on the distribution of income. This finding is not surprising, because not all low-wage workers are members of poor families. Many workers on the minimum wage, especially teenagers, are second earners in middle or upper class families. As Des Moorenotes in The Age (5 September 2006), ‘It is plain wrong to characterize the minimum wage as a safety net when more than half the recipients are in the top half of household incomes’. Even the fiercest minimum wage advocates usually concede there is a point when minimum wages would cost jobs. What most advocates of the minimum wage do not grasp is that there’s no known theoretically established rate which can be rationally fixed as a minimum wage. In other words, there’s no person in the world who has a Ph.D. in market interference, and who knows exactly when and where to interfere with the market. Economists make models, but a model is a simplified version of reality and is not the truth. Predictions of positive economics involve the influence of one variable on another, holding all other variables constant. But real-life labour market experiments are difficult to conduct, and economists generally use proxies to draw conclusions. So does the minimum wage help anybody at all? In fact, minimum wages do help certain people. In particular they help the members of trade unions, many of whom are already earning wages above the minimum wage. By making it illegal for employers to hire at market rates (the rate that is deemed mutually suitable to both employer and employee) they minimise competition for the jobs of organised labour and keep their salaries higher than would otherwise be the case in an open and free labour market. They also help lawyers, who are kept busy with reams of industrial relations legislation. This might seem heartless. Surely employees have less bargaining power than employers? Sometimes, they do. Most of the time however, there is competition for labour amongst employers themselves, who use good working conditions and pay as a means of attracting employees. Usually, employees who enter a job at a very low wage rate gain experience that enables them to earn more later. Social interaction with colleagues can prevent depression and provide other personal benefits. With a legally mandated minimum wage however, these options are closed to many looking for work. The fallacy arises when policymakers conflate issues of social welfare with labour market efficiency (which leads to lower prices for the consumer). Increased unemployment is the visible consequence. Concern for the ‘working poor’ might call for a different solution: better targeted welfare. But it does not call for government interference in voluntary wage contracts entered into by employer and employee. The minimum wage would not be such an issue if it weren’t for politicians who have capitalised on the perception that wage controls protect the poor from exploitation. If the poor are in trouble, what is required is to upgrade their skills and to shift their supply to sectors where market demand is growing. This is not an instantaneous process. But it is wrong to penalise small businesses by placing on them the burden of making unskilled workers wealthier than the market will support. Why kill the hen (entrepreneur) that lays the golden egg (of jobs)? John Millard's letter (Opinion, December 19) is a perfect example of the problem with water restrictions - they pit people against each other.
We're now told by our State Government that we should dob in neighbours if we see them watering their garden when they're not supposed to. This mentality cannot be beneficial for community cohesiveness. In reality, water restrictions are a clever way for the State Government to divert attention from its failure to properly manage water. The solution is to move towards a market system where water would be priced according to usage and supply would increase to meet demand. (Letter to the editor, Manningham Leader, January 2, 2008) The Australian federal government largely controls foreign policy, monetary policy and selection of High Court justices. These subjects are where the executive branch has discretionary or agenda-setting power and could make many changes without waiting for parliamentary approval:
1. Foreign policy: As Randolph Bourne suggested, ‘war is the health of the state’ and grows the size and scope of government, thereby diminishing individual liberty under a crushing burden of welfare and warfare programs. The government should stop being bogged down overseas, and instead focus on establishing a defensive perimeter in consultation with neighbouring countries. Defence spending should be frozen in real terms and anti-terrorism laws suppressing civil liberties should be repealed. 2. Monetary policy is under the supervision of the Treasury, whose representative sits on the Reserve Bank of Australia board. The inflation tax – an unrelenting rise in prices at the expense of the poor and middle-class – is pernicious in its effects and circumscribes the health and wealth of individuals; in other words, their freedom. The government should freeze the monetary base or implement a Milton Friedman style monetary rule to increase predictability (these are second-best solutions; the best would be to shift to free banking). Accountability and transparency underlying the bank’s reasoning must be improved. 3. Selection of High Court judges has lasting effects given the retirement age of 70, so the choice of a strict constitutionalist (one who believes in original intent as a method of interpretation) must be made. Just as contracts are interpreted with reference to the intention of the parties, so too should the Constitution. Departure from traditional legal principles is what has undermined federalism and ultimately prosperity. These areas should be the top priorities for libertarians wanting more freedom in Australia. The dominant orthodoxy concludes that the American Revolutionary War could have been fought better without the Articles of Confederation’s voluntary payments system.[1] However a noteworthy contribution that partly qualifies this conclusion is Keith Dougherty’s Collective Action under the Articles of Confederation. Dougherty finds that since states returned 41% of the money requisitions requested for the federal treasury between 1782 and 1789 and 53% of the men levied for the Continental army from 1777 to 1783, there was superficially a free rider problem (elsewhere, he cites historical research from Carp and Rische indicates that the continental military lacked supplies and numbers to buttress the finding that there was underprovision of defence).[2]
Dougherty qualifies his finding, however, by noting that even though 100% of the requisitions requested were not fulfilled, the amounts contributed are still more than the pure theory of free riding would predict should have been contributed given the circumstances. The level of contributions can be explained with reference to a mixture of private and public interests; essentially, states contributed to the federal government when they felt that local interests would be benefited in doing so rather than primarily out of a sense of patriotism or civic duty to the confederation: ‘The system of requisitions did not give the states incentive to contribute to the confederation and the states contributed for other reasons’.[3] An alternative perspective is put forward by Russell Sobel, who disputes Dougherty’s implication that the Articles were an inferior method of financing.[4] Sobel claims, firstly, that a low rate of collection from the states does not prove that the Articles had serious problems because the low rate reflects differing collection methods during the 1700s. Both during colonial times and under the Articles, liberty was given higher priority, and taxes were paid mostly by conscientious and patriotic citizens rather than exacted through force. For this reason the states themselves collected less than 50% of the taxes they levied on their own citizens, and consequently their failure to pass on large requisitions to the federal government is understandable in light of the fact that the efficiency of taxation was not as well developed as in the twenty first century. Second, due to the foregoing reason it is unlikely that even if a system of centralised direct taxation had been in place during the Revolutionary War that it would have raised vastly improved quantities of revenue. It was only during the 1860s that the Commission of Internal Revenue was established to administer the collection of taxation. Sobel points to the experience with direct taxation in 1798, which raised only half of the total amount due, as proof that no system could have raised large amounts of revenue during that period of history. *** [1] Jack Rakove, ‘The Collapse of the Articles of Confederation’ in Jackson, Leonard and Masugi, The American Founding: Essays on the Formation of the Constitution (Greenwood Press, 1988) 225-45; Calvin Jillson and Rick Wilson, Congressional Dynamics: Structure, Coordination and Choice in the First American Congress, 1774-1789 (Stanford University Press, 1994) 239. [2] W.E. Carp, To starve the army at pleasure (University of North Carolina Press, 1984); E. Risch, Supplying Washington’s army (Center of Military History, 1981). [3] Keith Dougherty, ‘Defending the Articles of Confederation: a response to Sobel’ (2001) 109 Public Choice 141, 146. [4] Russell Sobel, ‘In defence of the Articles of Contribution and the contribution mechanism as a means of government finance: A general comment on the literature’ (1999) 99 Public Choice 347-56. The Economist blog writes about the importance of a skilled elite in driving economic development: Few would challenge the proposition that human capital is fundamental to economic growth. Yet much evidence suggests that during what is arguably the most important era of growth—the Industrial Revolution—human capital had little bearing on economic development. Primary school enrolment in Britain, the cradle of industrialisation, was a mere 11% as late as 1850. One of the ways India can achieve its potential as a nation is to place greater emphasis on acquiring public policy knowledge within government and among the broader community. This is because knowledge is actually power. It gives the power to escape poverty, to establish the rule of law and a system of justice that works efficiently, to care for the elderly, and many other things that residents of developed nations, like Australia, take for granted.
When I visited India recently, I was fortunate to have the opportunity to see five different states – Assam, Uttar Pradesh, Haryana, Uttarakhand and Kerala – in the short time frame of one month. I also stayed in the capital territory of Delhi. In Assam I worked with the Society for Empowerment, Service, Training and Awareness Australia (SESTAA, which means ‘to try’ in Assamese) to evaluate the funding needed for a school for disabled children in the town of Goalpara. In Delhi I taught English and general life skills to residents of the Jeewan Nagar slum with the organisation Asha (meaning ‘hope’ in Hindi). Starting this June, I will be employed with Teach for India as a fellow in Ahmedabad where for two years I’ll teach a class of 40 kids English and social sciences. One of the reasons I decided to take on this venture is because I believe that India already has all the natural resources it needs to ensure everyone can achieve a decent standard of living. All it has to do now is acquire the knowledge needed to unleash the nation’s untapped potential, and part of that process involves residents of developed nations mixing with Indians to share what life can be like. What can Australians share with Indians? To start, as a more established capitalist country we can share our aversion to taxing and regulating businesses to death. Since 1947 India has experimented with socialism and this has led to disastrous results (such as malnutrition). On the other hand, Australia ranks among the top ten most economically free countries in the world according to the annual ranking published by the Fraser Institute in Canada. On average Australians are more open to foreign investment and engaging in mutually beneficial trade than Indians. That’s why in 2013 Australia had foreign direct investment inflow of $49.8 billion as compared to India’s $28.2 billion and an average tariff rate of 1.8 per cent to India’s 7.7 per cent. By making it easier for outsiders to set up shop in Australia, the nation has experienced more gains than India as foreign firms create jobs locally. Australians are also sceptical of government ownership of assets and prefer that governments not interfere too much with private enterprise. Since the sale of the Commonwealth Bank of Australia in 1996, all commercial banks in Australia are privately owned. Yet India’s government still retains ownership in several banks. In addition, Australia has partially privatised its public transportation systems, whereas India’s government still owns bus and train companies. Indian Railways, for example, is a loss making enterprise that contributes significantly to wastage of taxpayer funds which in turn keeps the country fiscally unsound. The results are obvious: Australia has a higher life expectancy than India, higher income per capita, safer roads and less corruption among the political class. With respect to corruption, I anecdotally know of a case where an engineer paid $50,000 to the minister to secure a promotion within the Public Works Department – and this is just one job promotion for a single individual; imagine the total value of bribes a minister in an Indian state must be getting each year! When it comes to intercultural exchange of knowledge on how to improve India, organisations like Asha and Teach for India are doing excellent work. Asha’s founder Kiran Martin has met with Australian, British and American politicians, and the organisation regularly hosts students from overseas who become involved in their work across Delhi. Teach for India (a partner organisation of Teach for Australia) recruits persons of Indian origin based overseas so as to provide a varied learning experience to the students they mentor. I don’t mean to suggest that it’s a one-way street though. Indians have much to educate Australians about too. The Indian Institutes of Technology are respected around the world and their engineers go on to get jobs at major companies in countries such as the United States of America. In the fields of science and mathematics, Australia can definitely stand to benefit from a dialogue with India. Teach for India, SESTAA and Asha are all organisations that fill in the gaps left by ministers and bureaucrats too busy enriching themselves with bribes to remember that their primary role is to serve the people. Ultimately it won’t be politicians that save India but rather a concerted effort generated by ordinary people residing in India and the rest of the world. |
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