Saturday, August 24, 2002

Son of a Tale of Law and Economics

Reaction from Jason Soon to yesterday's rant on "law and economics" and Richard Posner. Also see our exchange via "comments" to yesterday's rant. John Quiggin has also now weighed into the debate.
A tale of law and economics

ANU economist Alex Robson appears to be keen on the "law and economics" movement, whose principal promoter is the prolific US judge and public intellectual Richard Posner. Incidentally, Robson's other current claim to fame is that he is organising an anti-Kyoto Protocol petition to counter the one being promoted by ANU colleague John Quiggin and the Australia Institute's Clive Hamilton. Whatever the climate globally, it's safe to assume it's fairly warm at present in the ANU economics faculty.

Now, if you have no idea what the "law and economics" movement is all about, don't worry. You haven't missed anything important, it's just another American apologia for neo-liberalism (aka feral capitalism), although quite an influential one in some circles (notably Jason Soon and friends).

Essentially, Posner seizes on economics' Coase Theorem, and proceeds (usually) to misapply it to legal situations where it is plainly inappropriate. Robson unwittingly provides a perfect illustration of this. As summarised by Robson, Coase Theorem concludes that:

"if parties are given the opportunity to bargain around legal rules, then efficient solutions will tend to emerge. To the extent that government regulations prevent such mutually advantageous bargaining taking place, the Coase theorem suggests an important corollary: regulations which create artificial impediments to bargaining and contracting should be abolished."

Ronald Coase argues that market-based solutions will generally be more efficient than regulatory responses, but with the important proviso that information and transaction costs for both parties must either be zero or sufficiently low that there is (in effect) a reasonable degree of equality of bargaining power. Coase himself acknowledges that this proviso will very frequently not be satisfied in the real world, and (unlike Posner and followers like Robson) is by no means a single-minded advocate of markets as an economic panacea, stressing that:

"it does not imply, when transaction costs are positive, that government actions ... could not produce a better result than relying on negotiations between individuals in the market. Whether this would be so could be discovered not by studying imaginary governments but what real governments actually do."

Coase expanded on this qualification in the following passage:

"From these considerations it follows that direct governmental regulations will not necessarily give better results than leaving the problem to be solved by the market or the firm. But equally there is no reason why, on occasion, such governmental regulation should not lead to an improvement in economic efficiency. This would seem particularly likely when, as is normally the case with the smoke nuisance, a large number of people is involved and when therefore the costs of handling the problem through the market or the firm may be high."

Now, what is the relevance of all this, you may ask? Well, the immediate pretext for Robson's championing of "law and economics" is his claim that SMH business journalist Ross Gittins had displayed abysmal ignorance of matters both legal and economic in an article in last Wednesday's SMH. Gittins wrote what I thought was a very perceptive article about the dangers involved in currently proposed amendments to the Trade Practices Act, which would allow companies engaged in "recreational services" to insert contractual waivers excluding liability for negligence causing death or injury to their customers. The amendments are among the numerous panicky legislative responses to large rises in liability insurance premiums in the wake of the HIH collapse etc. Robson thinks these amendments are a great idea.

Somewhat bizarrely, Robson asserts that Gittins failed to understand that the effect of a waiver clause was not to exclude legal liability, but just to convert the basis of that liability from tortious to contractual:

"If parties decide", Robson says, "to contract with one another, then the relevant law is contract law, not accident law. Parties to agreements are still protected under this law, and so it simply not true, as Gittins claims, that businesses would be able to avoid legal responsibilities. Businesses and consumers simply take on different legal responsibilities."

With respect, this is plain nonsense. The very purpose of the proposed TPA amendments is to allow companies to exclude contractual liability for negligence. It is an integral part of a proposed co-operative Commonwealth-State response to the insurance premium crisis. The States' part will be to legislate to allow businesses to also exclude tortious liability to their customers (because the Commonwealth does not generally have constitutional power to regulate tort law). The intended end result is that customers won't be able to sue recreational services businesses in either contract or tort. Gittins is therefore dead right, and Robson dead wrong. Robson would be well advised to read carefully the Commonwealth Parliamentary Library's Bills Digest on the TPA amendments. A noteworthy aspect is that, although Minister Senator Helen Coonan promised that the amendments would contain safeguards to protect consumers, the Bill as introduced contains no such safeguards. Fortunately, a recent court decision suggests that consumers might nevertheless still be able to sue recreational businesses for misleading and deceptive conduct; but that is neither a tortious nor contractual remedy, but a statutory one, and would only be available if a promise of safety is made by the operator.

Robson's grasp of the economic case seems almost as questionable. He concludes (somehow) that the amendments would satisfy the proviso to Coase Theorem:

"The critical and most relevant part of Coaseā€™s result is that the parties must be able to identify exactly who might be damaged, and the costs involved in negotiating agreements must be sufficiently low. These assumptions are not satisfied in many examples involving potentially harmful accidents, but they do happen to apply to businesses which provide recreational activity involving 'significant physical exertion'."

Note that, as Posner also typically does, Robson baldly asserts that the crucial proviso to Coase Theorem (about reasonable equality of bargaining power) is satisfied by the TPA amendments, but makes no attempt to establish any rational basis for that proposition. He then proceeds, somewhat patronisingly, to suggest that Gittins doesn't understand the proviso to Coase Theorem. Certainly, Gittins fails to mention it expressly (it's a newspaper article, after all, not an academic discourse), but his exploration of the issues clearly shows that he is well aware of it. Gittins also effectively demonstrates rather conclusively that Robson's assertion that the TPA amendments satisfy Coase Theorem is utterly misconceived:

"Why is it the business" Gittins asks, "that's best placed to bear the responsibility? For a start, because it's best placed to know what the risks are. As a business, it's engaged in the activity day in, day out, and in some cases will have had professional training in the area. In contrast, a lot of the customers may be beginners or take part in the activity infrequently.

But as well as having more information, the business obviously has greater control over the conditions in which the service is provided. Each customer can't erect their own safety handrail, for instance, but the business can easily erect one handrail for use by all customers.

It's likely that in general, customers will tend to underestimate the risks involved in an activity. Often, the probability of a bad accident happening to an individual user will be extremely low, even though the cost of such an accident, should it happen, is very high.

For instance, the probability of someone being thrown from a horse at a particular angle and at a sufficiently high speed to have his or her neck broken may be very low. But if it happens, the cost in terms of reduced amenity of life and earning capacity is huge.

Mathematicians and economists know that, in such cases, you have to multiply the low probability by the high cost to make an accurate assessment of the risk (the "expected loss"), but ordinary mortals are likely to underrate it."

Game set and match to Ross Gittins, I would have thought. Of course, the real (and very much intended) effect of "law and economics" advocacy in almost every case is to provide a pseudo-economic basis for shifting risks and costs from businesses to consumers and/or employees, and ultimately on to the taxpayer via the social security and Medicare systems. Negligent businesspeople can then "maximise utility" all the way to the bank, while their injured customers try to make do in a wheelchair on a disability pension.

For anyone interested in reading more about the nonsense on stilts known as "law and economics" and the misuse of Coase Theorem by people like Posner (and by extension, Robson), I recommend Picciotto and Campbell, "Exploring the Interaction between Law and Economics: the Limits of Formalism", (1998) Legal Studies 18(3): 249-278. It's well worth the effort.

Friday, August 23, 2002

More on refugees

Rob Schaap takes exception to my Baktiari rant (good! it was intended to be provocative). However, he seems to have misunderstood my reference to John Howard's reaction to the news of Ali's confession. Rob, it was a weak attempt at irony, not a slap at refugee advocates (that's why I put "bleeding heart" in inverted commas. I'll try to be less oblique next time).

As for Rob's point that huge flows of refugees are in large part a product of the north-south poverty gap, I couldn't agree more. I'll get onto that subject some other time. Don't assume that I'm just a hard-hearted right winger in this regard. I just think it needs some careful thought about possible solutions, not just knee-jerk denunciation of government bastardry.

Finally, Rob, the logic of your recitation of the evils of Pakistan compels a conclusion that anyone from that country who has the money to get to Australia (or at the very least everyone of Hazara ethnicity) ought to be allowed to stay here. Is that really your position? If so, and given the financial costs involved in an onshore refugee policy of that type (if you can call it a policy), how would you propose that Australia could then find the funds to assist any of the other 35 million displaced person world-wide? That's ultimately the problem with such a position: unless you think countries should magically be able to devote effectively unlimited budget resources to refugees, the result of an "open door" onshore policy is to divert scarce dollars away from the refugees who are in the most desperate need. The task of finding ways to prioritise compassion is one that all governments face, however much some "bleeding hearts" might like to imagine it could somehow be otherwise.
Baktiari Blues

Ali Baktiari 's belated confession that he is really from Pakistan after all (not to mention his claim that he had told DIMIA this all along - they must have just misunderstood him because of the language difficulty) would not have come as a surprise to readers of the Australian, whose reporter in Afghanistan had been unable to find anyone in his home village(s) who'd ever heard of him.

It came as even less of a surprise to me, because I began hearing over 12 months ago, from contacts in DIMIA, that they were receiving complaints from the local Afghan community to the effect that a significant minority of "Afghan" refugees granted protection visas were actually Pakistanis. That news in itself should have been predictable, because I knew that the acceptance rate as genuine refugees for Afghan asylum seekers up to that time had been an almost unbelievable 80% or so (compared with the overall success rate of around 30%).

On the other hand, it was heartwarming to see our beloved Prime Minister sinking the slipper into "bleeding heart" refugee advocates by reassuring Australians that he "did not derive pleasure from the news" (I wonder who he thinks he's kidding).

Now, before you go typecasting me as just another right wing blogger beating up on an obvious soft target, let me first make a claim for a modicum of bleeding heart virtue myself. I have acted for quite a few asylum seekers over the last decade, every one of them on a pro bono basis. However, frankly, that makes me even angrier about the Ali Baktiaris of this world. Public support for Australia's continuing commitment to the 1951 Refugee Convention is already fragile enough without a revelation of this sort of scam. Moreover, according to Ruddock's office, another 700 of the 4,000 Afghans already granted protection visas are also under investigation for suspected Pakistani origins.

The ones I really feel sorry for are the 5 Baktiari children, whose parents knowingly subjected them to more than a year of traumatic detention at Woomera to further their fraudulent scheme. Of course, the Howard government is also complicit; I'm not a supporter of mandatory detention of children by any stretch, but we shouldn't lose sight of the fact that the primary responsibility for the plight of detained children of bogus refugees lies with their parents. Almost all the asylum seekers currently in mainland detention are in that category.No asylum seekers have arrived in Australian waters, and been detained in Australia, since before "Tampa" in August last year. That time period means that all (or almost all) current mainland detainees have been found not to be refugees, have then lost again on a full independent RRT merits review, and are now at some stage of exhausting their judicial review rights. The Muin and Lie decisions by the High Court a couple of weeks ago will prolong the review process by a year or more, but it is safe to assume that only a tiny proportion of the failed applicants will ever get a visa.

A sad and almost unappreciated irony of the whole Baktiari saga was when misguided (but conceivably well meaning) refugee activists took the 2 escaped Baktiari boys to the British consulate in Melbourne to seek asylum. What few people (and obviously no-one in the media) apparently knew was that Britain's acceptance rate of Afghan asylum seekers has never exceeded 30%. If they couldn't successfully negotiate the relatively generous Australian system, they had Buckley's chance of getting into Britain.

Moreover, most other European countries are even less generous. Australia's overall acceptance rate for onshore asylum seekers hovers around 30% over the long term. Most European nations consider themselves excessively generous if they approve 12%. Many of them have a so-called "white list" system which either conclusively deems asylum seekers from a long list of designated countries as not being at risk, or subjects them to perfunctory processing with a strong presumption against genuineness. These are the people who were lecturing the Howard government about breaching human rights standards. The reality is that, leaving aside the appalling mandatory detention system, figures show that Australia's approach to asylum seekers, even under Howard and Ruddock, is more compassionate than any other country with the exception of Canada.

Finding a workable alternative to mandatory detention is by no means easy. Britain does not detain most asylum seekers, and the Home Office was recently forced to admit that the result is that around 2/3 of unsuccessful applicants simply disappear into the illegal economy before they can be deported. There is no reason to believe that Australia's experience would be any different if we had a similar system. On the other hand, there are more than 70,000 illegal overstayers at large in Australia at any given moment, a fact which has never given rise to any public fear and loathing at all. It might have something to do with the fact that most of them are Americans and Poms with pale skin.

In a broader sense, the Baktiari story is replicated throughout the western world. All western countries are experiencing "compassion fatigue", and politicians everywhere are reacting to adverse opinion polls with standard "law and order"-type responses. The Refugee Convention itself is under question. Its architects didn't foresee a seemingly permanent worldwide refugee and displaced population of around 35 million people. Nor did they anticipate the emergence of people smuggling gangs moving an astounding 1 million people each year for an annual income of more than $10 billion. It's almost as profitable as heroin, and a hell of a lot safer for the traffickers! Solutions to this crisis of compassion won't be easy, but it's certainly worth puzzling about it. We should never lose sight of the fact that very many asylum seekers really do face trauma, torture and death. They're not all Ali Baktiaris. That, however, is a subject for another day.
NT Labor government - triumph, disaster or just another mob of pollies

Earlier this afternoon, a comment posted by Glen Cordell asked me how I thought the Northern Territory's Martin Labor government was going. Given that I live in Darwin and that it is almost exactly 12 months since Clare Martin and her team won government after 26 years in the electoral wilderness, it was a reasonable question. Moreover, I gave what I thought was a reasonable (if short) response:

" As for Clare Martin," I said, " I think she's going extremely well. They just handed down their first budget, which went over very well with every section of the community, including big and small business. I might not be a totally objective judge, however, because I was once a Labor politician for a short time (although I'm not now a member of any party)."

However, inveterate blog watcher Wayne Wood, also a Darwin resident, violently disagrees. Wayne sent me an email in the following terms:

"I'm amazed that anyone is interested in politics in the Territory. I flew back from Amsterdam to vote for Territory Labour as I have done since I arrived in the NT in 1980. You could say I'm a bit passionate about Clare becoming the first labour leader in the history of the NT assembly. I worked with her when she was an announcer at the ABC. And I'm really, really disappointed with the government's performance. It smacks of Whitlam in 1973 without the personalities of Jim, Junie and big Frank.

From the outside it appears that the whole government is a rabbit caught in headlights - paralysed into inaction - sitting there waiting to be picked off by Burke. Senior public servants have resigned en mass and middle management, those who can't get a job outside the PS, practice the only skill they mastered under the CLP government, procrastination.

Clare started off blaming all her ills on the 'black hole' - a $100 million deficit left by the previous government. Well, she would wouldn't she, you'd think her advisors would come up with a new tack. Instead of thinking about ways of reducing the deficit (selling NT Fleet, commercialising the aquaculture centre etc.etc.) she brought down a budget INCREASING the deficit. In my opinion they have no strategies, just a short term plan designed to maintain the facade until the next election. I suspect that they will suffer the same fate as Whitlam, I only hope it's not another 26 years before they get back in."

Personally, although I can understand why Wayne holds these views, I prefer to have a bob each way. Nor do I think the comparison with the Whitlam government is an apt one. In fact, the Martin government's performance has been the antithesis of the Whitlam years. As NTU political historian David Carment recently observed, many strong Labor supporters (of whom Wayne is obviously one) are disappointed that, in contrast to their hazy recollections of the Whitlam years, they don't wake up every morning to read a list of the revolutionary changes implemented by the new government in the previous 24 hours.

What Wayne ignores, of course, is that the Whitlam "crash through or crash" style is regarded by many as one of the prime reasons why it only survived for less than 4 eventful years. Mind you, many of the reforms introduced in those years were much needed and have stood the test of time.

Instead, Clare Martin's government has adopted the same cautious approach applied by every other State Labor leader. It may be boring, even uninspiring, but in pragmatic political terms this is the way to stay in government. It isn't a coincidence that every State and Territory currently has a Labor government, or that Clare Martin is emulating the gradualist approach that has proved so successful everywhere else. It's still 3 years until the next Territory election, and the Martin government's fate will be determined by how the economy looks at that time. If the Darwin-Adelaide railway and mooted natural gas projects end up stimulating strong and ongoing growth, then they'll be re-elected. If not, then Wayne might be right, but it won't be because of what Clare did or failed to do in her first 12 months.

The real danger, as in every other State, is that the "softly, softly" blueprint ends up delivering little in the way of real reform. Reactive conservatism born of electoral populism is an endemic failing of social democratic governments: you only have to look at Tony Blair. When does pragmatic politics become political paralysis? How does a supposedly reformist government judge when to be "courageous" (in the Sir Humphrey Appleby sense)? Is it an example of power's propensity to corrupt? Buggered if I know. If I did I'd have a lucrative consultancy from a Labor government by now!

As for Wayne's other criticisms, his perception that Clare has flogged the "blame the CLP budget black hole" excuse for long enough, I suspect that she has already received that feedback and switched the rhetoric. However, she's hardly unique in seeking to blame the previous government for as long as she can get away with it. In fact, I can't remember a government anywhere in Australia that hasn't done so. We shouldn't be too precious about these things. Moreover, there is no doubt at all that there really was a budget black hole. Indeed the CLP's deficit in its last budget was actually $109 million rather than the $9 million it had claimed before the election. That's a pretty significant figure in a small jurisdiction like the Northern Territory. What's more, that was only part of the budgetary fraud perpetrated on voters. CLP Treasurer Mike Reed came up with an Enron-style exercise in cooking the books, when he strong-armed Departmental CEOs to sign off on figures understating their expenditure in the previous year, so that budget commitments in the election lead-up would give an illusion of increased spending in popular areas like health and education. Unfortunately (for him) the CLP lost anyway, and the Health CEO blew the whistle on the scam, which was later confirmed by other CEOs and the Under-Treasurer in Public Accounts Committee hearings. To its credit, the Martin government has now introduced a Parliamentary Estimates Committee, a critical accountability institution taken for granted everywhere else, but which the CLP had resisted for years. It should prevent a repetition of Mike Reed's scam by enabling Oppositions to quizz senior public servants on the bases of their department's forward estimates.

Turning to Wayne's criticism of the Territory budget just handed down, I don't think the deficit increased (at least not over that of the former CLP government). My recollection is that the budget deficit is around $94 million, in contrast to the CLP's actually (though secretly) budgeted $109 million. It may be more, however, than was actually achieved in the year just ended because of the very tight mini-budget the Martin government introduced shortly after it came to power. The planned budget deficit elimination target date has been stretched out to 4 years instead of the 3 foreshadowed in the mini-budget. What Clare is doing is working on a classic Keynesian short-term "pump-priming" strategy, because the Territory has been in an economic slump for close on 2 years now. Of course, neo-liberal orthodoxy would nevertheless dictate a slash and burn budget with numerous programs slashed and large scale public service sackings (or alternatively privatising anything that makes a profit). Personally, I applaud Clare for rejecting such policies. Admittedly it's a high risk strategy, because the CLP bequeathed us the largest public debt of any state or territory after 26 years of its quaint, corrupt brand of business-mate subsidising Keynesianism. Whenever I came out with vaguely neo-liberal critiques while in the Territory Parliament, a CLP minister would drawl disbelievingly "Christ, you'r not one those bloody economic rationalists, are you?" Of course I wasn't, but nor were they! The bottom line is that Clare is gambling her government's future on the railway and gas stimulating substantial growth. If it doesn't happen she's in real trouble. If it does, she'll be everybody's hero. Come to think of it, in this sense at least, it's not entirely unlike Whitlam's "crash through or crash" approach after all.

Thursday, August 22, 2002

More on global warming

Here's a link to a slightly stroppy discussion list exchange I had this morning about global warming. I won't reproduce it here, but it's worth reading for anyone interested in the greenhouse debate. I'm working on a longer piece that I'll post here later.
Hobson's choice

I notice that a blogger (I can't remember who) was sounding off yesterday about Margo Kingston's misspelling of Byron Bay (where she has just spent a 3 week holiday) as "Bryon Bay". The blogger in question clearly regards Margo's orientation as far too leftist for his tastes. However, I thought a far more interesting (not to say depressing) aspect of Margo's "comeback" column was her revelation about events behind the decision of Labor members of the Senate "children overboard" enquiry to wind it up without bothering to subpoena Peter Reith or any ministerial staff (their evidence being relevant not only to "children overboard" itself but also to the sinking of the SIEX X with the loss of 352 lives. Margo reported as follows:

"Brandis [the Liberal Senator running interference at the enquiry] called their bluff when Dems Senator Andrew Bartlett moved a motion at a private meeting of Senate inquiry members that the reluctant witnesses be subpoenaed to appear. Brandis specifically conceded that the committee had the power to do this, and the three Liberal committee members abstained. Labor voted against, so Bartlett, and the Australian people, lost.

Brandis reminded me today that the inquiry "opened the batting between Crean and Howard after the election - look at how comprehensively Crean has wrong-footed himself."

Personally, I just don't believe that John Faulkner caved in off his own bat. He's put too much hard work and passion into it - particularly on the SIEV-X tragedy - to do so. I reckon he's been rolled."

Obviously the ALP does not want to create a precedent that might result in its Ministers actually being accountable to the Parliament and people in any meaningful sense when they eventually get back into government federally. By the way, for the blogger who thinks Margo's fixation on the "children overboard" enquiry is just a manifestation of her leftist sympathies, may I suggest that you think again. Public accountability, transparent processes and opposition to the politicisation of the public service are core liberal values. Scoffing at them doesn't demonstrate your liberal (or even libertarian) credentials, it just shows you are a knee-jerk Tory apologist.

Even more depressingly, and despite the window-dressing of the Wran-Hawke report on party reform, the ALP machine has just imposed on local branches a centrally-appointed candidate for the seat left vacant by the retirement of Stephen Martin. Martin has correctly concluded that federal Labor politics is a waste of time and effort while Simon Crean remains leader.

Then it reaches wrist-slashing time when you also watch the Democrats ritually disembowelling themselves on national television. When you're a person who can't think of anything good to say about John Howard apart from the fact that at least he's not as bad as Costello (and that he refuses to ratify the counterproductive Kyoto Protocol), it really doesn't leave too many options when it comes time to vote at the next federal election. As I observed yesterday, the only hope for people like me is that the moderate Dems realise the futility of battling the leftist Stott-Despoja majority, and muster the intestinal fortitude to leave the posionous fairyland womb and start a new party.
Public intellectuals?

I've just been reading an interesting piece by John Guiggin about the role of public intellectuals, and an even more interesting extrapolation by Tim Dunlop. Tim says that "bloggers are the new public intellectuals". Here's my response.

Yes!! I couldn't agree more, although my own very recent discovery of the wonderful world of blogging has also involved discovering more than a few examples of unintellectual or even anti-intellectual thought (at the risk of stating the blindingly obvious). There's also more than a hint of pseudo-intellectual poseurism from time to time. No doubt, however, that is just part of the great marketplace of ideas (or anarchist collective if you prefer).

I also agree with Tim's point on celebrity being misconceived as a necessary attribute of public intellectualism (Quiggin seems to succumb to this misconception by labelling himself "rank-and-file"). It isn't about fame or self-aggrandisement, it's about civic dialogue and infusing rigorous analysis into debate on issues of current relevance. It's also about engagement with the broader community instead of preserving an elitist ivory tower sense of superiority, and a conviction that lots of people are interested in the world of ideas if exposed to it in an accessible and interactive way (because you learn much more by interaction than more passive modes). And it's about learning and broadening one's own ideas, and engaging in a cross-disciplinary way with the world of thought, with a view to mitigating the adverse effects of over-specialisation and re-introducing some viable notion of the "renaissance person" despite ever-increasing complexity in all areas of endeavour.

I guess the issue I haven't yet worked through is that of the extent of influence/engagement one achieves through blogging. Maybe that is why John Quiggin includes celebrity amongst the assumed attributes of the public intellectual: celebrity guarantees broad media coverage. In some respects bloggers are still a pretty incestuous little group. Two hundred or so "hits" per day doesn't suggest a very impressive level of penetration of mass consciousness. Maybe it's just that blogging is so new and needs time to grow, but I suspect more bridges are needed to the wider world of mass media. People like Tim Dunlop, Don Arthur etc being published in Margo Kingston's web diary (which has a very large audience) certainly help to build those bridges, but a lot more is needed. Persuading Margo to include a permanent links list of Australian bloggers at the side of the Web Diary page (and maybe some teaser quotes from current blogs) might be a good start. If one aims to achieve some measurable enrichment of democratic, civil society (as I would like to think is possible), you need to attract a wider audience without destroying the intimacy of engagement that makes blogging so attractive. How one could achieve that without polluting the medium with obnoxious morons (of the sort who regularly decimate most email discussion lists) is by no means obvious.

Finally, I don't agree with Paul Wright's comment that there needs to be some sort of a paypacket before the notion of the public intellectual becomes viable. I suppose it's easier for me in a sense, because at least to some extent participation in public debate is part of the role of a salaried academic (although not one for which you receive any direct credit). However, if we expect that anyone is going to pay us for blogging we are likely to be disappointed. It may sometimes spin off into a commissioned piece for a newspaper, magazine or whatever, but ultimately I think this is part of the growth of a cyberspace verson of Athenian participatory democracy, where engaging in civic debate is a proudly accepted part of the role and obligation of every citizen.
What about the game they play in heaven?

I was just browsing at Scott Wickstein's Ubersportingpundit blog, having become bored watching crappy ABC comedies. My accountant is funnier than Peter Berner (and looks a lot like him too). I was disappointed that Scott's site contains nothing at all about rugby, and only a single reference to rugby league (a dismissive one about the Bulldogs' salary cap debacle). Now I can't say I blame Scott for ignoring league, because if they insist on self-destructing why should anyone bother to take any notice of them except as figures of derision? But rugby union is another thing entirely. Scott, rugby might not be as big or universal as soccer, but it has genuine claims to be a world football code (unlike your beloved Aussie Rules). Moreover, the World Cup is in Australia next year, so I reckon you'd be well-advised to develop a rugby coverage before then. If you don't know anything/don't give a rat's personally, why not try and recruit a volunteer to cover it (not me, but there must be someone out there in blogland willing to have a go)?

BTW, I would have preferred to put this as a comment on Scott's site, but he doesn't have a comment function. Pity!
Small font

Thanks to all the people who have told me that the blog font is too small. I know!! I have increased the size of the font from 10pt to 12pt, which seems to help a bit (i.e. in IE6 it now actually looks like it is 10pt, whereas it previously displayed as 8 pt or less). The problem is that when you look at the pages in Netscape 6, they do display as 12 pt. If it weren't for that I'd just keep increasing the font size until it looks right. Presumably there is some sort of problem with the code in the Blogger template I chose, or a browser conflict created by some additional code that I inserted. I don't really want to change templates at this stage, because it took quite a lot of work to get this one to where it is. Can I just suggest that people having too much trouble reading the text use Netscape? Or does anyone have any other ideas?

Wednesday, August 21, 2002

On crime and punishment

Browsing at some other blogs just now, I noticed that Jason Soon and friends have been musing about theories of deterrence and the like, in the context of the furore over the 55 year sentence handed out last week to the Sydney multiple pack rapist. So have John Quiggin and Scott Wickstein. I thought it might be useful to provide a couple of links to articles on the subject. Both are in the Melbourne University Law Review, one by Bagaric & Amarasekara and the other by Duff .

The first is probably the more useful, because it gives an overview of the state of criminological research on the factors usually said to be relevant to criminal sentencing: retribution/punishment; rehabilitation; general, special and marginal deterrence. All but retribution are said to be utilitarian-based sentencing theories, in the sense that their object is reduction in crime levels.

Here is a quick summary of the research on the utilitarian bases:
1. General deterrence works only in an absolute sense i.e. offenders in general (not the particular offender in question) are deterred by increasing the probability of getting caught (or rather the perception that this is the case), and by a concrete punishment of imprisonment. However, it appears that the length of imprisonment imposed is irrelevant. However, it would not be very persuasive to argue that a serial rapist should only be imprisoned for a short time because that is just as effective in a utilitarian sense (and cheaper) than a longer sentence.
2. There isn't much reliable research on specific deterrence (i.e. deterring the offender himself from doing it again). However, the evidence that is available supports the view that severe punishment (namely imprisonment) does not deter offenders: the recidivism rate of offenders does not vary significantly, regardless of the form of punishment or treatment to which they are subjected. This seems counter-intuitive, but might be because any deterrent effect is outweighed by the negative effects of imprisonment, including institutionalisation, the making of new criminal friends while in prison and learning new criminal techniques from them. Again, however, the ineffectiveness of specific deterrence does not really commend itself as an argument for not imprisoning a multiple rapist, or doing so for only a short time.
3. Marginal deterrent effect (i.e. the general deterrent effect of varying the term of imprisonment) is not demonstrated by the research i.e. there is no firm evidence that increasing penalty levels results in a reduction in crime. Indeed, for homicide, "the studies go further and suggest no discernible relationship between the presence of the death penalty and homicide rates". Again this is counter-intuitive, although may be explainable for homicide in that most murders are crimes of passion which don't involve much calculation of consequences. However, you might expect a more demonstrable connection in crimes where a greater element of planning and calculation is present e.g. the multiple gang rapes we are dealing with here. Nevertheless, the research doesn't show it.
4. As for rehabilitation, until fairly recently the evidence here also showed no discernible effect on recidivism rates irrespective of whether any treatment/rehabilitation program was undertaken. More recent research is a bit more promising, but "the most that can be said confidently at this point regarding the capacity of criminal punishment to reform is that there is some evidence that it will work for a small portion of offenders and that there is no firm evidence which shows that it cannot work for the majority of offenders".

So much for all the trendy theories usually trotted out by defence lawyers to justify light sentences. It looks very much like the best approach in relation to serious violent crime (rape, murder, very serious armed robberies) from a truly utilitarian viewpoint would be simply to lock up the offender and throw away the key until he is too old to keep offending. Maybe that is what Justice Finnane really did with his 55 year sentence.

However, it is wrong and misguided to assert (as defence lawyers and some civil litertarians often do) that retribution, the other major basis for criminal sentencing is somehow disreputable and has no utilitarian aspect. Retribution, it should be stressed, was traditionally the dominant factor in sentencing until trendy psychiatric approaches regarding the offender as a victim who needs tender treatment began coming into vogue in the first part of the twentieth century. There is in fact a very strong utilitarian underpinning to retributive approaches to crime i.e. proportionality - let the punishment fit the crime. First, proportionate retributivism maintains public confidence that we live in a just society with a principled legal system which takes seriously the safety of the community. As such, it guards against the development of vigilante-ism, which could occur if sentences were seen as consistently inadequate, especially for serious crimes which outrage the community.

Secondly, and far less often understood, a strong and just sentence is a critically important factor in allowing the victim and family to achieve closure and begin recovering from the trauma the offender has visited on their lives. This factor was very evident in the profound relief shown by the 4 Sydney rape victims on hearing that at least one of the animals who had so destroyed their lives was going to spend the next 40 years or more in prison. In my view this is by far the strongest demonstrable utilitarian effect involved with any of the possible theoretical sentencing bases. It justifies giving primary emphasis to the needs and interests of the victim in the sentencing process, although defence lawyers of course regard any such idea as utterly outrageous.

Lastly, I should say that I strongly disagree with the argument, advanced by people like criminologist Mark Findlay in the Australian, which appeared to assume that rape, even multiple gang rapes, could never be as serious as murder. I would certainly be the last one to minimise the seriousness of homicide, but this assumption is just wrong. I don't have the space or time to rehash all the appalling facts surrounding these crimes, but I must say that I would find it hard to imagine more grave circumstances (which is precisely what Justice Finnane found). If you can't impose the heaviest available sentence for a series of crimes at the top of the range of seriousness, then when is it appropriate to do so? To suggest, as Findlay does, that the sentence was actuated by a "vengeful public sentiment", or that we should instead be "confronting a rising tide of misogyny in our society", is frankly bizarre. This is the sort of pseudo-rational bleeding heart nonsense that gives academic lawyers a bad name.
Fear and loathing in fairyland

I don't think there is now any real doubt that the parliamentary wing of the Democrats is split beyond repair. There is no way that NS-D, Bartlett and Greig can ever work co-operatively with Ridgeway, Cherry, Allyson, Murray (and Lees) after all that has happened. One of the gang of three is bound to stand for the leader's job and, given the large influx of solidly left-leaning NS-D-supporters during her leadership, would almost certainly win the constitutionally-required rank and file ballot. Even if Ridgeway manages to win a membership vote (probably only if the gang of three resists the urge for payback, which is unlikely), he just doesn't have the intellectual or political skills to hold the parliamentary wing together. Cherry is apparently talking about Ridgeway being a "figurehead" leader, with the other members taking the real workload. That might have worked had it occurred a couple of years ago, but events since then have made the situation irretrievable. The party has not been helped by the excessively autocratic approaches of both Lees and NS-D as leader. This is a style which would work well in a traditionally-structured party like the Libs or ALP, but not in one where parliamentary members' right to a conscience vote is enshrined in the constitution, and where members hold seats (in some cases for the next 6 years) which they can't be forced to surrender (despite the fairyland provision requiring them to do so).

From a slightly different perspective, one might reasonably conclude that combining constitutionally entrenched rank and file control with a "conscience" voting right for the politicians was always eventually doomed to self-destruct. In a party whose genesis lay in seeking "keeping the bastards honest" compromise outcomes, the seeds of conflict between a pragmatic parliamentary wing and a purist rank and file were always present irrespective of the personality or capacity of the leader. The long succession of acrimonious leadership changes is testimony to a constitutional structure that was ultimately unworkable.

Apart from those structural issues, the current split in the parliamentary wing seems to have been fuelled in equal measure by policy/strategy differences and personal animosities. The personal animosity factor is obviously very significant. Moreover, I don't think it is just a hangover fit of pique stemming from the rank and file vote which deposed Lees and installed NS-D. A fascinating story in this morning's SMH spells out aspects of the behaviour of NS-D and her personal staff which clearly fuelled simmering animosities that eventually culminated in yesterday's deliberately provocative party room resolutions. If the story is true, it indicates that NS-D's leadership style has been intolerably immature, divisive and manipulative. I can't help recalling a discussion forum post to not so long ago from an obviously well-connected Democrat who suggested that NS-D had simply transferred her authoritarian and divisive Adelaide Uni student political tactics into the Democrats, giving rise to understandable resentment on the part of colleagues subjected to that sort of nonsense. Maybe having strong factions around to discipline recalcitrant politicians, allowing the leader to avoid getting blood on his/her hands, is not such a bad idea after all.

I think the policy/strategy difference between the opposing groups of senators is not so much a right/left one but rather a slightly more subtle question. Are the Dems a "balance of power" party seeking principled middle ground compromise positions between the Coalition and ALP and achieving real world policy outcomes, or a solidly leftist outfit competing with the Greens for socialist and environmental purity? Had it not been for the accumulated personal animosities, the task of carving out a principled middle ground position might actually have been easier at the moment, with the ALP drifting back imperceptibly towards the left while in opposition. Moreover, the GST, which triggered the split in the first place, is now a dead issue (however much of an unpopular nightmare it remains with small business). Similarly, the line the Dems should run on asylum seekers is now pretty obvious.

The Telstra sale issue remains the big danger for the beleaguered Democrats, and Howard will skilfully exploit divisions with every "wedge politics" trick in the book. A "balance of power" approach would look for strong enough trade-offs (say on the environment) to allow the rest of Telstra to be sold under strict conditions protecting public interest/community service obligations, or the non-natural monopoly parts to be sold subject to a guarantee that the monopoly parts would remain permanently in public control. I suspect an approach of that sort would be quite attractive to the average "small l" liberal Democrat voter. On the other hand, sale of any part of Telstra would be anathema to the new leftist rank and file majority. So the question becomes whether Murray, Cherry et al will accept the fact that the current leftist rank and file majority means they can no longer fulfil the traditional Democrat "balance of power" role? Or will the temptation to continue to exercise real political power (as opposed to the warm but futile inner glow of ideological purity), combined with the poisonous bitterness of the party room, lead them to make a decisive split and form a new centre grouping with Meg Lees? Margo Kingston predicted that outcome some time ago, and it's looking more certain by the day. Personally I look forward to such an outcome, because it would finally give me a party for which I could comfortably vote; one which truly reflects a classical liberal political philosophy (as opposed to a feral neo-liberal one), with a social and environmental conscience that the Liberal Party conspicuously lacks.
Townies sponging on the bush?

Below is a post I sent to a discussion forum of which I am a member. It was in response to a post which asserted that Australian rural producers were effectively subsidising "townies" because regulation of Australia's wage-fixing system caused unnecessary costs which inflated the prices of their inputs. This was unfair (so it was argued) because rural producers have to compete on the world market where they can't pass on these costs. Here is my response:

Rod has already made a point I was going to mention. Namely, if it is true (which I doubt) that rural producers are paying higher prices for inputs than they otherwise would because of the minimal remaining regulation of the labour market, then maybe (given that secondary and tertiary industry employ the vast majority of Australians) that is a fair trade-off for all the government subsidies and benefits that the rural sector continues to enjoy. Rod listed some of them, and although they have certainly fallen in number and amount over recent years, they're still fairly significant.

Secondly, as I observed in passing above, the labour market has in fact been substantially deregulated in the last 20 years, although not completely (presumably that is your point, Gavin). The enterprise-level bargaining system is now substantially unregulated and relies on by market mechanisms to fix wages, albeit that regulations fix bargaining periods when agreements come to an end (in order to avoid continual industrial chaos as either workers or employer attempt to renege on agreements depending on who has the upper hand at a given moment). All this does is achieve an orderly market, and if anything reduces costs to business. Presumably what you mostly object to is that enterprise bargaining still retains a role for unions i.e. most enterprise bargaining processes still involve unions bargaining collectively for their members who are employees of a given enterprise. But again, collective bargaining is not antithetical to market mechanisms: it also assists in creating an orderly market, but also redresses drastic power imbalances between employer and employee that would otherwise exist (especially where there is an endemic labour oversupply, real or artificial, as there has been in Australia for the last 3 dcades or so). Nevertheless, would I be right in suspecting that it is primarily this redressing of power imbalance aspect to which you object, Gavin? If so, your argument might be more convincing if you were also objecting to Australia's collective marketing schemes for the entire wheat and wool industries. Selective focus is a wonderfully convenient thing, except when others notice it. Rural producers enter collective marketing arrangements for exactly the same reason workers join unions: to redress power imbalances in negotiation of agreements. Such arrangements accord entirely with classical liberal principles of freedom of association (although that isn't so where compulsory participation in the collective is involved, as is sometimes the case with union membership and always with rural marketing arrangements).

The other main current method of wage determination (in addition to enterprise bargaining) is Australian Workplace Agreements, introduced by the Howard government. Presumably you have far less problem with these, Gavin, because they are based entirely on individual bargaining between workers and employers, and there is seldom any union involvement. However, the Howard government did insert "no disadvantage" provisions in the legislation, as well as statutory employee advocates who can help individual employees engaged in bargaining if they wish. I can only assume that you object to these 2 features, Gavin (because there is no other feature that even the mosy extreme libertarian could oppose). However, the employee advocate system is a fairly modest one which imposes no direct cost on industry (either rural or manufacturing). The cost burden is equally borne by everyone, so how are rural producers disadvantaged? As for the "no disadvantage" provisions, in an economy growing fairly rapidly more prosperous (as Australia's has been for the last 10 years), logically the only effect of these provisions (assuming that wages exceeded market prices prior to introduction of AWAs) is to slow down the rate at which wages slip back to market levels, because if one assumes equality of bargaining power, employers will simply not pass on some part of productivity increases until market levels are reached, but without reducing wages or basic conditions in real terms (because to do so would breach the "no disadvantage' test). While slowing down the rate of reversion to market levels might be expected perhaps to have a marginal effect on prices of manufactured goods in the short term, any such effect would likely be mitigated, yet again, by the effect of such a safeguard on industrial peace (i.e. an orderly market). The existence of this protection has been an important aspect in convincing quite a few employees in many industries to forego the protection of collective bargaining and move to AWAs (whether wisely or otherwise). I don't think there is much doubt that AWAs have resulted in a much faster rate of employee take-up of individual contracts than would have been the case with a totally unregulated system, because more workers would then have elected to stick with the union for protection.

In summary, Gavin, market principles are not the same thing as a primitive law of the jungle approach. As Graham observed during one of his exchanges with Tim Dunlop: "Hayek, to choose someone you seem to approve of, argues that without constant vigilance society will slip into tyranny. The "invisible hand of the market" is not something that occurs by divine fiat, but by considerable human effort and design."

Tuesday, August 20, 2002

For whom the Pell Tolls?

Sorry about the headline. I couldn't help myself. I bet some mainstream media sub-editor thought of it too, it's a pretty obvious one. I have to say my first reaction on hearing the news of a child molesting allegation against the unlovely Archbishop Pell was one of unworthy and malicious glee. My second reaction was to think that it was unlikely to be true, given Pell's prominence for so long and the fact that the alleged events happened 40 years ago. Why wouldn't the accuser have raised the allegation long before now, at least with someone? Although, on third thought, who says he didn't? Presumably Mr Southwell QC will want to look at that.

But then I had a further thought. I was a victim of minor sexual abuse, also when I was about 12 years old, at the hands of a male piano teacher. It was very distressing at the time, and caused me to give up learning the piano, something I will always regret (although I continued on a fairly half-baked self-taught basis in adulthood). Other than that, however, I don't think the episode had any deep, lasting psychological consequences as far as I can tell. I'm pretty sure that my numerous neuroses and psychic scars are unrelated to it. So I never did anything about it; I didn't even tell my parents. In a way, I even felt sorry for the guy. However, if I were to discover, even today, that the perpetrator was in a position of trust involving regular dealings with children and/or authority over them, my attitude might well be different. I might well decide that I had a duty to report the abuse, despite the fact that it occurred almost as long ago as the allegations against Pell.

Nor am I sure that the fact Pell has been such a moralistic crusader against homosexuality provides any reliable clue suggesting innocence of the allegation. Homophobia is often claimed by psychiatrists to involve suppressed fears of homosexual tendencies, and hypocrisy is hardly unknown in the Catholic Church (or Pell in particular).

Finally, John Howard's actions in phoning Pell to offer his support, and then publicising the fact that he had done so, are utterly reprehensible. The mealy-mouthed qualifications (the Church did the right thing by convening an enquiry etc) just make it worse. Howard obviously doesn't understand (or more likely doesn't care about) the likely effect of his behaviour on the (alleged) victim. No wonder his conscience wasn't troubled by his decision to stand by Archbishop Hollingworth after his repugnant "she asked for it" comments.
Greenhouse irresponsibility?

Moving right along, I notice that the Federal government (via the amazingly unimpressive David Kemp) announced yesterday that current projections were that Australia would fail to meet its (relaxed) greenhouse emissions target under Kyoto of an increase of no more than 8% on 1990 levels by 2010. Instead, current projections are for an increase of 11% by then. Kemp suggested we were on target because a 40% reduction in land clearing in recent years (though still going on at a great rate in Queensland) had brought the projection down from 22% last time they did the figures.

The other factor bringing greenhouse discussion to the fore is the sheer scale of flooding in Europe at the moment. Some have suggested that this is a symptom of greenhouse warming. These news items were the springboard for an interesting debate on Lateline last night, between Australian geologist Professor Ian Plimer and a US greenhouse advocate whose name I forget.

That introduction might sound like the beginning of an environmentalist tract. Far from it, however. I am not scientifically trained (beyond high school), but I have done quite a lot of self-education on the issues surrounding the greenhouse warming debate. My own view tends to be more like that of Plimer than his opponent. It seems to me that the balance of evidence so far suggests either that human-induced CO2 increase will cause no warming at all, or at the most that the scale of any warming will be vastly smaller than the extreme scenarios greenhouse advocates are fond of painting.

As a result, I think Howard and Bush are quite justified in refusing to ratify the Kyoto Protocol (even if Al Gore had become President, his chances of getting it through the Senate would have been pretty poor - the US Constitution requires a 2/3 Senate majority for adoption of any treaty). Even if everyone had signed on to Kyoto and followed its requirements to the letter, the reduction in the rate of increase of CO2 would be miniscule. Moreover, Kyoto imposes no obligations at all on third world countries, which is why they are so keen for it to be implemented. It would cause massive economic damage in the first world while the countries of Asia, Africa, South America and the Pacific are free go on polluting to their heart's content. Some of you may have noted the news in the last few days about the huge persistent pollutant cloud over central Asia. Not even the most biased greenie has so far suggested that it was caused by anything other than the activities of countries and people in that immediate region (especially corrupt and essentially uncontrolled land clearing, logging and burning activities in Indonesia, Malaysia etc).

Does all this mean that we should just shrug our shoulders and do nothing? Well, no. First, there's the so-called "precautionary principle". The runaway greenhouse warming theory certainly hasn't been proved, but it hasn't been disproved either (as that famous over-simplifier Francis Fukuyama said in an article I recently read). That means that we SHOULD take all sensible measures we can to reduce greenhouse emissions (i.e. mostly CO2). But the emphasis is on "sensible". The scale and cost of measures that can be labelled "sensible" depends on a reliable assessment of the risk level. If there was (say) a 90% probability of serious human-induced global warming, "sensible" would mean anything within our power irrespective of cost. At the moment, however, virtually the whole of the greenhouse warming case is based on:

(1) computer models for which many of the major inputs simply aren't known, so they are little more than guesses. Change a few parameters and the models can be made to predict cooling; see for example this interview with astronomer Sallie Baliunas (who suggests that all observed climate change to date can be fully explained by changes in solar forcing);
(2) averaging of surface temperature measurements over the last century, which are hopelessly compromised by a range of factors, and completely contradicted by measurements taken by satellites and radiosonde balloons, which show no warming trend at all (an anomaly the greenhouse industry simply chooses to ignore). See this article by John Daly or this one by Dr Vincent Gray.

The claim that there is scientific consensus on greenhouse warming is just propaganda, and what's more its false. More than 16,000 scientists worldwide (including some extremely eminent ones) have signed a petition expressly disassociating themselves from IPCC greenhouse warming claims. Thus, the precautionary principle at present only justifies CO2 reduction measures that can be afforded without seriously affecting economic progress.

However, there are also other reasons to pursue fairly rigorous greenhouse gas reduction policies. Most of the human activities that generate CO2 have other effects that are unquestionably environmentally harmful. For example, land clearing and burning not only create CO2, they also contribute to erosion, species extinction and (depending on subsequent land use) dry land salinity. Moreover, the economic benefits of clearing of mostly marginally fertile land in an arid country like Australia are at best questionable. Thus, considerably more prescriptive laws to end land clearing, especially in Queensland, are entirely justified.

Secondly, vehicle exhaust emissions and industrial smoke contain all sorts of nasty chemical pollutants besides CO2 (which wasn't even regarded as a pollutant at all until greenhouse industry propaganda turned it into one). Progressively more rigorous regulatory requirements should be pursued, although not at the expense of bankrupting industries or inducing them to move to third world countries where regulation is effectively non-existent (becaue the effect of that would be to INCREASE greenhouse emissions).

Lastly, powering vehicles and electricity generation with non-renewable fuels like oil, gas and coal will eventually need to stop. Paul Erlich-style doom scenarios were obviously grossly exaggerated, but by definition these resources will one day run out, probably within a century. Given the lead times for developing viable renewable technologies, we really should be spending much more on them. For instance, the "evil" World Bank is assisting the Philippines to build a $2.8 billion tidal power generation facility that will generate an average of 1200 MW of power (enough to power an industrialised city of about 1 million people). The initial cost is fairly high (although much lower than previous tidal technologies, and much more environmentally friendly), but the cost of fuel once it is built is ZERO. Industrial giant Fujitsu says that application of a reasonably conservative discount rate to the capital cost will make the real cost of its electricity only a little higher than mainstream fossil fuel alternatives. Moreover, the cost of this technology can only fall as the technology matures, whereas the cost of fossil fuels can only rise as easily accessible reserves are exhausted (BTW, this is a bloody good reason why Australia should NOT be allowing Shell and Woodside to ship all of the huge Sunrise gas reserved overseas, when our current domestic reserves for power generation are rapidly running out). Australia's Top End and north west have large tidal ranges (7 metres and more) which make tidal power generation very feasible indeed. We should be spending much more on developing such renewable power technologies.

Personally, I would even accept the sale of the rest of Telstra (with tight regulatory control to protect community interests) if the proceeds were used for such a worthwhile purpose, instead of Costello's utterly pointless debt reduction (when our public debt levels are already just about the smallest in the world).

Well, that's my rant for the day! I feel much better now.

Sunday, August 18, 2002

Some thoughts on outsourcing

Outsourcing is one of my favourite hobbyhorses, a perfect subject for a reflective Sunday rant. Outsourcing is an "employment" arrangement where an "employer", instead of hiring workers on a weekly wage, classifies them as "independent contractors". It is the archetypal example of those "flexible labour market conditions" so beloved of neo-liberals, and it is getting more and more popular in Australia. The effect of hiring workers as "independent contractors" is a huge benefit to the "employer". He no longer has to pay annual leave, sick pay, long service leave or superannuation guarantee. He also avoids having to pay workers' compo insurance premiums (too bad if the "independent contractor" gets injured on the job). Even better, if the industry is one with fluctuating demand, the "employer" doesn't have to pay his workers at all when things are quiet, and has no problems with troublesome wrongful dismissal proceedings. See why it's so popular! What a great spur to "productivity"!

A few years ago, the then Labor government tightened up slightly on these arrangements, by outlawing "Friday to Monday" deals, where an employer sacks his workforce one day, and rehires them the next as "independent contractors". The Howard government more recently made some other minor adjustments, but it remains relatively simple to create a legally bomb-proof "independent contractor" agreement with workers. For my sins, I recently assisted my brother, a Sydney-based management consultant, by drafting just such an agreement and advising him on appropriate procedures to be adopted by some of his major corporate clients keen on joining the outsourcing bandwagon. It wasn't one of the most pleasurable legal tasks of my career, but he is my brother after all. And I even made a token effort to try to get him to feel guilty about it (with complete lack of success). I have also advised several sets of ex-Telstra workers about such arrangements with their ex-employer.

The main outlines of a successful outsourcing arrangement were set in 1989 in the Troubleshooters' Case. "Troubleshooters" had introduced into Australia a system for legally turning employees into outsourced contract labour (with all the consequent benefits to the employer listed above). The unions challenged the legality of Troubleshooters' arrangements but lost in the Federal Court. As a matter of interest, junior counsel for Troubleshooters was one Mr P Costello, while counsel for the unions was Tony North (who later became a Federal Court judge, and subsequently ruled against Patricks in the waterfront dispute a few years ago). Troubleshooters set the parameters of the sort of agreement that will withstand court challenge. In simplified terms, as long as the "independent contractor" has a legal right under the contract to set his own hours of work, employ others to assist him to do it (or to do it entirely), and can theoretically undertake work for others as well, the arrangement will usually be fairly safe. It's called the "control" test: if the "employer" legally divests himself of enough immediate control of the worker's actions (although practical and almost complete real control usually still exists), then Bob's your uncle! Nevertheless, the prudent would-be ex-employer should also make sure that his ex-employees are not supplying just their personal labour and nothing else. By making them also supply their own tools, vehicles and some materials, the "independent contractor" arrangement is safe as houses (well, for the boss anyway), and he saves money on the tools etc into the bargain. It's a "win-win" situation (for the boss). Nor is it too difficult to avoid the effect of the "Friday to Monday" legislation or the more recent changes. If you are the CEO of a large corporation, then instead of sacking the workforce and rehiring them immediately as contractors, you just leave them unemployed for a couple of months and then call genuine tenders for the work! Your ex-employees will probably win the tender anyway (after all they've been doing the job for years and know exactly what's needed), and the fact that they have been out of work for 2 or 3 months is no problem at all (for the CEO anyway).

For small businesses, it's a bit different. Large corporations (like Telstra) are big enough to shed employees gradually, and cover the gaps until they can be rehired as contractors via a tendering process. But smaller companies can't do this: if they sack their workforce they need someone else to do the work immediately, but they can't rehire the sacked workers straight away without running foul of the "Friday to Monday" rules. That is where labour hire companies like Troubleshooters come in. They already have lots of potential outsourced workers on their books (mostly casualties of previous corporate purges), and if the aspiring outsourced business gives the labour hire company enough notice they can make sure they have just the right workers on their books to cover the vacancies created by the sackings. Moreover, the labour hire company knows exactly how to structure the arrangements to make sure they comply with Troubleshooters rules and all other regulatory requirements. Thus, the outsourcing client business does not have a direct contractual relationship with any of its new workers. It simply contracts with the labour hire firm, which in turn retains the outsourced workers on a floating "independent contractor" basis as required. Meanwhile, the sacked workers are left to register for the dole, and then in turn to sign up with a labour hire company themselves. This, then, is the brave new world of the "flexible labour market".

The immediate impetus for my writing on this subject today is that one of our tenants (coincidentally also named Ken) has just been around to pay the rent. It was a week late, but we didn't mind because he had phoned us earlier and explained his problem. As we already knew, Ken is a boatbuilder employed on a "Troubleshooters"-type arrangement i.e. he only gets paid for the hours he actually works: - no annual leave, sick pay etc. Ken generally has to work 6 days a week, and sometimes 7, all for the one "employer", except when there isn't enough work, and then he doesn't get paid at all. Of course, in theory he could get work for someone else during the lay-off period, but how do you find time to tender for other work when you're working 6 or 7 days a week and the lay-off periods are unpredictable and usually arise at fairly short notice? The reason Ken couldn't pay the rent last week was that his "employer" had sent him to Alice Springs to do a job (although god knows why anyone would have a boat in Alice Springs). Ken had to travel to and from Alice Springs in his own vehicle at his own expense, and his contract doesn't entitle him to payment during travelling time. The result was that he only got paid for 2 days work that week, and most of that went on the travel expenses.

The result of all this is that Ken's marriage broke up a year or so ago. He is entitled to have his 4 year old son stay with him every second weekend, but mostly it only happens on the Sunday (and sometimes not even then) because Ken has to work all day Saturday. This is the everyday reality of outsourcing and the "flexible labour market" so beloved of Peter Costello and his mates. It might be great for employers, but it is destroying families and communities on a daily basis. It's downright evil and it has to stop. As I have said previously, it would be simple to legislate to stop this practice. You just require all businesses who use the labour of others (irrespective of "control" etc) to pay them hourly rates equivalent to award employees in that industry, as well as pro rata of all leave and super entitlements, unless their own direct employer is already doing so (i.e. where there is an interposed sub-contractor employer). When I raised this suggestion recently, someone argued that it would be impractical because there were genuine and important reasons why a business might want to tender at a loss. Well, that might be so, but the only obvious one I can think of is that the business wants to tender on a "loss leader" basis in the hope of impressing the principal so as to get more (and hopefully more profitable) work in the future. Frankly, I don't really think that depriving businesses of that opportunity is a major detriment, given the object of stamping out abusive employment practices that are in the process of wiping out 100 years of industrial relations progress.

Moreover, I would not argue that businesses should be prevented from tendering without allowing either a profit component or an allowance for management and supervision in their pricing, if they wish. That still leaves some room for aggressive tendering without sacrificing hard-won employee terms and conditions. Moreover, it still leaves room for businesses to lay off "contractors" without pay to cope with seasonal demand fluctuations. I make that concession somewhat hesitantly, but I think I accept that there are at least some areas (e.g. building) where demand fluctuates so wildly that imposing permanent employment requirements would cripple the industry and seriously reduce net employment in the economy. It seems to me that a compromise along these lines would satisfy both employer needs for "labour market flexibility" and worker and community interests in preserving hard-won basic employment conditions. This is a classic example (and a very important one) of what I see as the positive difference between beneficial "social democracy" and the current neo-liberal orthodoxy. It is also a perfect illustration of my contention that unregulated neo-liberal capitalism is destructive of families and communities. I wonder why the ALP isn't grappling with such issues. I'm sure most of the western suburbs "aspirational voters" they want to win back would be all in favour. They are the main victims of outsourcing, after all, and it is one of the principal reasons why their aspirations in most cases will never be satisfied (except those few who manage to save enough to begin in turn "employing" others on exactly the same outsourced basis).

Have a nice day!