So what does a retired regulation and competition policy hack write about during a time of pandemic – well she writes about climate change of course.

I will get onto the topic du jour soon, but felt the need to tidy up after my last blog – and believe me when I say I have a good segue into the current state of the world too.

My 14 January blog was really just my letter to the (then) relevant Ministers in the federal government. I did receive a response, on 13 March 2020. I have tried (poor result) to provide a copy at the end of this blog.

I did however, immediately note several things. 1) This is in the true style of a bland Ministerial response composed of a number of previously okayed paragraphs which sort of fit my questions and concerns without actually answering them. So that much hasn’t changed. 2) It’s mostly spin. 3) I am a bit surprised that the Morrison government is spruiking so forcefully that the Clean Energy Finance Corporation (the ‘green bank’ set up by the Gillard Government in 2012) is the lynchpin of their climate mitigation hopes. This from a group of politicians who tried valiantly – twice – to abolish it (under Abbott’s leadership) and then to hobble it with an outrageously high rate of return when that failed. At least Turnbull saw its worth. So I find it not a little too cute to have it paraded as the basis for a lot of what this coalition government is planning to do without so much as a mea culpa we got it wrong. Too cynical?

So there you have it. I really think that’s probably enough said.

So let’s introduce that segue.

I don’t think there’s much point in harping on about what was government policy –or at least what they were content to pass off as policy, pre-covid-19. What we have witnessed in recent weeks is requiring a whole new rethink of the game, a wholesale change to the way our democracy and economy are run and even more uncertainty than we ever imagined.

We have now got changes left right and centre. Government here focussed on agreed (more or less) outcomes, changes to the emphasis on policy – albeit on the run – over politics. Altered states of relative power in governance – with the states and territories now taking a bigger role than I think the Commonwealth envisaged at the outset, but probably rightly so given they are responsible for delivery of a large part of the response. But I wonder if they will relinquish this once things quieten down a bit? Like lots of changes being made now I think they will be hard to reverse.

But I want to think about what comes next. What is this ‘recovery’ of which they speak? How will it unfold? How different will things be and what will change? I am sure the answer to the last question is undoubtedly lots will change but we can only guess what and how.

But one thing looks likely, and that is continued government involvement in the economy – while not like the 1950s and 1960s, still a lot of involvement. John Quiggan [Quiggan on the new command economy] and others have referred to this as Australia stepping into a command economy. Maybe, but it certainly is unusual for us now to think about how much the government is suddenly involved in so many, previously unthinkable, aspects of social and commercial life. I, for one, would be appalled if the government thought that at the end of this, they can simply walk away and everything will go back to ‘normal’. They shouldn’t because it won’t.

But what I would like, and really expect, is for the new world to have less of a focus on politics and more on policy. To demonstrate this by having ready a suite of policies, including climate and energy, that will help lift Australia back onto a steady keel. The old order will have been so thoroughly altered that there will be plenty of scope – and need – for new ideas. Hopefully too, we will have a leadership with enough kudos to stare down relics of the past and adopt a more useful policy stance. So relevant departments and Ministers, set some of your smartest folks off to devise innovative and effective climate policies ready to get up and going by, let’s be optimistic, the end of this year.

Post Script

Is it just me or are others cringing when middle aged white men make comments like – the explosion in working from home is an exciting prospect – where mothers can log in to do a couple of hours work while their babies have a sleep?

• 

I was prompted by a very good friend – let’s call this person my very own conscience – that I have not really made too much of a song and dance about the state of energy, climate etc policy here in Australia. With the country ablaze, she simply asked – did you march? And I confess I did not march last Friday. So I have done what no self respecting retired public servant should do (having responded to many too many Ministerials in my life I know the pain they cause – sorry all current Public Servants) – I have written directly to those (ir)responsible.

Here’s my letter. Maybe you can write directly too?

Prime Minister

I am was one of the quiet Australians, but I am compelled to voice my concerns to you, the government of Australia.

With over forty years in policy, research, regulatory and operational agencies, in both federal and state governments, I have been writing as publicpolicyeconomistatlarge for a little over a year at my blog www.doesthismakesense.blog. I think you ought to read it – and I am not saying that just because it is my blog, my readers tell me there are a lot of very useful thoughts in there.

In my last blog I talked about Tim Harford’s new podcast – Cautionary Tales. I have listened to more of them since then, and am noticing a theme, not too disconnected from the actions I see in your government. Not that your government has a monopoly on this – but just that I want to share these thoughts with you most urgently. I also highly recommend a listen to this if you or your advisors have not already done so.

The theme is nicely captured in the saying often attributed to John Maynard Keynes (not sure if he ever really said it but let’s give it to him anyway) “When my information changes, I alter my conclusions.”

Harford has a list as long as your arm of failures – commercial, financial and policy – where failure to change one’s position in the face of new information has lead to very poor outcomes. There is no shame in changing course, but there is in holding onto ideas, beliefs whatever you call them, when better, newer information becomes available that really requires a rethink. I call that intelligence.

In the 12 January interview with Scott Morrison and David Speers on Insiders, we got a lukewarm suggestion that your government may, I repeat may, just be able to say out loud – but ever so softly lest you wake the sleeping deniers – that there is a phenomenon called global warming, it is caused by human activity (sort of) and we are part of the solution – heck we signed up to the Paris agreement didn’t we?

So grudging. But again, there was reluctance to face up to the bigger picture. That Paris target for Australia was small. We are told – but I haven’t seen the figures or evidence to support this – that we will more than meet these. Lots has been said about carryover credits etc so I won’t pursue that here. But really we have only some sham policy now masquerading as the reason we are achieving the Paris targets that were in large part achieved due to actions taken by previous governments. Then what? A void? Looks like it to me.

Oh and while we’re at it – what about a decent energy policy? Don’t get me started on the paucity of policy in this area. When you have had the energy industry itself crying out for policy certainty for the best part of a decade and the best you can do is we want 100% reliability and lower costs? Listen government, if we don’t get our house in order and pronto, we won’t have enough generation, we’ll have transmission in the wrong places and our aging coal generators will have long fallen over. Get with the agenda!

You are suffering from a bad case of cognitive dissonance if you think we can ‘evolve ‘ our policy – not sure what that means – ‘without a carbon tax, without putting up electricity prices and without shutting down traditional industries upon which regional Australia has depend for their very livelihood’.

So, when was there a reformist policy that was successful that didn’t involve winners and losers? The thing is, to have a policy in the first place so losers aren’t cast aside with no transition for them. Your policy failure now will ensure that coal industry workers face a bleak and uncertain future in the medium to long term.

Change is coming whether you like it or not. If we don’t change we won’t have an economy, our children won’t have a future, we won’t be able to afford your resilience and mitigation efforts. Wise though these may be.

The economy may leave you behind and decide to go ahead with changes to the energy mix as technologies and costs shift – as it seems to be doing now. But with a lack of policy, your regional industry workers will be left stranded, mismatches in investments in the tiers of the energy sector may occur but most likely band-aid solutions not long term investments will continue to rule until they too become unviable – and all that comes at a cost.

Let me finish by saying that if governments don’t understand how to do good policy – policy based on analysis, evidence and data, not whims and ideology but cold hard facts, they will need their bureaucrats – because that is one thing they are very good at. They will offer you alternatives – one of which is do nothing (or very little) and explain what the likely consequences of inaction are – as well as active options and their consequences. Knobbling the bureaucracy as the Prime Minister seems intent on doing,  so it loses this vital role, will only lead to shoddy policy and poor outcomes – but maybe some brilliant headlines. Is that all you want?

Geraldine Anthony

cc

The Hon Josh Frydenberg Treasurer

The Hon Angus Taylor Minister for energy

The Hon Sussan Ley, Minister for the Environment

Listen

I’ve stumbled across a new(ish) podcast that some of you may be interested in. It’s by Tim Harford (aka the undercover economist), with the delightful title of Cautionary Tales. It is readily available, likely from your podcast platform of choice or at timharford.com.

In the podcasts, Harford explores a range of stories where things went wrong and analyses why that happened and maybe what we can learn.

The first one I listened to (Lala Land: Galileo’s warning) is about how risk mitigation measures can sometimes increase risk. He tells the story of the mixup in 2017 at the Academy Awards, where Faye Dunaway and Warren Beatty announced the wrong film as the major winner of the night. While there were a number of things that went wrong, central to the debacle was the duplicate system where there were two sets of envelops, in case anything went wrong. But when the custodian of one set of the envelopes failed to discard the envelop with the name of the just-announced winner and handed that envelop – not the one for best picture – to the presenters, well…the rest is history.

But in response to this mix up what was the result? Among other things, THREE sets of envelopes!! Harford draws on the work of Galileo to note that when complex, complicated systems or processes are highly connected, the potential for mistakes is much increased. Simplification, not added complexity, is often the best way.

Harford sights the meltdown in the nuclear reactor at Three Mile Island. The control panel was huge, poorly designed and the alarm system set off all alarms and there was no way to turn off the less important ones. A consistent design and less information at critical moments could have resulted in a much better outcome.

There was an earlier near meltdown at an experimental nuclear plant, the Fermi 1 reactor, near Detroit. Safety requirements of the regulator meant that a filter had to be retro fitted at the last moment in the coolant circulatory system. But it came loose and blocked the route of the coolant and caused the reactor to overheat. That time the folks at the control panel were able to prevent a meltdown, but only just. So the cure was worse than the disease.

These stories got me thinking about regulation, of course. I got tired of hearing myself tell regulators that ‘just in case’ regulation was NOT a good idea and unless compelling evidence was to hand that the portent of doom was likely to be realised, I would not be recommending more regulation. Regulatory systems are generally complex and complicated. Often they are highly coupled and sometimes the links are not obvious – especially to those working outside the system. So it’s best not to meddle too much on the basis of ‘just in case’.

Just for you nerdy folks, yes there is a financial example as well – the failure of AIG during the global financil crisis, but I’ll leave you to listen to the podcast to learn what happened in that instance.

I have just finished listening to another episode – this one is about an oil tanker that ran onto rocks and broke up off the coast of Cornwall. This also has some good economic lessons – when you make plans be flexible, take advice and recalibrate when things do not go to plan. Some good things to think about generally, but also to get economists thinking more realistically about how people behave, and why people may fail to act in their own or others best interests in light of changing circumstances.

I’ll leave you to draw your own conclusions about how this might apply to Australia at the present moment and the things people are concerned about like, oh, emergency response services provision or climate and energy policy for example.

I’m looking forward to my next episode.

Read 1

In this season of fires and shouty arguments about climate change and so on, I stumbled upon a PWC report on energy policy. (https://www.pwc.com.au/power-utilities/future-of-energy/future-of-energy.pdf) LinkedIn is full of all sorts of interesting surprises.

What struck me about this paper was its approach. PWC has eschewed the ideological arguments and focuses on what is technically possible (now) and the economic effect of the four scenarios it posits. Putting it in these terms takes an awful lot of heat out of the discussion, especially when the economic effects include not only the effects on the systems costs but also the flow-on impacts for the economy via an assessment of the social cost of carbon. (The ‘social cost of carbon’ is a measure of the economic benefits of greenhouse gas emission reductions. PWC reference this concept extensively, for those who are interested check out the link above.) Adding this to their system cost economic benefits, means that moving to a scenario where renewables replace retiring thermal plants – whether at a slow or accelerated pace – produces a bigger economic benefit than business as usual or replacing 50% of retiring thermal plants with High Efficiency Low Emissions coal fired plants.

One thing worth noting is the call for a coordinated national response in the very near term. Things appear to be moving in this direction but I am not sure they will move fast enough given the propensity of political point scoring to overtake rational policy development. But we live in hope. Not only will a considered national approach offer more certainty for investments, but it will also – if it gets it right – provide markers for transmission and distribution investments that will support renewable energy generation.

Read 2

I have also read some – but certainly not all – of John Quiggan’s new tome – Economics in Two Lessons (Princeton University Press 2019). It’s a bit of a curate’s egg. I liked his deep discussion of opportunity cost – and suspect that a diligent non-economist might also find it enlightening. His short, three-paragraph treatment of oligopoly was a big disappointment.

He says he has eschewed the traditional economist’s love affair with graphs, preferring words, to make this book more accessible. But the nerd in me says this was a mistake. Both would have been better.

One thing to note is that although this is a book by an Australian author it is clearly aimed at a US audience. It took me a little while to work this out as some of the examples he uses of, for example, how policy makers were too strongly wedded to a strict neoliberal view of the world (private good/public bad type of thinking) didn’t ring true. But there you go.

My advice, take it in bits, read chapters as you feel inclined and don’t necessarily try to read from front to back – dip in as interest dictates. If you’re a non-economist, be prepared for hard work.

The news has been abuzz this week with stories about the proposal for a consortium of interests, including Melbourne Airport, to put up $5billion of the estimated $15billion needed to build a train link from the airport to the Melbourne CBD. The idea is for ‘government’ to partner with the consortium, I guess to fund the other 10 billion. The Victorian Treasury is looking at the proposal now under its ‘market led proposal’ guidelines.

The consortium’s website (https://www.airrailmelbourne.com.au/) is big on graphics and short on detail. But they are spruiking a minimum 20 minute journey, running 24/7, minimum of 10 minutes between services, a fair ticket price (indicative price of $20 a trip), plus a range of extra benefits – from better connections and services on regional lines (some of which arises from the duplication of the rail line to be used by regional trains) to up to 15 000 fewer cars per day on the Tullamarine. Sounds good doesn’t it?

Having dealt with monopolies or near monopolies for many years, including the airports, I can tell you my little antennas were twitching.

For decades, under various ownership and boards, Melbourne Airport has either downright resisted the idea of a rail link, or more recently been rather lukewarm. So now it thinks it’s onto a winner. Maybe it’s finally the time where passenger numbers and other factors mean the business case stacks up. I’d be happy with that.

While a fast rail link to the CBD is unlikely to offer me much joy directly, getting from Souther Cross Station to my place is not a particularly pleasant task on public transport (note to transport policy nerds – not everyone in Melbourne has access – ready or even vaguely near – a train – don’t forget the other modes), I can see how for many it would offer a much desired service. If they use it, it would make my access to the airport better too, because we wouldn’t be competing for scarce road space.

Personal whinge, I am a not infrequent “Mum taxi’ doing a Friday night pickup at the airport. It regularly takes anything from 20-30 minutes to get from the ‘wait and ring’ to the pick up point. The worst traffic jams in Melbourne in my experience. So anything that will take a goodly proportion of those cars off that road is personally a very good thing.

But….there’s always a but isn’t there? What are we not being told?

Here are a few ideas I have about what’s in this proposal for the airport.

The airport earns revenue from two sources, aeronautical charges, like landing fees and passenger processing charges, and non-aeronautical charges, such as retail rents, car parking and other charges for parties to access the landside (ie not where the planes are) of the airport. These charges are levied on taxis, buses, ride share and off airport car park shuttles. So if you want to get to and from the airport (other than by plane) you will most likely be contributing to the airport coffers through one of these avenues. Unless, of course, you arrive by or leave in a vehicle that is the equivalent of my ‘Mum taxi’, where while I pay no monetary cost I surely pay in congestion if my services are required a peak times.

There is the reason why the airport has failed to provide relief from this congestion much beyond the poor hapless folks who man the stop signs at the pedestrian crossing between the terminals and the car park which are a significant bottleneck for passenger pickups at peak times and someone to move along vehicles that linger too long in the pickup zone – there’s no money in it.

So, an operator with pretty much total control over who enters the airport and at what cost, now wants to provide a service in competition with some of the existing options. If I was an integrated provider I know I might contemplate growing this part of my business at the expense of these competing providers, and I’d have a nifty opportunity to squeeze them hard – even if I kept my services prices ‘fair’ – at least in the short term. Yes, restricting access for alternative providers and/or raising their fees would be a ready tool to help grow my integrated service.  

Airports are currently not subject to specific regulation – although the ACCC does produce regular monitoring reports, it seems unlikely there will be any dedicated regulation of airports in the near future. The Productivity Commission has long felt there is no need for this. (https://www.pc.gov.au/inquiries/completed/airports-2019/report and previous reports going back to 2000)

If my scenarios did come to pass, the taxi, ride share, bus and shuttle operators could seek redress under the Access provisions of Part IIIA of the Competition and Consumer Act 2010. This is a long and complicated process that is not guaranteed to yield results. If regulation was imposed on the airport (it would need to be by the Commonwealth, as the airports are leased to the ‘owners’ by the Commonwealth which owns the land) it would need to be very carefully thought out. I have long and sad experience in rail access in Victoria, which failed abysmally to achieve its objectives, as the regulation did not line up with the industry structure.

But rather than put ourselves through the hoops of trying to craft an access regulation regime (in this I am in wild agreement with the Productivity Commission), which would be especially difficult for an integrated provider, why not keep the two services (airport and airport access) separate? There is much less likely to be competition issues in this structure, as providers would compete on much more equal terms. And history tells us that in cases like this we should begin as we mean to continue, as it can be extremely difficult to get argeement to separate out elements of a monopoly, let alone achieve it.

While I remain open to further discussion, I’m not sure there would be any particular efficiency gains from having the airport as owner and operator of the rail service.

Others have also sought answers to questions about what role each of the participants would play in the rail build , how regional rail services should be treated on the system, prices, access and dispute resolution etc. Queries also abound about the State’s process for dealing with market led proposals and the lack of public input.  

So there’s a lot to think about here.

I’d like to think that the analysts in the Commercial team at Treasury are factoring in the competition issues.

I guess I’ll just have to wait and see.

A short read for your weekend.

This will not be news to many of my readers, but there’s a message in here for you too.

Today is the students’ climate strike. As a consequence, there’s been lots of chatter on radio about this. One chap called in to say “why are we all expecting the government to do something – we can all do things, we don’t need government”. Well, yes and no.

Sure we can all do things, but most people tend not to get to excited about stuff until there is a direct effect on them. For climate change, this might happen way too late. But, if we make it more likely folks will pay attention and change their habits now, maybe we can get more action on alleviating climate change.

How do we do this? Well, economists like to talk about a concept called “market failure”. Markets tend not to work very well where there are no property rights, when there are externalities (if for example, I pollute but do not pay for this, so others bear the costs of my polluting) and a whole list of other things which are not so relevant here. So here’s a question, who owns the climate, atmosphere etc.? The answer is all of us and none of us. There’s no one to say you’ve had an impact on me (degraded the environment) and I need to charge you for this. As a result, there is no “price” on the environment. There is therefore, no real incentive for an individual to make an effort to maintain the climate. Governments, however can charge for “using” the environment. Unless governments intervene in the market, polluters have little incentive to curate the climate.

The market on its own will not price for the climate. Polluters therefore do not face the true costs of their use of resources etc and the subsequent effect on the climate.

Yes we need governments to intervene. Some people/businesses will act to protect the environment regardless, others, the majority, will not. Relying on the community spirit of people is never going to be enough. Governments need to act to price the environment and provide incentives for everyone to value it in their market dealings and pay the cost of depleting or degrading this resource.

Of course, this might have an unacceptable impact on some users/consumers, but this too can be dealt with by the government using tax, welfare, rebates etc. (I might talk about this at a later date….or not).

Why are we waiting?

In part maybe, because folks who do care see the government procrastinating and say we can do this without them. It’s beholden on economists and policy nerds to speak up and explain that yes, we can act individually, but government action is necessary to get a big enough response to really make a difference.

Activist economists explaining what the options are – I’d like to see that.

As the federal government reconvened this week for the spring session, this little story may gain some relevance over the next couple of weeks.

This is a story of regulation that’s pretty close to non-existent (the regulation not the the story, although the telling of the story has been underwhelming), governance has been left to vested interests and why policy with drafting notes is a dumb idea.

Since October 2017, there’s been a chunky bill before the Australian parliament with the fetching title of Fair Work Laws Amendment (Proper Use of Worker Benefits) Bill 2017. Its origin lies deeply within the Heydon Royal Commission (aka the Royal Commission into Trade Union Governance and Corruption – RCTUGC) – volume 5 to be precise. Start at page 295. It’s quite a read. (Heydon Royal Commission vol 5.).

But this wasn’t the first time worker benefits have come to the attention of reviewers. The Cole Royal Commission (Royal Commission into the Building and Construction Industry) made recommendations about the funds created to pay these workers benefits way back in 2003. Needless to say, it seems the Cole recommendations were studiously ignored.

So what am I banging on about? Well, I am specifically interested in that part of the bill that deals with some funds known as Worker Entitlement Funds (WEFs). To quote extensively from the Bills Digest accompanying this Bill:

Broadly speaking a WEF can be defined as a fund established for the purpose of funding employee entitlements such as redundancy pay, sick leave and other similar entitlements. According to the RCTUGC [Heydon Royal Commission] the typical features of a WEF are:

• they are established as ‘joint ventures’ between industry parties (that is a union(s), employer(s) or employer organisation(s), although some do not involve employer organisations)

• operated by a trustee company, the directors of whom are associated with the industry parties

• pursuant to enterprise agreements negotiated with a particular union, employers make regular payments on behalf of workers into a particular WEF

• the WEF will commonly provide a financial benefit to the industry parties

• under the rules of the WEF, employees will be entitled to receive certain benefits (for example, sick leave or redundancy pay) including in some circumstances, retirement benefits, age-related benefits and death benefits, provided certain conditions are satisfied and

• the rules of the WEF will be set out in a trust deed entered into between the corporate trustee and the industry parties, but the ‘trust deed can be, and often is, amended from time to time’.

Broadly speaking a WEF can be defined as a fund established for the purpose of funding employee entitlements such as redundancy pay, sick leave and other similar entitlements.

(Bills Digest p14.)

There are a lot of “interesting” features of these funds that were highlighted by the Heydon Royal Commission. I will cherry pick a few that I found most interesting for me. But to give you an indication of their relevance, Heydon suggested that collectively, the construction industry funds, which are the bulk of these funds, held in the vicinity of $2 billion in assets under management (Heydon Royal Commission p 297). And remember that Heydon reported in 2015, so this is likely to be quite a bit more now.

First is the composition of most of the trustee boards which administer these funds. As the funds are set up by agreement between employers and unions (on behalf of workers) it isn’t surprising that these are the folks who form the board. But what is disturbing is that invariably they share the directorship, often 50/50. See an issue? Heydon thought this was undesirable and suggested that deadlocks could arise because of differing views and suggested these boards also needed to include independent members. I agree, and would add that independent directors also have the benefit of bringing a third point of view, understanding how the work of the board is perceived from the outside and, if the independent directors are really doing their jobs, point out instances of failures of the board, for example, in integrity or even simply following the rules of board governance.

Other questions of oversight and governance that got my attention include the role of our usual corporate governance instruments and institutions, like the Corporations Act, ASIC or APRA.

One issue is that no one seems to be really certain what the WEFs are. Heydon concluded that they were a managed investment scheme as defined by the Corporations Act.

Lack of clear classification early in their history seems to have lead to a very strange outcome, in that they slip through pretty much all oversight. ASIC granted them a Class Order (CO 02/314), which was repealed and replaced by a Relief Instrument (ASIC Corporations (Employee redundancy funds relief) Instrument 2015/1150). Consequently, the effect of these orders and instruments was to exempt the WEFs from much, if not all, of the governance, reporting and oversight requirements that they would otherwise have been subject to.

In a consultation paper on the future of the exemption ASIC has said:

Relief was initially provided on an interim basis on 25 May 2000, pending a public consultation process and finalisation of our approach to regulating such funds. After considering preliminary comments, we formed the view that the regulation of these funds may be an issue of law reform rather than through the use of ASIC powers, and relief continue pending Government consideration of the issue.

(Australian Securities and Investments Commission (2015), p 8 [14].).

Oh dear. Interim relief on 25 May 2000. Nearly 20 years of regulation by drafting note. The outcome of which has been that it has been largely left up to the boards how they conduct themselves. Not only has this left them with some intractable issues – like how to deal with the earnings of the funds – but also let them wander into some rather questionable actions.

Some funds have dealt with the fund earnings by capitalising them, thus giving them full autonomy over their use beyond the trust deeds. In these circumstances the funds have been variously siphoned off to the coffers of the directors’ institutions. One fund apparently moved millions across to the affiliated union and employer body when the bill was first introduced in 2017 as it was not sure it would have access to these funds if the bill was passed. What makes this all the more striking is that they said so, out loud. (ETU, 2017 p 17.)

While it might be suggested the fund concerned, Protect, was simply insuring against a circumstance where they would not be able to provide sufficient cover for their members, based on its understanding of the proposed legislation, it does look mighty curious. I’m not good at reading financials but I’d guess, looking at their annual report, the ETU is babysitting around $20m. I can’t check the other “babysitter” organisation, NECA, as their reports are only available to NECA members. I can’t check this with the Protect annual report either, as all it provides is a slick glossy 22 page high level advertorial. At least it has two independent directors, including the chair. In his second reading speech on 4 August 2019, the Minister noted that around $30m had been sent off for safe keeping by a particular fund. (Porter, Second Reading Speech)

I am pretty sure that is the same fund as above, suggesting that NECA‘s responsible for babysitting around $10m.

Failure to provide useful and comprehensive annual reports, indeed any transparency really, was another theme Heydon raised. (See my comment above about the Protect annual report.) Again, this arises from the effect of the ASIC “interim” exemption which means these funds have no particular reporting requirements.

On other matters, some funds have provided funding for related matters, such as training, counselling and activities that could reasonably be thought of as contributing to the wellbeing of employees who find themselves in need of calling on the fund. I would have thought that the trust deeds should include a list of activities which were able to be provided by the WEF funds. But maybe not. Indeed some funds have tried to limit the access of employees to these activities and services to particular groups of employees, such as union members. Hummm. The funds are deposited for the benefit of all employees, union members or not.

The bill addresses many of these issues. Indeed the Explanatory Memorandum states that:

The Bill will ensure appropriate governance and transparency requirements are applied to related entities of registered organisations, in particular worker entitlement funds and other similar funds.

(Explanatory Memorandum, Outline.)

I haven’t gone through the legislation clause by clause. So I make no comment on how well the bill will deal with the Heydon recommendations.

For the same reason, I am not in a position to comment on any bias or other political issues identified by stakeholders.

This blog has already got out of hand and I’ve junked a number of my blog conventions – eg not doing any particular research etc so I’m not going to follow these rabbits down the rabbit hole.

If you are by now really interested then go read the parliamentary documents. The government ran out of time in the last parliament to finalise the bill and it was reintroduced into the House of Representatives on 4 July 2019. On the same day, it was referred to the Senate Education and Employment Legislation Committee. That Committee is conducting hearings through this month and its report is due on 25 October 2019. Stay tuned.

References

Australian Securities and Investments Commission, Consultation Paper 238: Remaking ASIC class order on employee redundancy funds: [C0 02/314], 4 September 2015.

Bills Digest, No 61, 2017-18, 2 January 2018, Fair Work Amendments (Proper Use of Worker Benefits) Bill 2017.

Electrical Trades Union – Victorian Branch, (ETU) 2017, Consolidated Financial Statements for year ended 31 December 2017.

Hansard, House of Representatives, Minister for Industrial Relations (Mr Porter), Second Reading Speech, Fair Work Amendment (Proper Use of Worker Benefits) Bill 2017, 4 July, 2019. p. 287.

House of Representatives, Fair Work Amendment (Proper Use of Worker Benefits) Bill 2017, Explanatory Memorandum.

Royal Commission into Trade Union Governance and Corruption (RCTUGC), (Heydon Royal Commission) Canberra, 2015. (Volume 5 speaks to entitlement funds).

I was going to blog about this, but think Michelle Grattan has pretty much nailed it.

https://www.abc.net.au/news/2019-08-09/scott-morrison-can-learn-a-lot-from-public-servants/11398456

We’ve heard a lot lately about regulation, regulators and how they are either not working or we need more of them because the market isn’t working.

It’s good to have these discussions. While a bit esoteric for most, pretty much everyone in Australia has some ideas about the banking royal commission. The two regulators involved (ASIC and APRA) have come in for plenty of commentary by the royal commission and others.

In Victoria, the EPA has drawn comments about the premises where chemical waste has been stored following a spate of toxic fires.

The Fair Work Ombudsman has been criticised for failing to take a harder line on enterprises which routinely under pay their workers, particularly overseas students.

Questions arise about the competence of the regulators and the scope of their remit and powers and the level of resources available. Indeed, we have just heard the Prime Minister talking about reducing red tape and commenting that approvals for big projects are taking unacceptably long time to conclude. He’s asking the business community to come forward to nominate regulations that are holding back investments. PM’s Speech to WA Chamber of Commerce June 2019

The Institute for Public Affairs (IPA) has also raised the question of what it calls “dark regulation”. A slightly emotive term for guidance and processes that regulators provide to regulated entities. I’m sure they also include the specifics of the regulations. (See note at the end for more info).

But there is a different view being discussed as well that has been leveled at the “ neoliberal” stance of many governments for emphasising the market over regulation. Links have been drawn between this “neoliberal” approach and growing economic inequality. I haven’t investigated whether this has been looked at but it would be interesting to see what people conclude. Folks espousing this idea don’t give any references.

The idea that markets work better than regulation has been a predominant theme in Australian policy circles since at least the 1980s. The big picture debate has been pretty much silent for some time and as things have changed a lot since then, it’s probably high time to revisit this and check to see if the balance is right. One thing I am certainly concerned with though is that pendulums have a tendency to swing back too far. So let’s keep some moderation in all this.

While lots of my ex colleagues will attest, I am not a fan of “just in case” regulations, I also am acutely aware that sometimes there is definitely a net benefit to regulation.

I see three areas for discussion here – what do we regulate, what are the regulations and who is the regulator (and how is the regulator configured).

I was going to start at the end of that list because that’s really what started my thinking on these topics. But after the PM’s speech I’m inclined to think more about why we regulate and save the rest of these questions for another day. If you just look for ways to reduce regulation without considering why the regulation is there, you risk throwing out the baby with the bath water. The PM made no mention of this.

Regulation, put simply, is one policy measure that can work to ensure that the community’s expectations about outcomes are given effect when the market will not lead to this outcome and where there is a net benefit from putting the regulation in place. Economists like to talk about “market failure” as the reason for government intervention. Typical of economists, this jargon doesn’t mean what the plain English translation would suggest. For my non-economist readers who are so inclined, there are any number of sites to refer to eg, market failure and government responses. It is important to note though, that intervention does not have to be regulation. And even if regulation may solve the issue, or at least address the worse of it, there is generally consideration of the costs of regulation, including the chance that the regulation makes things worse not better, aka, regulatory failure.

By way of example, I wrote a while ago (In the long run some of us may still be alive to report on it , 27 October 2018) about the challenges for regulators – and by implication, regulations – to deal with issues in the nonsumer market. These are markets where the consumer pretty much doesn’t have a choice about whether to participate or not. Left to their own devices these markets generally do not work all that well. This may be a reason for government intervene, and regulation may be one policy tool to address this.

All I am suggesting is that before we go right off slashing regulations or regulating everything that moves, maybe, just maybe, we should go back to basics and ask what is the issue? Is there a case for government intervention? What would be the most appropriate intervention? Do we fully understand the costs and benefits of that intervention (or failure to intervene)? And yes, go back to the economists’ lists of why and what in this space and carefully evaluate the options. (See for example the reference to market failure I noted above.)

I’ve got to say that there seems to be some benefit in regulations around environmental protections for say large mining or infrastructure projects. I’m less inclined to think there’d be much benefit in registering hairdressers (yes I saw this proposed recently).

And just one final thing, there may well have been less regulation of privatised entities than there could have/should have, because governments, when faced with the trade off between regulation and asset price, failed to stop and take a deep breath when their financial advisors gave them their estimates of the dollar differences.

NOTE

Regulation can be thought of as having three levels. First is the legislation that, hopefully, sets out the objectives of the regulation and its general form. This is an act of parliament. Then there are the regulations made by the Minister responsible for that act. These provide further details about the how regulation will be undertaken, including possibly instructions to the regulator. This is not an act of parliament and is generally reviewable in the first instance through a regulatory impact assessment or similar, then at regular intervals, as these provisions should contain a sunset clause. Finally, the regulator may issue notes, guidance and the very specific details of how it will undertake its regulatory role, including compliance, monitoring, reporting and the processes it will follow. I think it was this last set of documents to which the IPA was referring.

Well it is Law Week and frankly I have come out in so many hives in this final week of electioneering with all the off the cuff policies and so on, that I thought it was time for a slightly different, and maybe, unexpected topic.

I will revert to type after the weekend – I hope. Should I hope for an energy policy soon?

When people talk about regulation and regulators, I get the feeling that they’re generally referring to business regulation – not confined to economic regulation, but including things like OH &S and environmental regulations. But regulation is much broader than that. The biggest extension I can think of is the legal system. Laws and associated regulations apply to us all. They are monitored and enforced by the justice system which includes the courts, prisons and the police.

So can we apply some of the same thinking to these regulators as we apply to the business regulators ? I think so. This is particularly when you consider the powers these regulators can wield.

What has got me thinking is the current royal commission in Victoria looking into the use of police informants. (https://www.rcmpi.vic.gov.au/the-commission). But also getting me thinking about this is the more general loss of the community’s trust in many of our institutions. I’m sure they’re connected.

I only know what’s been reported publicly about the royal commission, so I’ll keep my comments high level. But it does seem to me that the police force have kicked a few own goals recently, and it seems to have had trouble owning up to them. Own goals are regrettable and I’m not trying to lessen any need to investigate and remedy causes, but the police are only human so mistakes will be made. But bells should really be ringing when it appears to be not a one off issue but a systematic matter driven, or at least sanctioned, by very senior officers. It’s what happens in the aftermath that I’m most interested in here.

The use of some informants by Victoria Police has raised the ire of the judiciary who have not held back in expressing their condemnation of the practices in question. On the face of it, Victoria Police have struggled to make their case. They have dragged their heels in providing information to the commission and failed to explain why they used dubious methods to obtain information. Their only reason for undertaking the practices seems to boil down to “it was a tough time, we were getting heat for slow progress in these cases, so the ends justified the means.”

It’s not uncommon for organisations to close ranks when things go wrong, but it isn’t very helpful. For regulators it is even more important to seek to shine light on the problem and be open about what happened. How can you trust a regulator which is itself not transparent or accountable? Invariably the best way to do this is not some closed door internal investigation, but a more open approach. It’s not surprising that people are now questioning the efficacy of the Police Standards Division undertaking investigations of these kinds of police incidents. I note the latest reported incident is to also be investigated by the State’s anti corruption body.

Earlier this year the police commissioner downplayed the issue of police officers falsifying random breath testing data. Every little bit can hurt. They failed to take a stand and say this shouldn’t happen and we’ll do something about it. Actually doing something, and showing the public that this is happening, would have been even better.

It is really important that the justice system is seen to be functioning and reliable, trustworthy and accountable. Etching away at this trust is a potentially serious issue for our whole way of life.

Transparency shouldn’t be a last resort, ie through royal commissions, but should be part of the fabric of all good regulators, including the compliance and enforcement aspects of the legal system. If you’re charged with upholding the adherence to the laws of the land then you’d better be pretty much beyond reproach or your credibility will be shot.

Being charged with enforcing the law does not put you above it. On the contrary, it means you must be even more vigilant in your own actions and how you go about your business.

A little more humility and a lot more acknowledgment of the community’s expectations of an open and trustworthy justice system would be a fair outcome for this royal commission.

This story will probably ring bells with those who’ve taken the policy development path.

Ever had an idea for how to tackle a policy issue only to be told in no uncertain terms by ‘older, wiser, more experienced’ folks that it’s been tried and it didn’t work? That is intended to put a stop to further discussion of that option. And heck, sometimes it does. But let me suggest that it shouldn’t necessarily be the end of that conversation. A follow up question about the reasons it failed and any investigation or analysis of the failure might prove enlightening. Too often there may not have been any evaluation of the policy. It was simply parked in the graveyard of unsuccessful ideas.

This is just one reason why evaluation of policies is important. What if the reason it failed was an issue in delivery or design not in the policy itself? Because lots of policy is made on the run, without the option to run pilots or trials (themselves also often subject to derision with claims you can’t do them because people expect that they will always develop into full implementation), the ability to test and fine tune policy delivery and design is simply not even up for consideration. So that a policy developed in a short period of time, with little evidence and no opportunity to test ideas, is then condemned to the pit of total failure if it doesn’t deliver as hoped.

Leaving aside the important matters of evidence and pilots as excellent policy bases, evaluating policies can mean there is an opportunity to improve design and delivery and even if a policy seems to be achieving its objectives, improvements may be possible.

In some cases, for example in new or innovative areas, areas of significance and policies with large price tags, building in an evaluation framework makes lots of sense.

National Competition Policy unearthed a raft of legislative restrictions on competition that had not been reviewed for decades. Some of the legislation was from the 1800s. Maybe it was time for a review of legislation requiring innkeepers to have a certain number of stables for horses. Yes really. so having a review and evaluation requirement can save years of legacy programs and policies lingering long aftr their useful lives.

While legislation can often be unexamined for ages, regulations usually have a sunset clause, meaning they have to be remade after ten years. They have an inbuilt review mechanism. Legislation might include a statutory requirement to review some aspects at given periods, but many do not or the review focus is narrow. But what about policy that is not linked to legislation or regulation?

Again there are sometimes reviews included in the policy, but what would make this even more powerful would be consideration of what a review might look like and building in the collection of data during the life of the policy to assist in understanding how well the policy is achieving its objectives – surely the test for the success or failure of a policy. It’s generally easier to have good data if you collect it contemporaneously rather than try to discover it looking back, or use proxies or other substitutes.

To evaluate the success of a policy you need to start with the question …is it achieving its objectives? Sounds simple enough. But first you need to know what the objectives were. This is not always easy. Objectives are not always spelled out and after a certain time can be impossible to know. So while you can try to infer objectives and work on that basis, of course, it is preferable to be certain of the outcomes that were being sought in the first place.

Then you need to consider do those objectives still hold? Or have other objectives become more important? Did the policy have a finite end goal that’s been achieved? Has policy been designed and delivered in the best way possible? Have there been unintended consequences – both positive and negative? Are there lessons to be learnt? Are there improvements in design and delivery that could be made? And of course, the answers to these questions may well trigger other avenues of inquiry.

Too often policies and programs linger well after their best by date, or with a multitude of faults and collateral damage and they suck out money and resources that could be better used for other things.

One last word – for the moment – as I am sure I will revisit this topic.

I listened to a podcast yesterday that, in part, offered a view from academia on this. While I admit I am not always a fan of academic policy commentary, this woman really had a keen understanding of the mechanics of policy and government – albeit a US perspective – and I would recommend it to you if you have the time and/or the inclination. Econtalk: Jennifer Doleac – On Crime 

It is also interesting for the more general discussion on economics and the law.

Also I have a small caveat. The presenter is a pretty libertarian chap with whom I often have issues, not least of which is his constant reference to Adam Smith, but in this episode, he refrained.