The Wild West ... the outback ... The new world of the 1800s was a time of true liberty. People stood on their own merits. They won or they lost and they reaped the rewards or swallowed the consequences. There were no cubicle dwelling civil servants hell bent on saving you from yourself. No planning permits no licenses no permissions no heritage overlay no bylaw no regulators no inspectors. And guess what ... it worked

This site is set up to provide a forum for a number of like minded professional economists to post and comment on contemporary issues. There are a number of regular contributors whose bios are made available on the site. Most if not all of these contributors use a pseudonym for the simple reason that they are practicing economists who must take into consideration the commercial implications of posting their opinions.

While some may feel that this is a bit of a gutless approach it is the only way we can ensure free and open discussion without jeopardising our paycheques.

Monday, August 3, 2009

I want my 8 cents back (Roy Rodgers)

Gather round kiddies its story time.
oday’s tale is one of hope, dreams and productivity improvements.

Starting way back in our distant past ... the eighties ... governments across our broad land began a process of microeconomic reform aimied at shaking the shackels of governement owned utilites and achieveing efficiencies in service provision. Collectively our attitudes to government utilities had changed. No longer were we content to sit back and watch public servants sit around on their arses all day.

There was a broad recognition that the private sector was much more efficient and effective in providing people with they wanted when they wanted it. So our governments in a seemingly enlightened state of being jumped to the obvious and quite right conclusion that perhaps the public sector would be better at providing goods and services if it adopted some private sector practices.

The first step in this reform process was corporatisation. Governments from Darwin to Hobart set about corporatising their utilities. They established corporate structures that were separate and independent from government (to varying degrees of success). Thus utilities became corporations.

These new corporations were incentivised to behave in a commercial manner. And surprise surprise ... we got to experience huge bursts of productivity and masive increases in service standards. No matter how annoyed you currently are about customer service with Telstra, electricity retailers or water businesses, none of it compares to the past.

This is going way back (and ill probably lose all the gen y ers) but we should all have some dim memory of what it used to be like dealing with those monolithic old government utilities, of having to queue on phones for hours on end, of having to front up at dank musty offices and stand in lines a mile long waiting to get access to some nose picking genius who would inevitably turn out to be as helpful as an arse full of hemaroids (apologies I'm still carry around some scars).

The days of ping pong playing public servants are well and truly gone. Although they still cop a bit of stick most employees of these businesses now work quite hard and are in most cases just as productive as their fellow counterparts in equivalent private sector positions.

Once business had been corporatised the next step was for them to achieve full cost recovery. The idea being that people should pay for the services that they consume so that they themselves make better more efficient consumption decisions and so that their consumption does not (theoretically at least) infringe too greatly on others by demanding some form of cross subsidisation.

Other commercial practices were imposed on them. They were expected to earn a commercial rate of return, they were expected to face a commercial cost of capital, and they were expected to deliver annual productivity savings ... all good stuff.

In some cases corporatisation led to governments having to face the brutal truth that there was absolutely no reason they should have been in the businesses they were in. Thus we had privatisation. Privatisation still cops a bit of criticism from your leafy suburb types, but the only criticism that can truly be levied is that perhaps in their general rush to off load some of these business governments were a bit hasty and underpriced some of their assets.

But hey, at the end of the day its not the governments job to be entrepreneurial and if there are members of the private sector who are only to happy to provide the requisite goods and services then government has no business in competing with them by operating businesses and should simply get out of the way ... which (ignoring the burden of regulation) by and large they have over the last 20 years. Don’t get me wrong that regulatory burden is quite substantial and ever growing but thats really the subject of another post.

And life was grand ....... .... with one exception.

Our national broadcaster the ABC.

Let’s be upfront here. There is nothing mythical about the ABC. It provides TV broadcasting services. Some of it is good and some of it is bad. But at the end of the day it is just another form of government utility. And while aunty may be a corporation it is not one of the good modern sorts that pays for itself, responds to customers demands and continually seeks to better itself.

No! The ABC is an old school government utility .... one that’s totally dependent on budgetary funding, just as addicted to the public dollar as any addict is to his dealers junk.

The corporatisation of the ABC occurred in 1983, previously the C had stood for commission. with the benefit of hind sight its not actually clear why the utility was corporatised. In its own words it summarises the benefits of corporatisation as:

Since the Corporation was established the ABC has not only forged ahead in the areas of radio and television broadcasting, it has expanded its base to include the introduction and growth of a number of other functions. Major restructuring of the organisation occurred with radio and television being split into separate divisions. Senior management was reorganised and an overhaul of management, finance, property, engineering and equipment areas began

It would appear that the ABC itself sees its main achievements as being

1. doing more stuff

2. shuffling cubicles

There’s nothing in there about productivity gains or achieving some level of cost recovery. Nothing about standing on its own two feet.

And sure as day follows night the place would be full of no-hopers and loafers. The ABC is correctly characterised as a type of collective dole payment for 90% of Australia’s unemployable arts graduates. Although i know absolutely nothing about its expenditure profile, ill bet my little lunch that its in need of a serious haircut.

With the benefit of hind sight you may assume that the point of corporatisation was to provide the broadcaster with a degree of independence so that it would not be just the governments mouth piece. However, since the 80s it has become well and truly partisan. The views, agendas and spin coming out of it are wholeheartedly labour orientated. Point in case, the insiders on Sunday morning... not a bad show, but unarguably subject to systemic bias. There are always without fail two 'left commentators' and only one 'right commentator' thrown into this mix is Barry Cassidy who as an ex advisor to the Hawke government can only be viewed as 'left' ... that makes it three to one. Another example is Q&A, I cant begin to count the number of times I've tuned in only to witness the spectacle of Joe Hockey taking on every other member of the panel including Tony Jones the host.

Above commercialism

So what possible justification could there be for this state of affairs. Well I’m sure some would argue that the ABC needs to leach of the public teat because it is quite simply above having to earn a dollar, that advertising is too grubby and too corrupting. The only response any rational person could possible have to such a contention is GROW UP or #@$% off to North Korea. North Koreans are above grubby commercialism.

Gone are the days when most people were prepared to listen to winging arty wankas. Now days people are more concerned about why they have been put on a waiting list for non elective surgery, why their kids are doing their lessons in demountable class rooms, why there are not enough police on the streets to protect us. For god sake the government has allot more important things to spend our tax money on (ignoring of course the latest round of madness from the stimulus packages). And this issue is not going to go away, the whole concept of the ABC is becoming increasingly at odds with the values of a modern liberal Australia. It is only going to become harder and harder to justify a tax payer funded British content TV channel.

The ABC needs to protect and promote Australian culture.

a;lkszsdrtsdfgdzfgfdgjasfi .... that’s the sound of confused disbelief. Protect and promote our culture? and here i was thinking the ABC was just a franchise of the BBC. Lets see, favourite ABC shows - the bill, the goodies, silent witness, spooks, black books, mis marple, doctor who, life on mars, grand design and on and on and on. Aussie my arse!!

Just exactly what has been the ABCs contribution to culture? The closest it’s come to an iconic Aussie show was sea change. Other than that it’s been a long time between drinks.

At the end of the day it doesn’t matter where you sit on culture. If the aim of the government is to fund for whatever reason Australian content in the base belief that to do so somehow promotes our culture it does not follow that the government needs to fund an entire TV channel. It could simple subsidise or provide incentive payments to the privately owned channels to produce the content. This would have to be much cheaper because we could target directly the Australian produced content and could avoid having to spend tax dollars on paying for such crap as Foyle’s War. Given its seemingly never ending British programming our 8 cents a day has probably done more to promote English culture in Australia than it has to preserve and protect our own.

Supporting localised production

Other arguments such as the broadcaster providing a vehicle for more localised programming don’t wash either. If more localised programming is the objective, the Commonwealth would be better served by opening up licensing restrictions on the digital network to allow community channels like channel 31 make the transition from analogue to digital and to provide space for other community groups or enterprises to set up shop.

Given the massive leaps in production savings generated by cheaper good quality cameras and cheap good quality editing software, it would seem that the only remaining obstacle to people setting up local channels is for the commonwealth to removed restrictions on broadcasting. I don’t know about you but my TV has over 300 channels, which begs the question of why I only receive 4. Sorry that’s 5 now that 10 has set up one (a channel that seems to broadcast NASCAR racing 24 hours a day)

Content for children

Another argument relates to the programming of content for children, again as with culture there is no reason the privately owned channels can not provide this material, its not as if they don’t already, and again as with community there are plenty of spare channels floating round.

Universal coverage

The only other argument for the ABC is coverage. You could argue that the ABC has some type of universal service obligation, so that every Australian no matter how remote has access to the Bill. And thus feel connected at some level with the rest of the Australian population. However, this argument doesn’t wash either. Telecommunications is a much more important service and a minimum level of service is provided universally regardless of the fact that there is no national telecommunications company. Universal telecommunications is provided via a USO by Telstra predominantly and is funded by all carriers through a universal service fund. There is no reason this can’t be duplicated for TV services. And I should also say that I don’t really believe that there are parts of Australia that only receive ABC.

Free tv?

So putting aside our inability to justify the ABC. What else can we have a go at? For one thing I think it’s a total misdemeanour for the ABC to include itself in the Free TV group. There is nothing free about it. We pay and we pay allot. Unlike the commercial channels that adopt a negative production function, which sees content being funded through advertising. The ABC relies on us to pay for it. And pay for it we do and have been since amendments to the Broadcasting Act in 1948 meant that the ABC was no longer financed out of licence fees, but directly by a government lump sum appropriation ... by tax.

In the 80s the mantra was 8 cents a day.... the idea being that we should all be happy little farts that were getting such value for so little money. Well 8 cents a day adds up. 8 cents over a population of 20 million gives 1.6 million per day which gives $584 million for a year, over a 10 year period this amounts to $5.84 billion, after discounting the NPV over this period is $4.2 billion. That is quite allot of school rooms, nurses and police we are foregoing to keep aunty alive. And that number is unadjusted for inflation ... so were talking 80s dollars not money of the day.

Of course the actual budgetary spend has moved on since the 80s. In the 2009 budget the total appropriation for the ABC wasn’t $584 million rather it was $912.3 nearly double, this makes it one of the better funded government agencies. Even after taking into consideration inflation you can pretty safely say the ABC has not been able to achieve any significant efficiency over the last 20 years (unlike the vast majority of Australia). This is even more striking when you consider the economies that have been delivered to the sector through technological innovation. By the way the NPV of $912 million per annum over a 10 year period (6% discount rate) is $6.7 billion. The ABC now cost 13 cents per day and it is most definitely NOT free TV.

So why does the ABC exist? You tell me, I can’t work it out ... although I do have a suspicion that it has more to do with the political power of celebrity than it does with good governance. Heaven forbid that Geoffrey Rush might actually say something nasty about big kev.


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