overregulation always self destructs

Grain of politics in regulation
By Mark Christensen - posted Monday, 14 November 2005
http://www.onlineopinion.com.au/view.asp?article=15

Despite barking at others for the last decade, the Federal Government has conveniently overlooked two important competitive reforms. And the hypocrisy has come back to haunt it on both.

At the same time as it was demanding states bust up their electricity industries and abandon infrastructure monopolies, Canberra fiercely protected its own. The refusal to split Telstra’s network from its competitive retail businesses, means Australia will soon be left with a privatised dominant telco that will be forever distracted by costly and ineffective regulation.

The other missed opportunity was the former Australian Wheat Board.

The response of the AWB to the Iraqi Grains Board swindle is symptomatic of an organisation willing to do whatever it takes to protect its own interests at the expense of everyone around it.

If the AWB didn’t know what was going on after spending 20 years’ attempting to understand the local market, then they are guilty of significant commercial ineptitude. If they did know, they owe Australia an apology, given its government-sanctioned monopoly carries an implicit sovereign endorsement.

Either way, the inward and conceited culture of the AWB has been clearly abetted by the Federal Government.

The AWB is a listed company with a legislated monopoly over the sale of export wheat. It sells Australian produce across a “single desk” in the hope that it can increase the price it receives for local growers.

While just about every other organisation in this country has had to face up to micro-economic reform, the AWB, thanks largely to the agrarian socialists in the National Party, has been able to slip the competition net. The routine political influence it wields is astounding.

A 2000 draft report by a federal review into its exclusive powers proposed a trial de-regulation period for the AWB. This view did not make its way into the final recommendations.

The 2000 review did conclude that there would be benefits from allowing competition. Restrictions used to mandate a single desk were found to inhibit innovation and the pursuit of new overseas markets. Regardless, the review still saw a need to hedge its bets.

Despite the arguments and evidence, it said it would be premature to remove export controls. Competition should be delayed until 2004, at which time there would be “one final opportunity” for a compelling case to be compiled in support of AWB’s single desk.

This last chance to be convinced has yet to arrive. The Federal Government went soft, establishing a 2004 Wheat Marketing Review that explicitly excluded any analysis of whether AWB’s monopoly should be retained. Intriguingly, the review did comment on the single desk, though only to say ongoing reviews of the arrangements were costly, created uncertainty and undermined the strategic management of what the AWB was all about.

Transparency was further compromised when the review produced two reports: a secret one for the federal minister and a summarised version for the public.

The AWB has successfully defended its monopoly by claiming significant scale is necessary before a seller can demand an acceptable price on world grain markets. If you aren’t big enough, you get short-changed.

If this argument is true, of course, it should be reasonably easy to convince grain growers to pool their product without having to be forced into it. Many Australian companies have achieved critical mass on world markets without coercive legislation.

The AWB either believes farmers are too stupid to voluntarily agree to a collective selling arrangement that is in their best interests. Or they - in cahoots with the government - thinks the community is dim enough to accept that a private monopoly making profits off the back of our national identity is a good idea.

The roll-out of national competition policy has not been an easy process. In some cases, the gains have been marginal and transitional arrangements have been justified.

The development of the AWB, however, has had very little to do with sound economic policy. It has the hallmarks of politics and sleazy deals - and the results are now starting to show.

First published in The Courier-Mail on November 3, 2005.