In Australia, the mining sector flexed its considerable muscle in 2010 and unleashed the most ferocious lobbying campaign ever seen in this country. Mining powerhouses Rio Tinto, BHP Billiton and Xstrata joined forces to stop Prime Minister, Kevin Rudd’s proposed Resource Super Profits Tax from becoming law.
The lobbying campaign cost $22m, brought down a Prime Minister and led to accusations of “rent-seeking” by the mining industry. Rent-seeking is an economic term used to describe attempts to lobby a government for loan subsidies, funding grants, beneficial regulations or monopoly privileges.
Some believe these economic concessions fail to create benefits for the overall society since they merely redistribute resources from taxpayers to special interest groups. With regard to the changes to the originally proposed resource tax, the public coffers missed out on $60 billion in forecast revenue.
One way for governments to create “rent” is by limiting competition. For example, restricting the number of taxi cabs prevents new entrants and protects the profits of incumbents. This rent-seeking enables taxi owners to obtain a greater rent (return) than would be possible in an open market.
Rent-seeking takes many forms. Historically, farmers obtained government help through tariff protection. Similarly, local manufacturers engaged in rent-seeking by securing restrictions on imports via quotas. Brick and mortar retailers now want protection from foreign, online competitors.
A high-profile Australian retail stalwart spearheaded a campaign to have the government impose the goods and services tax (GST) on Internet retail purchases under $1,000 arguing that overseas retailers had an unfair advantage. The campaign infuriated consumers with local retailers labelled as “rent-seeking whingers”.
Bailing out banks is another example of rent-seeking as rescuing banks does not create value. Rent-seeking means “obtaining an economic gain at the expense of others without reciprocal benefit”. This definition covers any economic activity that expands one’s share of existing value rather than creating value.
As profit-seekers (wealth creators), many financial institutions recklessly expanded their lending activities. They lent money to people who they ought to have known could not pay them back. Mortgage securitizers compounded the problem and destroyed value.
This behaviour ultimately resulted in a number of institutions becoming rent-seekers as governments around the world were forced to prop-up banks with taxpayer funds as a result of the Global Financial Crisis. The auto industry in Australia and in the US also received government financial assistance.
Many saw the bailouts as taxpayer welfare for business with citizens angry that rent-seeking corporations were given fistfuls of cash. The US Government was also forced to pick winners and losers. Lehman Brothers was allowed to fail but insurance giant, AIG, was given a bailout.
In the aftermath of the financial crisis, many questions remain. Key among these is whether taxpayer dollars should have been used to bail out banks and other private companies or should they have been left to their own devices and allowed to sink or swim? I’ll answer that question next week.
Posting Date: 28 January 2013
Democracy in danger
In a recent post I expressed concern that politics is degenerating into a farce, with short-term popular sentiment increasingly impacting long-term policy formulation. Hopefully, I left readers with a clear sense of the dangers of the don’t-offend-anyone politics which now characterises Australian political life.
What I did not focus on was the role of the media in whipping up emotive opposition to sensible social and economic reform. The media, according to Lindsay Tanner, a former minister for finance in the Labor Government, is turning political reporting into a “carnival sideshow” driven by entertainment imperatives.
In his recently released book, Sideshow: dumbing down democracy, Tanner tracks the relentless decline of political reporting in Australia and abroad. He describes in great detail how the media manipulates the discussion of substantive issues in ways that entertain rather than inform. “Policy initiatives are measured by their media impact, not by their effect”, laments Tanner.
Tanner, quite rightly, asserts that “genuine democracy requires an informed electorate” but bemoans the fact that the media controls access to the electorate. “The media publishes what people want to read or watch and the public demand for serious news is in decline”. Consequently, politicians have been pushed into a self-defeating game of feeding the news cycle with stunts.
Tanner notes that as political coverage gets sillier, politicians are forced to get sillier to get coverage. “As politicians need to be interesting to compete in a world governed by the rules of entertainment, they happily collaborate”. Yet he believes that Australians deserve much better than the carefully scripted play-acting that now dominates our nation’s politics.
Journalists are always looking for quirky and amusing items that divert or titillate the audience. Tanner cites the 2008 presidential primaries where Hillary Clinton attracted saturation coverage for allegedly revealing some cleavage on the campaign trail. “The amount of flesh on display would have barely troubled a middle-class maiden aunt in Victorian England. Yet it was enough for the media to make it the lead news story across the country”, writes Tanner.
Tanner contends that the hyperbole which characterises media reporting is blatantly designed to manipulate the public’s emotions. He cites a number of examples where the media created unnecessary panic including the Global Financial Crisis, the Year 2K computer bug and the swine flu epidemic. The media reporting of these events produced a public response out of proportion to the threat.
A popular tool used by the media to distort impressions of politics and current events is “selective coverage” says Tanner. “When petrol prices spike, the media go into overdrive. When they fall, coverage is much more low-key.” Equally, every time interest rates rise, we see stories featuring struggling families. Yet when rates fall, little is said about the plight of self-funded retirees.
I think that Sideshow: dumbing down democracy should be compulsory reading for all journalists and reporters. Some reviewers have rated Tanner’s book as “refreshingly frank”. Others have labelled it a “scathing critique” of contemporary political journalism. Personally, I’d go one step further and categorise Tanner’s description of the media as “alarmingly true”.
Finally, and in fairness, I must acknowledge the media’s claim that they simply produce what consumers want. As a society, we would rather read about the sordid private lives of celebrities than have a serious debate about the long-term benefits of public policy. Just as we get the politicians we deserve, we also get the media that we deserve. As citizens, we are complicit with falling standards.
Posting Date: 20 June 2011
What fuels petrol prices?
Some things in life are a mystery. Petrol prices fall into that category. Many find it difficult to explain why the price we pay at the bowser fluctuates daily. While most motorists know there is a price cycle, many question why petrol prices shoot-up just before long weekends and holidays.
To understand how the local pump price for petrol is calculated, we first need to look at global forces. Three international factors drive the wholesale price of petrol in Australia – the world price of crude oil, the petrol price in Singapore and the value of the Australian dollar. Let me explain each in turn.
The single greatest factor influencing Australia’s petroleum prices is the cost of crude oil which is measured in barrels. The international price of crude oil accounts for around 50 per cent of the domestic price we pay