Gene Tunny is joined by Darren Brady Nelson to discuss the evolution of competition policy in Australia over the past few decades. Darren draws on his experience as an economist in the NSW Treasury and the Queensland Competition Authority. Gene and Darren reflect on the successes of the original National Competition Policy reforms and assess the more limited scope of the subsequent competition policy review. Darren analyzes CPI data to understand rising living costs and argues for reducing government interventions. The conversation also covers unintended policy consequences (e.g. fraud in disability services provision), the US Founding Fathers’ vision for limited government, and debates around the appropriate roles and sizes of government in Australia and the US.
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What’s covered in EP244
- Australian competition policy history and reforms. (0:00)
- Free market competition and its impact on living standards. (7:56)
- Economic policy and its impact on individuals, including a tragic story from Karen Chester illustrating the costs of high tariffs. (12:31)
- Economic policy reforms in Australia during the 1980s and 1990s, including the Hilmer report and National Competition Policy (16:08)
- The benefits and costs of National Competition Policy in Australia. (23:36)
- Sequels and the original, with examples from movies and economics. (31:51)
- Competition policy and its benefits, challenges, and potential reforms in Australia. (35:27)
- Cost of living and government interventions. (40:12)
- Government intervention in various sectors, including energy, childcare, and alcohol/tobacco. (44:42)
- Government policies and their unintended consequences, including fraud in disability support programs. (49:23)
- The size and role of government in Australia and the US, focusing on the founding fathers’ intentions. (53:43)
- Competition policy in Australia and the US, focusing on regulation and deregulation. (1:00:10)
- Economics, regulation, and antitrust law with a focus on Australia and the US. (1:06:07)
Takeaways
- National Competition Policy (NCP) significantly improved economic efficiency and consumer benefits in Australia.
- Reforms under NCP included corporatization and privatization of government-owned businesses, and opening up markets such as telecommunications and airlines to competition, leading to lower prices and better services in many cases.
- Despite being from a traditionally left-wing political party, the Hawke-Keating Government was crucial in initiating market-friendly reforms.
- Future competition policy reforms face challenges due to political and lobbying pressures, especially in regulated sectors like pharmacies.
- Transparent and rational community service obligations were key to ensuring fair distribution of competition policy benefits.
Lumo Coffee promotion
10% of Lumo Coffee’s Seriously Healthy Organic Coffee until 30 June 2024.
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Links relevant to the conversation
Where you can find Darren’s submission to the Productivity Commission’s National Competition Policy analysis inquiry:
https://www.pc.gov.au/inquiries/current/competition-analysis/submissions
AFR article “PC’s Karen Chester’s love of economics born of despair” (pay-walled):
https://www.afr.com/politics/pcs-karen-chesters-love-of-economics-born-of-despair-20161206-gt4poh
Whitlam Era book featuring Gene’s article on Whitlam and the Economy:
Productivity Commission’s 2005 NCP review:
https://www.pc.gov.au/inquiries/completed/national-competition-policy/report/ncp.pdf
Episode featuring John Nantz, Free Markets & Limited Government: Lessons from the Founding Fathers for Today – EP218:
Transcript: Economic Freedom and Efficiency: Lessons from Australia’s Competition Reforms – EP244
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Darren Brady Nelson 00:03
socialism ultimately doesn’t work because it doesn’t create prices, right? It doesn’t have prices give that, you know, and to also jump into high IQ, you know, because prices obviously this mix of information and incentives at the exact same time, right? When government does something, you can pretend to have prices, just like the Soviet Union pretended to have prices, but they weren’t real, you know, they didn’t need to reflect, you know, allocation of resources they didn’t, you know, they certainly didn’t inform entrepreneurs or consumers properly and all that sort of stuff.
Gene Tunny 00:42
Welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show. Hello, and thanks for tuning in to the show this episode, we’re going to be talking about national competition policy. But before we get into it, I’ve got to let you know this episode is brought to you by LUMO. Coffee seriously healthy or Ganic. Coffee. There’s a 10% discount for economics explored listeners, you can find the details in the show notes, the promo code is 10. explored, that’s in all caps. So definitely check it out. I couldn’t recommend it. Right. Oh, we’d better get into the show. I’m joined today by Darren Brady Nelson. Darren, good to have you back on the show. It’s been a while.
Darren Brady Nelson 01:51
Yeah. Good to be back. Good to see you. And yeah, I’m pretty excited about the topic. It’s a good one, one, near and dear to my heart.
Gene Tunny 02:01
Yeah. Well, let’s, let’s talk about that. Darren, I mean, you’ve got a background in competition policy, haven’t you from your time in New South Wales, treasury and elsewhere? Can you tell us a bit about that place?
Darren Brady Nelson 02:11
Yeah, essentially, it was my first job at a university at New South Wales treasury, an economist and you know, 1995 when national competition policy kicked off, so, you know, absolutely great time to join something like New South Wales treasury, because at that stage, you know, the Commonwealth wasn’t really doing much on that front. Because, I mean, it was the state who had all sort of the government businesses and a lot of that stuff that needed the reform international competition policy. And, you know, obviously, New South Wales being the biggest state, not I mean, that doesn’t necessarily mean they will lead the way on things, but at the time, they were because, you know, both labour and liberal were kind of, you know, amenable to these types of reforms. And at the time, that was Bob Carr’s Labour government, and in particular, you know, I’d say the late great treasurer, Michael Egan, you know, was was in charge, and he was, you know, very, very instrumental and very interested in these reforms. Gotcha.
Gene Tunny 03:12
Okay. So let’s might be good to just go over some of the history of competition policy. So by competition policy, we mean, measures to promote greater competition, because generally, competition I mean, there’s competition is a good thing in terms of making the serve the economy more efficient, we get cheaper services, cheaper goods, generally better quality, too. So there’s a there’s, there’s a virtue, a competition is a virtue. And it before that we had back in Australia, we had this. I mean, we were very highly regulated. We had a lot of government owned businesses, I suppose. You know, we still have some, but could you paint a picture? Darren, what was what were things like before national competition policy here in Australia? Well, to be fair,
Darren Brady Nelson 04:00
actually, things were already moving in that direction. As you would probably recall to with, you know, the Hawke Keating government’s Minister, you know, I remember people, you know, particularly liberals or whatever he said, kind of say, I can’t remember exact phrase, but basically, they were doing the sort of reforms that the Liberals should have done but they didn’t do under like, Malcolm Fraser. And so, now, how can Keating kicked off a lot of great stuff, you know, typically, I think banking and financial forms, you know, various sort of international trade reforms, currency reforms, labour reforms, and then, you know, sort of the competition policy, you know, kind of came out of that. I think so, it was also perhaps inspired by what was happening with Roger nomics. In New Zealand, and also what was happening, you know, in the UK with under Thatcher and the US under Reagan. You know, as experts As you know, what was happening, you know, in the 70s, and prior to that, but I understand, I think you have a better handle on that. But, you know, just how uncompetitive and protected markets were both domestically and internationally, including, you know, obviously, you know, the the two airline policy, the one big monopoly of what was it called prior to tell strike anywhere? Telecom? Telecom? Yeah. So I think, yeah, the telecom sort of reforms have been right before national competition policy, but then they kind of rolled into competition policy as well. And, um, you know, later on, kind of when competition policy, maybe five years or something after that, things like airports started to kind of roll in as well. So the regional competition policy was very much focused on infrastructure, in particular, government owned infrastructure, at state level in particular, but, you know, maybe to a lesser extent, local government, we can kind of touch on that. But, you know, terms of what Queensland did some interesting stuff that the other states didn’t do, in terms of competition policy, for instance, basically, in a nutshell, they they copied what was happening at the federal level, and, and basically tried to incentivize local governments to do sort of similar reforms, you know, with water and sewerage and various other sorts of local government owned businesses, or least local government heavily regulated businesses. And a key component about national competition policy, maybe, I don’t think this was with the other earlier reforms, and they haven’t really done it since is the Commonwealth made payments available? So they basically had these incentive payments, combination of incentives and, and compensation because, you know, to reform something, it’s not cost free, obviously, you know, to reform these things, you know, cost some money to do it in the first place. And then Queensland replicated that model and had money on offer for local governments. So after New South Wales treasury, I worked for the Queensland competition authority, and they were in charge of that programme, that national competition policy where state interacts and incentivize local government. So and I don’t think any of the other states did that. So definitely, you know, we’ll get to this. But you know, if any, if there’s a national competition policy 3.0, I think you have to have that sort of payment system in place, which was at the national level was run by the national competition Council. And then, you know, the QC just kind of replicated that sort of model. And we can obviously, at some stage, you know, I think we first met around the time the national competition policy 2.0 was happening with the Harper review. Yeah. So, yeah. It just for the audience in the Hilmer review was a thing that first led to the original competition policy. As you obviously recall, yeah.
Gene Tunny 07:56
Hmm. You know, we might talk about that in a minute. I just want to go over some of the background. So you mentioned Hawke and Keating. And that’s right, that was a very Suppose you say reformist government or it. And it was a very brave government because it was a Labour government. And so Labour’s traditionally the left wing party in Australia, but yet it fell upon the Hawke and Keating governments in the 80s and 90s, to adopt reforms that you would think you will do their free mark there in the direction of the free market, which was terrific and cutting tariffs and you’re reforming markets. So ending to airline policy, financial deregulation, and that two airline policy, there’s a great story. Well, it’s a terrible story really, when you think about it, but it’s a story by Karen Chester, who was deputy head of the a triple C poor car and got into a bit of trouble early this year. I’m not sure where that that’s all that there was some controversy, but we’ll just ignore that for the moment. She because she’s a great economist and she’s a former Queenslander, she, she told the story at the 75th anniversary or 70th anniversary of the Economics Department at UQ. Customs House whereby when her grandfather, there was a grandfather died in in Perth in the early 80s. And you know that her mother, they were living out of Salisbury or somewhere there her mother couldn’t afford to fly over to the funeral because of the high cost of airfares in real terms because of the restriction of competition. And I mean, I don’t know if you converted it to today’s dollars that it’d be in the 1000s of editor you know, it’d be very costly to fly to would it be very costly to fly from Brisbane to Perth? I think it was Perth back in those days. So it’s just you know, it was just extraordinarily costly and caused all sorts of social problems that that terrible policy so I think that was something that was worth definitely worth reforming. I think that was Karen Chester I’m sorry if it if it was at Cardiff, I’ve got the story wrong but that’s that’s the That’s what I remember something you know, there was a vivid story I may have the facts a bit distorted but it was out very real, real story that just struck me Oh, that’s a that’s a really good example of just how poor economic policy can cost people. So I think that’s, that’s a good illustration. And then I always remember how we always used to have it I would be told I don’t make have to longer phone call with your, your maid in Brisbane is when I was living in Townsville, because of the cost of the cost of the phone calls. The secret subscriber Trump dial dialling phone calls STD calls, just ridiculous when you think about it now, and we’ve managed to reform and bring all of those costs down?
Darren Brady Nelson 10:49
Well, yeah, just to jump off of that, I mean, you know, free market competition is the greatest, you know, sort of mechanism there is for alleviating poverty, for you know, getting rid of it to for the most part, I mean, I mean, you’re not going to get rid of relative if you like, you know, the relative poverty, like, you know, someone has more stuff than me, but, you know, to actually lower costs and make things that were previously unaffordable, affordable. You know, that’s obviously what happened, you know, with the industrial revolution, you know, sort of in England, and then spreads throughout, you know, sort of the English speaking world and Western Europe. And obviously, that’s the same sort of thing that China allowed to happen to, you know, to a much greater degree, you know, I guess, roughly sort of early 90s, I guess, to about the GFC, roughly, you know, so, obviously, that everybody knows how many people, you know, people know that there’s a lot of people were lifted out of poverty through that process as well. And always works, you know, so, you know, some people have this impression, if you allow markets to kind of operate more with less regulations and less tax, that that somehow just makes the rich richer, and the poor, poor, it’s the exact opposite. You know, it’s usually the cartels and stuff, that’s, you know, sort of, I mean, will create, if you like, more unearned wealth, you know, amongst a smaller batch of people, whereas, you know, sure, there’ll be millionaires and billionaires, if you like, under a free market competition system, but they would have earned it like Steve Jobs learned by just providing a good product at a reasonable price, an innovative product, you know, of a high quality product, all that sort of stuff. Yeah, yeah,
Gene Tunny 12:32
yeah, exactly. Exactly. I’ve just found the story about Karen Chester in the financial review, so I’ll link it in the show notes. It’s a it’s a really, you know, incredible illustration, but it was about her. It was about a mother. So Miss Chester’s mother had squirrelled squirrelled away her savings for two years in hopes of buying a return ticket to Perth from their home in the Daggy Brisbane suburb of Salisbury to visit her own mother for the last time, but the cost of clothing was three times higher in real terms than it is today with tariffs of more than 40%. And domestic air travel was four times more costly. Under the two airline policy, a perfect storm for my mother who ended up riding the squirrel tin to reclaim this no flight to Paris. She never saw her mother again. This Chester’s told the conference. And that’s just the that’s just a tragic, you know, really sad story and just shows the human cost of bad economic policy. So, you know, a lot of people accuse us like they accused me I’m always being accused or you’re a neoliberal or You’re heartless. You’re an economic rationalist. And I just pushed back well, okay, these, actually, the policies you’re advocating for are the Heartless policies, right?
Darren Brady Nelson 13:44
Yeah, well, look, if they’re calling you that, I don’t know what they’re calling me. Even more free market, if you like. There was a piece I wrote for this either came in financial review. One of the editors is our mutual friend, Dr. Dan Mitchell. And yeah, so I wrote this piece that, you know, it’s about more than than competition policy, but certainly competition policy played a big role. But in there, I kind of look back, you know, certainly the 1980s. But also start out with a little bit. I was trying to remember the term but I found it and I wrote about it. You probably heard this term, the Australian settlement. Yeah. Yeah. Which apparently was from the early 1900s to the early 1970s. And to actually be fair, interestingly enough, I think some of that tariff reform that you mentioned, actually started under Whitlam deity. Interestingly enough, yeah. Somewhat, you know, you might even think it counterintuitive, I guess. So, you know, that could be also something you could possibly link to, if I can find if I can find a link to it. Yeah. Well, I can tell you that. Yeah, sorry. Go. I can
Gene Tunny 14:58
tell you about the Australian settled because that was Paul Kelly’s conceptualization of it in the classic book about the reforms in the 80s called the end of certainty. And I mean, his thesis was that what we had from your right from around the, from Federation through to the, essentially the early 80s, although it started to be dismantled in the 70s was the Australian settlement. There were three elements of it. And I think it’s three, they’re basically the tariff protection. And then there was the was a conciliation and arbitration, the, you know, the living wage or the, you know, the heavy regulation in the labour market. And then the third element of it was controversially White Australia Policy.
Darren Brady Nelson 15:43
Oh, okay. That was the third. Okay. I didn’t write about that. I wrote about the, the Labour and the tariffs.
Gene Tunny 15:50
It was, I think that was the third element. But yeah, and essentially, we had to abolish the White Australia policy, because it’s obviously it’s abhorrent, really. And it’s, it’s against the UN convention or whatever we signed. And, and therefore, after that, we then like the in the 70s. So the Whitlam I mean, for all his faults, I mean, I wrote a chapter on the Whitlam government in Scott Price’s book on the Whitlam era. And, I mean, look, they were irresponsible in in many ways, but they did a lot of good things, too. They actually started the reform of government owned businesses. That was when they broke up the old Postmaster General’s department, we had a big government department that delivered the mail and also took care of telecommunications. So they broke that up and formed Australia Post and telecom, which then pave the way to corporatization and then privatisation of Telstra. And then they also cut they had a 25% tariff cut. And that was recommended by Nicholas Gruen’s father. So Nick’s been on the show before I work with him a lot, really great economist, his brother, David runs ABS, I worked for David to back in the Treasury. And there, you know, Nick and David’s dad, he recommended a 25% tariff cut, but that was lodged from what I can tell. Part of it was for micro economic reasons. But another part of it was for macro economic reasons, because the government was involved in embarked on this huge expansion of the federal government. And if you want to make sure you’ve got the resources to do that, you want to you want to get some of them from input. So you need to take pressure off the domestic economy by allowing greater imports, which is and the way to do that is by cutting tariffs. So it was partly for macro reasons, too.
Darren Brady Nelson 17:28
But there was also the in a fixed exchange rate era. Yeah,
Gene Tunny 17:32
yeah, exactly. Yeah. Yeah. So there’s a I mean, it’s a whole different world, the way they thought about economic policy back then it’s, yeah, it’s a really different era. And then we go into the end of the 80s. And yep, you’re right. We have those, those great reforms from Hawke and Keating are backed by John Howard and the opposition. So credit all around. And then we get to Hilmer. So can you tell us a bit about the Hilmer report? who like it was Fred Hilmer? Wasn’t he was a professor, was he a professor at UNSW? Or I knew or somewhere?
Darren Brady Nelson 18:04
Um, yeah, look, I wasn’t involved, you know, like, I came in afterwards. And obviously, I read the report. And yeah, but you’re right, your, your memory is correct, he’s, he was a professor at UNSW. I don’t know, the whole genesis of that, that’s something I’ve never kind of really looked into. I kind of came in, you know, to make it up, you know, to, to, you know, put it into operation. So, I got in, you know, as like a, you know, brand new, you know, baby economist, and I was helping, you know, sort of implement that from, you know, the state of New South Wales point of view. And in particular, I was involved in kind of all aspects of it, but I in particular, was involved in competitive neutrality, if you remember, remember that there was kind of all these, basically, everything was trying to achieve, I think you alluded to, or maybe even said, it was trying to, you know, move things in the direction of competition, if you like, are allowed to move into the direction of competition. But, you know, it had, you know, you know, Hilmer made recommendations, I’m pretty sure most of it was accepted. And it was turned into these these agreements that were between the Commonwealth and the States. And they came up with things like model legislation that I think they, they wouldn’t run to the state of South Australia, for some reason, I don’t know, the whole reason why South Australia, but then you all the states would have the same, you know, pass the same sort of act. And it also involves, you know, sort of, as you mentioned, these incentive payments, which was, I think, crucial, you know, that I think the agreements were great, obviously, legislation was was important and part of that these various competition policy acts around the around the country, and it had certain aspects competitive neutrality, which was about, you know, you know, government businesses competing on a level playing field. Basically, they had all these different mechanisms for making sure that you know, that they had, for instance, tax equivalence, so they weren’t paying for Commonwealth income tax, so they had to have like an equivalent of it. I think it even got to a point where the ATR was actually the one, you know, processing that, but they were actually just giving the money right back to the relevant state.
Gene Tunny 20:15
You mean, the Australian Taxation Office?
Darren Brady Nelson 20:18
Ato, you’re right. Yeah. Yeah. HR that’s in the United States called the Americans for tax reform, not the same place. Yeah.
Gene Tunny 20:27
Just for clarity, the reason that they didn’t have like, they technically didn’t have to pay income tax, but all the corporate company tax because these businesses were owned by state governments, and state governments under the Constitution. I think there was a famous high court case, that rule that the Commonwealth can impose taxes on state governments or state owned entities, is that the case? And so they had to effectively pretend to pay tax? Correct?
Darren Brady Nelson 20:53
Great. Yeah. And they were also a few, like, pretending to pay dividends and stuff to shareholders. So you know, they corporatize them, and the shareholders were, like, you know, often the New South Wales treasurer and some other Minister, that type of thing. So that, you know, I mean, keep that, in reality wasn’t the really big thing. You know, it was like, you know, particularly when they, but it was all part of the process of, you know, like, Victoria kind of went down further path of privatising some of the other states didn’t do that they kind of corporatized and tried to make it so that, you know, they were no longer kind of a monopoly in their market, or, or if they were in there that, you know, they weren’t just dominated with a whole bunch of government advantages of various sorts. So, so can we better tune it neutrality was kind of my thing, in particular, at first, and then even when I went to the TCA, that was kind of the first thing I was starting to do there was to be involved in, you know, there sort of opera operationalizing competitive neutrality in Queensland, and then then kind of moved into more of the trying to get the local governments to do their sort of, if you like, their fair share of reforms, you know, because they had government owned businesses of various sorts, particularly water and sewage in particular, but it wasn’t, there was other ones as well, there was, you know, various waste management and all sorts of other stuff, too. So, you know, and I think they also had things like a more formalised, look, if you’re going to keep these things, and you’re going to designate these things as monopolies, well, then you need to have like a proper regulatory system, you know, proper regulator goes through a process that doesn’t just rubber stamp you, you know, gold plating your networks, and that’s, you know, charging people high prices. So, you know, wasn’t a perfect system, but, you know, considering what, you know, what, you know, what it was prior to that it was a huge improvement. And unfortunately, you know, we can cover, you know, when the Harper review camera, I’ll have a review, really, it was very unheroic. And it was like, mainly tweaking, if you like, Australia’s version of antitrust laws, you know, basically, you know, a triple C related, you know, competitive conduct related laws. Although another thing that happened, the first NCP was they opened up, they allowed I believe government businesses could they were subject to the a triple C’s, anti competitive conduct laws. So, you know, government, unless it was literally, you know, Crown activities, you know, actual government activities and not actually business activities. The actual business activities, whether they corporatize it or not, could be subject to a triple C’s jurisdiction.
Gene Tunny 23:36
Okay. And now in terms of the businesses that were affected, we had and you talked about corporatization and so that’s when effectively the government, it takes the the operations out of a government agency or a board. So been in Queensland oil in Queensland and other parts of Australia. We had electricity delivered by boards. We had the southeast Queensland electricity board the North Queensland electricity board, Norquist, that’s the one I remember growing up. And, you know, it’s effectively a gap
Darren Brady Nelson 24:06
veterans Pacific power in New South Wales. Yeah.
Gene Tunny 24:09
And then and they, their government agencies delivering these, you know, these utility services. And, and, you know, I mean, I think, you know, I mean, the power would certainly had power. I mean, I think we used to have more blackouts back then or brownouts and things, partly because of industrial action at times that the theory is or and I think there is evidence that supports this, that generally in businesses where there’s that heavy government involvement or overlay or control, they’re less efficient, there’s more tendency to overstaffing. And the quality of service is lower now, you know, and so I’m very sympathetic to that. And so, you know, I guess businesses that were corporatized electricity, businesses, ports and railways, et cetera, and then private As a nation, something else and privatisation can be controversial. Maybe we can talk about that later. But what do you see? What do you think that whole period that national competition policy period was a success? How do you how do you rate it? Darren?
Darren Brady Nelson 25:15
Yeah, look, I think overall, you know, kind of using it, like, I’ve seen a lot of economists like to kind of think in terms of cost benefit analysis, I think it was clearly, you know, quite a big death benefit. I mean, the Productivity Commission, you know, did did a number of studies over the years, I think they did one kind of originally 9095 kind of predicting what it might look like, and then they did, they did a kind of an impact analysis in 99, and then did another one. And 2005. And, but I remember, I believe I was looking at the one 2005. And, and, you know, they were they kind of looked at them, they factored in, you know, the, the incentive payments, for instance, because, you know, that should be a part of the costs, obviously, but, you know, they came to some conclusion that it was basically the, the net benefits were essentially about 100 times the costs, you know, so we’re talking kind of, you know, biblical proportions of net benefits, we’re not talking about like, just slightly of net benefit, which you still might do anyway, you know, if it’s, if it’s somewhat a net benefit, you know, because obviously, cost benefit analysis doesn’t make the decision for you necessarily, but it might suggest, hey, look, it’s it’s got a net benefit may not be a big one, you know, then maybe do it, but this ended up being, you know, just amazing, you know, even though that it still had plenty of flaws and could have been done better. But yeah, it was, you know, just the GDP return through, you know, a lot of price reductions, basically, you know, particularly in these infra infrastructure related entities, which, you know, we’re electricity, gas, rail, all sorts of ports, I there was even airports came into it eventually. Just it was amazing, you know, you know, it was ran for about a 10 year period and, and the returns, you know, to the Australian economy, and particularly, you know, going back to your point about you know, just like sort of middle class and lower and lower income people just got amazing benefits out of it because of the low prices and you know, not just a low prices, but the better quality and the better service and all that that came with it, more quantities of things, etc.
Gene Tunny 27:24
Yeah. So what I’ll do is I’ll put a link in the show notes to the Productivity Commission’s 2005 review of NCP where they go over a lot of the empirical evidence and they conclude that benefits from NCP from national competition policy have flowed to both low and high income earners, and to country as well as city, Australia, though some households have been adversely affected by how higher prices for particular services and some smaller regional communities have experienced employment reductions. So I guess what they’re getting at there is that I mean, to it, to an extent some of these efficiency reforms meant that some consumers who were being cross subsidised in the past had to pay more for services such as electricity or water or whatever, or rail services actually. And rail services is a good illustration, I mean, bad illustration for these communities that were affected. But I mean, one of the things the Labour government here in Queensland had to do and they copped out and to their credit, they copped a lot. They copped a lot of criticism for this, because this was against their, you know, their voting base in a way. They ended up having to rationalise the railway services in the 90s. This was the GaAs Labour government, which is completely you know, it was a it was very rational, economic, it was, you know, it had a really good framework. It’s different from the current, you know, previous subsequent Labour governments that that we’ve had here in Queensland, very different flavour. But it basically rationalised a lot of those passenger rail services to far flung places in Queensland where there’s just no one, you know, there might be one or two people cashing the train or maybe no one on some services. So they cut a lot of those services that was hugely controversial. And also they scaled down railway workshops in different parts of the state where there wasn’t really the work to be done. And again, very controversial. And so I guess what I’m trying to say is that these measures, while we think, you know, they’re generally for the whole community, they’re a good thing, they will have some impacts, there could be some people who are adversely affected when we don’t want to be to, you know, just see the world through rose coloured glasses. So that’s just one point I’d make there. Do you have any thoughts on that? Darren?
Darren Brady Nelson 29:39
Well, the Productivity Commission is you kind of, you know, mentioned or certainly alluded to, I mean, they did distributional sort of analysis as well. So it wasn’t it like a straight up to Australia getting that benefit, you know, you have to obviously go a little bit more disaggregated than that and they did, but also part of the competition policy. A key part of it was community service obligations. So basically to take a more a more transparent and rational approach to subsidising stuff. So, you know, at the end of the day governments could make, you know, could like justify with sensible, you know, like they go look at it and go look, there’s, there’s, there’s these externalities, there’s these public good aspects, but at least it made it more transparent and you kind of could, and then you could see it on the books, okay, this is what we’re spending on it, and you can make a better decision. If you’re, you know, fine, we’re going to keep this going. But here’s, here’s the costs and benefits associated with it. So, you know, cost benefit analysis and community service obligations. were, you know, a thread is well, throughout NCP. So, I think, you know, I think, you know, that should make it also, again, if they bring it back, if you use that sort of stuff again, yeah, it should make it more attractive to, you know, abroad, sort of basic constituents. So, yeah, you know, that that’s certainly hopefully something that if they do go ahead with an NCP, three 3.0, which obviously, we don’t know if they will or not, because Productivity Commission is currently just doing kind of analysis, sort of like they did in 1995. Except that 95 Everybody agreed to do it. But so they said, Okay, everybody’s agreed to do was kind of like project what this might look like, was now, it’s not a done deal that they’re actually going to do it. But the Productivity Commission has been given a tough task to kind of like, a very tough task, because they knew exactly what NCP was was going to entail. And then they tried it and it’s still not an easy job, then forecast what that will look like over the next 10 years. But now they got a harder task, like, well, what is NCP might entail? And let’s try to forecast what that’s going to look like in terms of, you know, the benefits and costs and distributions of that. Yeah, yeah, we
Gene Tunny 31:51
might talk about that in just a bit lighter because I want to talk about NCP two first, but you do make a good point. And I think what the PC is hoping and they sort of this is suggested in the terms of reference for that NCP three inquiry that the government or the the Council for federal financial relations or whatever it is, there’s some body that represents the states and the Commonwealth is going to give it a programme for reform, but based on you know, my, I guess we can talk about this later, but I’m not hopeful it’ll be very comprehensive. I think it’ll be pretty high level and it’ll be it’ll be challenging for them. So we’re gonna talk about that a bit later. But I want to ask you about what like, we talked about NCP one, and then there’s NCP two so is this a? Is this the traditional case where the original is better than the sequel? It’s not like Empire Strikes Back or Godfather Part Two, like, this is a case where the original is actually better than the sequel? Yeah.
Darren Brady Nelson 32:48
I’m not sure if nothing jumped in my head. Where is it? What’s a good move example where the original is like, far, far, far, far better than the sequel? Because that’s what the case was NCP to
Gene Tunny 32:59
Georgia thinks the classic example Halloween. You’re
Darren Brady Nelson 33:01
right. Actually, jaws would be a good one.
Gene Tunny 33:05
Friday the 13th Yeah, I would definitely
Darren Brady Nelson 33:07
not Alien and Aliens. Because those two were like, really awesome. And just different from each other. Yeah. And so it’s not casting aspersions on on Harper, which, but I think, you know, the terms of reference was just very heroic and very narrow and very, like, it was more for like, competition lawyers, you know, it’s like, you know, great, I guess the here’s some fiddling around the edges. I guess it’s improved things. I don’t know. But yeah, it’s nothing like the first NCP and it’s kind of sad that it kind of is the 2.0. But that’s all that’s all right. Sometimes. 3.0 is or, you know, can can can ever have a really big comeback. Even if the second one wasn’t that great. So, I’m sure I’m pretty sure there’s been a movie to where, you know, I can jump in my head later, but there was there was one more like the first move. Maybe it looks the back to the future ones. Yeah, that’s it. The first one was obviously great. The second one was like, the third one was like, hey, that might be great. Again, you might remember that. Yeah. Okay. I had a different interior ones. One went back in time, and they had the cowboys and Yeah, you like that one guy? Yeah, I think I think most not everybody, but I think most people recognise that. Even if it wasn’t quite on par with the first one was, you know, vastly better than the second one anyone?
Gene Tunny 34:25
Yeah, that’s probably right. The second one’s the one that gave us the hoverboard though, wasn’t it? That’s where he has the he’s on the whole give us the hoverboard. Yeah, yeah, yeah. Now, yeah. Okay, that’s a nice, great films from the 80s 70s and 80s. We were talking about takes you back. Okay, we’ll take a short break here for a word from our sponsor.
Female speaker 34:49
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Gene Tunny 35:18
Now back to the show. Okay, so we’re talking about NCP 2.0. And well, let
Darren Brady Nelson 35:27
me get something that you said earlier, you said like competition is a virtue. I mean, one thing one statement that I remember you on the first NCP doing it, and they kept on being repeated. I think it was written down somewhere as well, basically, I think it might have been in the agreements, actually, the the NCP agreements, the various inter governmental agreement, but you know, there was basically a phrase along the lines of, you know, competition is not an end in itself, but a means to an end. And then you know, that that end being obviously, really, ultimately, consumer welfare if you like, you know, sort of like lower product prices, greater productivity, greater innovation, all these sorts of things. So, hey, look, I largely agree that I think I think competition itself has some aspects that, you know, if you like, are good in themselves, you know, just like working, even though like people, even economists tend to overstate that working is all about ultimately having more leisure or being able to buy more stuff, while actually working in itself is a good thing, too. I think competition, although, yes, it is really more about, you know, obviously, providing that discipline to the market that governments just can’t do. They can’t replicate it with price controls, again, they certainly can’t replicate it through taxing more stuff or even owning things. But you know, but But yeah, it’s largely a means to an end, but it does have some virtue qualities in themselves, I think.
Gene Tunny 36:52
Yeah, yeah, exactly. I guess that’s what I was trying to get at, in part. Because, you know, just to me that I don’t know whether it was Adam Smith, or Frederick Hyack. Essentially, or maybe it was Milton Friedman making the moral case for, for competition for free markets. And don’t just look at it as a as a means to an end see value in the process itself in the in the freedom and the Liberty. So that’s the one of the points I was trying to make. Yeah, it
Darren Brady Nelson 37:19
certainly would have been, you know, a point, you know, for sure made by iron Rand or something, you know, even more so.
Gene Tunny 37:25
Hmm. Yeah, yeah. Yeah, for sure, for sure. Now, just on the hopper review, just, it just got me thinking. One of the problems I think we’ve we’ve had in Australia is that we’ve done the things that were obvious to do, let’s reform all of these really inefficient government businesses, and let’s improve competition in telecommunications, and airlines, and we’ll deliver big gains to consumers, which we have. Part of the problem is that once you do the big things, you get into a lot of these more difficult things. And then you got politics involved in the lobbyists. And I mean, for years have been talking about the need to reform things like pharmacies and get rid of rules which prevent new pharmacies from opening up there all sorts of rules to control how many pharmacies you’re gonna have in an area, and you come up, you come against the industry groups as they are, this is terrible. This is bad for regional areas or whatever. So, I mean, that’s what I see is one of the problems and that’s where I think this latest, NCP 3.0 will come to grief because the particularly this government, which is, I mean, it’s a Labour Government, and it’s, you know, because of its political constituency, it has to do things that are favourable for the union movement and demand that you know, it’s nothing wrong with unions. The thing is, though, that some of the measures that they will adopt will not necessarily be good for economic efficiency. So that’s, I think that’s one of the challenges that we’ve we’ve got with current NCP before we get into well, we might talk about that later. But a bit ask you’ve, you’ve made a submission to this NCP analysis inquiry that the Productivity Commission is, is conducting at the moment, so I’ll just read out the terms of reference. Just to SET set this up. The Commission will undertake a study to assess reform options proposed by a Commonwealth state and territories as part of the revitalised national competition policy, to understand the economic and other benefits to the Australian community as well as the government revenue impacts, while the reform options are yet to be agreed by CFR and that’s that Commonwealth Federal Financial relations body. It is important that they tackle shared priorities such as addressing cost of living pressures, that’s great. And adapting to the netzero transition, digitalization expansion of the care and support economy and creating a more dynamic business environment. So that’s what we’re going to get out of this inquiry and you You decided to make a submission to this inquiry? You’re one of the 14 or so submissions on the website. Why did you want to make a submission to the inquiry? Darren? And what are your main points in that submission? Please?
Darren Brady Nelson 40:14
Well, as I mentioned in the beginning, it’s kind of something that’s near and dear to my heart. And, and also, obviously, cost of living, you know, that’s a particular have been a problem for quite some time. You know, I worked for a senator Malcolm Roberts, in his first term in the Senate. And, you know, kind of one of the big focuses, you know, that I had when I was working for him was cost of living, and, you know, sort of used to do a lot of sort of, you know, speech notes and help with media releases, and also kind of, you know, kind of sort of looking at the statistics that kind of show what’s going on on that front. It also helps with, you know, setting up we did a well, you will you will remember this because you spoke at it. We did we did, I think it’s the first ever Australian cost of living summit, I have never found one that they’ve done before. I know they’ve done some kind of more recently, or since if you like. So, you know, we obviously had a great cast of speakers, including, you know, the late great, Tony makin sort of mutual friend of ours. And yeah, I mean, Dan Mitchell came out for that. It was yeah, it had like a lot of great speakers. And obviously, you know, a bit of entertainment at the end with Ross Cameron, and, and, oh, yeah. Mark Latham. Yeah, Mark. So, and I think Liberty Fest was actually the next day, I think you were probably at that, too. I mentioned, I’m not sure if he spoke at it or not. But
Gene Tunny 41:41
I didn’t go to that. I haven’t had a lot of involvement in or maybe I dropped in to say hello to someone. But maybe I said a lie to you. But I didn’t. I tend not to. I liked your cost of living Summit. Because there was a real there was a lot of economic content there. I I mean, I don’t have any problem with Liberty fest. I think it’s an interesting concept. It’s just, it’s a bit more political than I say, there’s a lot more politics and economics, I’ve found with some of those events, so I tend not to go to them a lot.
Darren Brady Nelson 42:09
Yeah, so So the cost of living Summit, so it’s so obviously, something that I’ve been, you know, as I suppose a lot of economists would be, depending on what you focus on, you know, I’ve had a great interest in that. I just wanted to get on the record, you know, look, you know, I didn’t want to sort of spin too many wheels wasting time. So basically, to be fair to the audience, I did, I spent most of that submission, just quoting myself, you know, I wrote a whole bunch of stuff on cost of living and kind of related matters. And that’s okay, because academics do that all the time, where they sit there and quote themselves, so I’m not an academic. So, but look, I caught myself and I, you know, kind of, you know, went through in kind of a logic, so I didn’t, you know, one thing I did do is I want original thing if you like, and it’s like, completely original, but I thought I’d focus on kind of CPI, you know, like putting aside, it’s, you know, it has its foibles as a statistic, you know, you know, really kind of represents 40% or 50% of the prices that are out there, but that’s fine. Look, you know, so I focus on CPI, I’ve just got the ABS data, and I wanted to kind of go as far back as I could, and go up to obviously, as update as I could and just kind of look at, you know, what are the what, and I looked at it on an industry by industry basis, obviously, you can look at it different ways, capital cities, and all sorts of different ways. But I like to look at stuff on an industry basis or a policy basis, if that’s an option. So that but you know, it kind of intuitively was the sort of stuff I expected, you know, the suffered, government is heavily involved in one way or another, either heavily regulating it, maybe even providing those services, or in the case of, for instance, alcohol and tobacco. It’s taxing it whether you think it should or should not, obviously, people have kind of, you know, health and externality reasons that they justify that. But anyway, I didn’t want to go there. First, I just wanted to see what you know, what’s the landscape look like? So, you know, I was able to provide a lot of that. So I think I looked at it, kind of three sections was kind of you kind of what’s the economics of this, particularly the cost of living was my focus? What’s the data that would be in the CPI stuff? And then then, you know, kind of what’s looking at, you know, what’s driving it? Because my thesis, obviously, is government interventions, for the most part, are driving that. Now. Look, you can say some of these government interventions are justified, well, okay. But still, it’s going to drive up the cost of living, you may think, you know, climate change is the most urgent thing we need to do. Well, if you bet it’s still gonna jack up electricity prices, right? You may want them to be jacked up, but they’re gonna be jacked up. So I don’t think too many economists can disagree that, you know, that’s a factor, right? You may say, Oh, it’s a justifiable factor, I will say differently, but, you know, so I wanted to get there and get that just kind of all on the record, you know, just kind of my my thoughts on it. And you know, As someone who knows something about competition policy, I, you know, obviously as I started out in that world, and I’ve kind of done a lot of similar work, you know, over the years in that, you know, basically in that space either in Australia with utilities and utility regulators, and you know, some of the industry associations, etc. And then kind of more recently, over the past decade more think tanks, both Australian and American. So I just kind of, you know, look, you know, I guess I was a little bit more optimistic, perhaps, that I should have been, yeah, that’s gonna happen. But the point was still, like, look, I want to get on the record, you know, hey, you know, and it’s, you know, in fiscal policy, regulatory policy brings your policy of Reno’s that’s a factor, but I also want to get on the record that fiscal policy is a factor, obviously, they mentioned the terms of reference, you know, I want to go on the record that there’s such a thing as the Laffer curve. So, you know, you government, you know, can get some benefits out of, if you like pro competition reforms, you know, you can, you can get more revenue through the door than just trying to tax people at higher rates, and then monetary policy, which I know, no one’s really going to touch. But it’s a factor, you know, like housing, for instance, is a classic, you know, where you print a lot of money jacks up the demand for housing, then you do stuff, like have heavy environmental regulations inspired by climate change, and you restrict the supply of land use and all that sort of stuff, and then throw in another factor that don’t make much, you know, sort of have been, you know, having, you know, mass immigration, you know, brings in that a lot of just demand for housing as well. So you’ve got a lot of stuff going on. And look, things need you looked at, amongst Even today, there will still be low hanging fruit as you sort of, you know, you didn’t use that term, but you were alluding to low hanging fruit. And that’s fine, you know, prioritise the, the, the, you know, find where there’s kind of a big economic bang, and low political resistance. And obviously, those are the places you can tackle first, and you leave the, you know, the stuff that’s got less economic bang, and high political resistance. And, you know, obviously, there’ll be stuff in between. So, you know, look, I’m, you know, I’m pragmatic, you know, I don’t expect, you know, like, either bring in an entirely free market tomorrow, or don’t do anything. So, you know, the sort of practicals that we can do. Yeah.
Gene Tunny 47:23
And so what you did was did you replicate? There’s a famous chart, I think, that was prepared for the UK by someone, I think it was that Institute of Economic Affairs, or Adam Smith Institute, I can’t remember the exact Institute where they show for the UK, that those heavily regulated sectors are the ones with the highest increase in CPI, that with the highest inflation rates, and I’ll try and track that down. You’ve effectively done that for Australia. Have you said things like, what is it its energy, its childcare, etc? And you mentioned alcohol and tobacco? I’ve got something to say about that in a moment. But as I was
Darren Brady Nelson 47:56
saying, Yeah, well, no, it was the IPA, they did it for Australia, but the report was from, like, 2018, or something. So it certainly lines up with I think they wanted to even greater detail, you know, like really highlighting, you know, what are the areas of high intervention? You know, that’s kind of the analysis that I kind of alluded to, but I wanted to get, you know, there’s data going up to 2023. And I also want to go further back in time. So yeah, the IPA thing was for Australia, and it’s a great diagram. You know, things haven’t changed, you know, like, the logic still, you know, sort of stands at test time. I don’t think they touched monetary policy in there, but they certainly did fiscal and regulatory policy, if you like, I like to think of, you know, in terms of a big three government policies, because, you know, really, government’s instruments are those three things. So if you talking about industry policy or competition policy, they’re still using those three, you know, potentially they cut across those three big areas of policy. Obviously, within fiscal policy, there’s, there’s, you know, spending and, and tax and that sort of thing, but I kind of like to think of it in those three kind of big levers, if you like that, that government has, basically, basically getting out of the ways is ultimately what I’m suggesting in my submission is reducing government’s interventions. As much as possible.
Gene Tunny 49:23
Yeah. So the big three, just for clarity, fiscal policy, monetary policy, regulation, or regulatory regulatory, very good regulatory
Darren Brady Nelson 49:30
policy. Regulatory is basically laws. It’s command and control, right? Yeah. No, do this. Don’t do that. You know, that’s basically and obviously, that’s what most laws are about are regulations. Yeah.
Gene Tunny 49:40
I liked how you mentioned tobacco because one of the Not that I’m advocating for tobacco. But one of the things I’ve noticed, and this is a big story in Australia at the moment because we’ve jacked up the excise on tobacco, just a massively high levels. And you know, it’s $40 Whatever it is for a packet of cigarettes, I don’t know I don’t buy cigarettes, but it’s a lot like 30 to $40 Depending on how many cigarettes you get. And what’s happening is it’s actually encouraged a black market and organised crime is in tobacco. And so we’ve had there all these gangland incidents there are you know, tobacco stores that haven’t paid the I don’t know the protection money that are getting firebomb dried. And, and I don’t know, I don’t know if this is organised crime. But around the corner from me on Wickham terrace, there was a tobacco and vape store that was that caught fire toward the end of last year. Right. So this is happening across Australia. And it’s a consequence of excessive excise on tobacco. But yeah, I covered that in my one of my recent episodes on taxation. So just so you might be interested in that. I don’t know if you’ve been following that at all. Uh,
Darren Brady Nelson 50:52
no, I wasn’t aware of that. I mean, like, I mean, I guess I shouldn’t be surprised as an economist, but it’s still kind of shocking, anyway. Yeah, I guess another thing we should mention, you know, whether you link to it or not, but, you know, Frederic Bastiat, you know, sort of, or his essay, I believe, you know, where he talks about, you know, unintended consequences from these government policies. That would be the classic. And the unintended consequences are almost always bad. They’re not usually good ones. Right. So I should even mention that, you know, that that can even segue into you know, people remembering that there’s such thing as public choice economics, which, which ultimately talks about the economics of government, and also government failure, that would be an example of government failure. Now think the public choice people use this language. But you know, what, externalities today, don’t just exist in markets exist with governments as well, they have externalities, they have a lot of negative externalities to like this policies.
Gene Tunny 51:52
Yeah. I mean, we’ve got multiple examples here in Australia at the moment, I mean, I’d love to bring Frederic Bastiat back, like Jurassic Park style, or wherever you do it. Australia. And, you know, he could write, write, write about all of the, just the insanity? I mean, what are the there’ll be the NDIS is the big problem we’ve got at the moment. And
Darren Brady Nelson 52:18
classic unintended consequences. Yeah, and
Gene Tunny 52:21
I don’t know if the latest story is that you’ve got all of these dodgy operators, because they see, oh, there’s this huge pot of money, let’s open up a disability support business, and then they find someone who’s disabled or they go, you know, they have a condition that gets them out of the NDIS. And then their money pot right there, you know, this is a Yeah, it’s there on the gravy train this, this Disability Support Agency, that’s essentially, you know, getting a share of the package. And the worst case, and they’re saying that there are some providers, they will go to the NDIS recipient, they will go to the ATM the automatic teller machine, and they went, they’ll get, they’ll pull the money out, and then they’ll sell on drugs they’ll sell they’re the person they’re supposed to be helping drugs. So there’s at least one or two cases of that, it’s just yeah, and there are these reports of very high percentages of, of NDIS providers. So the, the businesses that are looking after the disabled people managing their packages, they’re, you know, very large number a huge amount of fraud, at least $2 billion worth of fraud is just extraordinary. And
Darren Brady Nelson 53:33
it’s just gonna balloon anyway, without all that sort of stuff. Because, remember, originally just looking at the definition of disability and legislation, it’s so ridiculously broad. You know, it’s, I think, that Mitchell’s had these good cartoons about like, you know, you know, like when you have like, kind of mainly a market and it’s kind of pulling a small cart of the welfare state, you know, can it can handle it, but then when, you know, then when it gets reversed when like, most everybody’s on welfare, that doesn’t work, you know, that doesn’t work, you know, because money has to be generated, you know, the wealth has to be generated in the marketplace, because government doesn’t create any wealth raw.
Gene Tunny 54:09
I mean, I guess, yeah, I mean, government activity does contribute to GDP and governments can invento so well, no, I mean, yeah, I guess this is this is an interesting philosophical question because governments can actually create productive investment or productive capital stock carded or it can you know, it can help provide the capital stock the public capital the the roads and the infrastructure to to help enable business so
Darren Brady Nelson 54:39
well, okay. Yeah, yeah. But even that is Yeah, look, yeah, that’s a little bit you know, at least a more debatable topic then then then some things that government gets involved in obviously. But, but if not getting back to NCP Yeah, they, you know, the see then was like, okay, whether they can or cannot do it, which I So they did. They certainly don’t do it very well. And you know, it’s very expensive. So, and they do it in a very bureaucratic fashion. As you know, Ludwig von Mises wrote about in his his great little pamphlet on bureaucracy. You know, I think that’s a that’s a timeless sort of pamphlets, you know. And even that links back to his original work on socialism, which was the point basically, that socialism ultimately doesn’t work because it doesn’t create prices, right? It doesn’t have Yeah, price. Yeah, to give that input, you know, and to also jump into Hayek, you know, because price is obviously this mix of information and incentives at the exact same time, right. And when government does something, it can pretend to have prices, just like the Soviet Union pretended to have prices, but they weren’t real, you know, they didn’t, yeah, it really didn’t reflect, you know, allocation of resources. They didn’t, you know, they they certainly didn’t inform entrepreneurs or consumers properly, and all that sort of stuff. So, let you know, there’s obviously grey areas, if you like, I personally think, you know, as someone who studied economic history at university that really, you know, something that becomes more like the nightwatchman is more what government should be doing. And that also gels with, you know, not just the, you know, what was clearly written down in the US Constitution. But the the Australian isn’t as clear about that. But that’s was largely the philosophy to have Australia, the 19 century. And at least going into the 20th century, and then obviously, things changed with the, as you mentioned, the the Australian settlement, etc.
Gene Tunny 56:38
Yeah, well, I guess, you know, as well as I do that the Constitution or the the federal government and the state governments we had at the time of Federation are much more limited than what was government it was, would have been 10, or maybe 15% of GDP at the most. And now it’s 35 to 40%. Right. So like, we had a much smaller government. And I don’t think the founders wouldn’t have come, they would not have realised just the massive expansion of government power that we’ve had, particularly at the federal level. And that came through the 20th century, that the company that was associated with high court decisions in a way or, you know, the federal government taking over income PAC taxpayer over the war, and then keeping that power due to a high court decision, various other decisions related to the external affairs power, which means that the federal government has very, it’s got authority over environmental matters. And then we’ve got the health and welfare Amendment to the Constitution, and after the Second World War, that that facilitates the increase the rise of the welfare state. So the whole bunch of things that happened through referenda, and through high court interpretation that has expanded the role of government. And I guess that happened all around the world. It wasn’t just in Australia, it happened in the US and UK. And partly that was in response to the depression, there was the New Deal in the States, as you know. So yeah, I mean, the founders had no, they would not have conceived the scale of government that we have today. In my view, we’ll look
Darren Brady Nelson 58:13
at it in the US it happened even much earlier, it happened, you know, particular 1913 or Woodrow Wilson, when three things in particular happen, which was the the Federal Reserve Act, the income tax amendment. Previously, the federal government didn’t have any income tax powers. And the other thing, which is getting probably a little bit more esoteric, but prior to 1913, the states appointed senators, they weren’t elected. That changed. Yeah, the Founding Fathers had had, you know, went in great detail, obviously to the Federalist Papers, why they had that as well as why they had a whole bunch of stuff, because they wanted us was set up as a constitutional republic, not a open slathered democracy. Right. So the only thing that was at the federal level that could be Democrat directly elected was the House of Representatives, because even today, the President’s not technically directly elected. The electoral college. So anyways, all it was all with the aim of keeping the federal government small. Yeah,
Gene Tunny 59:20
yeah, exactly.
Darren Brady Nelson 59:22
And you’re basically like, you know, local government was supposed to be the most important than the states, then the feds, so that was kind of an you know, surely didn’t completely copy that. But it’s somewhat did in philosophy, because it certainly looked at that and combined that kind of with, you know, with the Westminster system, obviously, the UK sort of thing. So yeah. Yeah, yeah.
Gene Tunny 59:44
You just reminded me I’ve actually had a guest on John Nance. I think it was. He wrote a book about the vision of the founding fathers and I had him on the show and we talked exactly about that what you were saying about the vision of the founders, the limited government, more state or more local particularly local a favoured local solution. So I’ll put a link in the show notes. I thought that was a great episode. Right. Oh, Darren, we better start wrapping up. This has been a great conversation as usual. We it becomes very expensive and wide ranging. So yeah, again, thanks for thanks for that. We it’s good to good to kick these ideas around. And NCP. 3.0. What sort of things? Do you think it will? Well, it could involve or ideally could involve now, as background, I think all the federal government at the moment has in mind, because of all the political constraints that are faced, I mean, they’ve had to pass the very restrictive industrial relations regulations, or they brought in this closing loopholes bill. Last year, I wrote a paper for CIS about it. It’s introducing all these regulations for the gig economy for labour hire for casuals, and I think it’s the wrong direction. But that’s, you know, we can talk about that another time. The current federal government because they’re constrained so much by their the Polit. The politics, I think what they’ll do is focus on very narrow things like non compete agreements, they’re very, they’re they’ve come out strong against agreements in con in employment agreements, which mean okay, if you work your you work for my law firm for so many years, you, you can’t then go and work for one of my rivals for three years or whatever. They’re, and they’re claiming that these agreements are becoming very commonplace, and even in employment agreements for hairdressers, etc. So I think they’ll come out against that. They might, I don’t know, they might try and get a divestiture power, I think it’s cool the power to like, give the honourable see more power to break up. Companies that are that are that they think are exerting market power. So there might be some things around that. But it’s all still clear. Maybe there’s some things about harmonisation of licences for different occupations, that sort of thing. More work on that, we’ll we’ll have to wait and see. But it doesn’t look like it’ll be a huge deal to me. What are your thoughts on where competition policy in Australia and also in America? If you if you’ve got thoughts on that as well? What do you think are the most important directions to go in for the benefit of, of the economy in the community? Darren?
Darren Brady Nelson 1:02:22
I think just in a general sense, they’ve they’ve allowed kind of almost, you know, I mean, technically, they’ve never, no one’s ever really deregulated, if you like, but you know, to extent they did, they’ve, they’ve just reregulated over time. They’ve re subsidised over time, and often not in any sort of transparent or logical way or anything backed by cost benefit analysis, of course, you know, that that never really took off the way it should have, you know, like to have these proper routes, look at this properly. And if nothing else, just have a transparent process, you know, like, why we’re doing this and all that, and what’s the cost so that people can, you know, at least go vote on that if you’d like, at some stage. So let you know, you know, I wanted to point out just to look at all the CPIs look at look at all the stuff that’s going up. And guess what, it’s the stuff just like IPA pointed out, you know, a number of years back, it’s all the stuff that you have heaps of, you know, interventions in a various sorts. So obviously, you know, I think, yeah, I’m guessing, I think you’re right, it’s probably going to be rather than, say, a Hilmer 2.0, it’s gonna be a Harper 2.0, which is like, nothing special, you know, playing around on the edges, and all that stuff, which is, you know, narrow competition law. So, you know, so but I put it in summation, you know, that, you know, maybe someday, because I always remember, you know, working in policy, you guys might have talked about this, too, when you were with the Commonwealth treasury, you kind of put up like, really what you’d like to do, okay, you can’t get it through at the moment, but you haven’t in that shelf, you remember talking about the drawer, the shelf and like, then you’re always ready to pull it out, you know? Sure, you might have to dust it off, and all that sort of stuff. So that’s what I did. I just put that in there, you know, that? I guess, you know, maybe I was a little too optimistic, you know, but, but it’s there, and maybe some other people put in some really good ideas as well. I’m not saying obviously, I have all the ideas or whatever. But, you know, the the methodology that I was suggesting, was certainly, you know, obviously, what’s tackle the stuff where the prices are going outrageous, let’s at least look at it. And okay, what do you have a justification for it? Or even if you do have a justification, you know, you can always do things better, you know, like, do you really need this aspect of this regulation to achieve what you’re trying to achieve? And you know, that sort of stuff. So and then, you know, and I wrote a 2020 paper on kind of competition policy is something that could be applied in the US as well, because obviously, we’re both federal Federalist systems and all that sort of stuff. And I certainly recommended, you know, going down I’m using the sort of competition payments type of approach, rather than, strangely enough the US often, even though it has a reputation for being more free market oriented, yes, some stuff, but a lot of stuff. They’re very kind of socialistic, you know, particularly infrastructure, airports, they’re all local government owned, and no one’s ever seriously thought about doing something different, you know, for instance, or they have all these kinds of government on port authorities around around the country. So, you know, I sort of wrote that 2020 paper, you know, hey, but, you know, this is, the US could copy this fairly easily. So, yeah. So, but, you know, heavily like in Australia, it really depends on obviously, who wins elections. So, you know, it depends on who who wins in 2024. You know, at the federal level, you know, what sort of reforms may or may not happen? And, you know, and obviously, you know, Trump, for instance, you know, is a mix of things, you know, he’s not like a strange guy, like, he’s not like, he’s just Ronald Reagan coming back into power or something like that. So, you know, he does have some pro market orientation on some stuff and other stuff, not as much. Yeah,
Gene Tunny 1:06:07
I think that’s, that’s a fair assessment just on. I mean, I don’t know whether the if there was a change of government, Australia, whether that would make much difference for competition, because, you know, the LIBS the Liberal Party, it has its own political. There’s constraints on it. I mean, you know, industry like the pharmacy lobbies probably, you know, the Liberal Party is probably got pharmacists, a lot of pharmacists, as members and all those type of constraints, they’re constrained as well, and what they could do, so I wouldn’t necessarily say they’re, they would do much better than the current governor, although they wouldn’t have introduced those terrible industrial relations laws. I could say that I think that’s pretty clear. But yeah,
Darren Brady Nelson 1:06:51
yeah, but I mean, just like, you know, like, you know, just like treasurer, Paul Keating is out walking in the door for labour and neither is treasurer, or Peter Costello walking in the door for the libs, it seems at this stage. A
Gene Tunny 1:07:03
couple other things I want to pick up on. You mentioned the, like the fact that these, you’re hoping your submission has a long shelf life. That’s what that’s what the people of the PC, they often think maybe this report is not going to get read now, or the government will pay attention, but it will have a long shelf life. And the classic example of that was the Campbell Inquiry Report, in 1981. Under the Fraser government, you’re talking about Malcolm Fraser government, which lasted what was it eight years after Whitlam? And it’s widely seen as a missed opportunity for to undertake the types of reforms that Hawke and Keating ended up undertaking. They had the inquiry. So there was that financial systems inquiry by Campbell in 1981. Yeah, and then apparently, that just went into Treasurer John Howard’s office and sat on the shelf. So, you know, this is something that later gets picked up by treasurer, Paul Keating, okay, and then they deregulate the financial system. And then we have, you know, bring in foreign banks, and we have a lot of the restrictions taken away, and then we have, you know, much greater provision of credit for consumers and businesses and, you know, in a way that there were positives with that there also, it also meant, arguably, it may have led to that 1980s, boom, in a way and then the crash. But anyway, that’s another issue. We could talk about another time. But I think generally, we think that those type of measures were favourable and economically beneficial. I think that’s a good example of something that was that had a long shelf life and the government didn’t the initial government that received the inquiry, didn’t know what to do with it. But then later, the subsequent federal government was able to do something with it, which I thought was so that illustrates that point. Just finally on the US, have you been following what Lena Khan has been up to FTC, Federal Trade Commission, she’s the Biden appointee. She said a lot of things about Amazon. She’s She’s an advocate for aggressive anti Trump policy. She is currently investigating the merger between Kroger and Albertsons. Have you looked at it? Do you have any views on what she’s up to?
Darren Brady Nelson 1:09:02
I haven’t No, I have not been following her. I mean, I guess, you know, in a more general sense, nothing to do with with her particular. Again, you can if you want to, you can link to it. You know, I’ve written for that. That antitrust Lawyer magazine. concurrences. Yeah. Which is, has an audience in North America and Europe mainly. And I wrote sort of a kind of an economics of free market economics approach, if you’d like to that. So you know, you can kind of see what I’ve, where I lay out, not just kind of the theory of what I think I mean, so kind of, here’s kind of what the mainstream economics, if you like, says about this sort of thing. Yeah. And then I can’t use it, mainly within Austrian school approach, but not just an Austrian theoretical approach. Yes. But there’s also, you know, one of the Austrian economists is like all over the detail of antitrust, you know, in terms of like the, you know, in terms of what’s actually happening And then the cases, and then what the legislation look like since it first came in. And basically just going through also the data as well, like. So basically, I have a fairly dim view of antitrust law tends to be very political, it basically they tend to go after their political enemies of the current administration, or at least they want to make, or even if it’s not their enemies, they they use it to for political, you know, voting purposes, like, you know, to look good. And some upcoming election, right, we went after these people that our voters don’t like, for whatever reason. And they largely don’t go after you even, you know, I’m no fan of Bill Gates today. But, you know, like Microsoft, when they were going after them, they were not abusing their monopoly power, you know, they’re offering a product that was, you know, at a reasonable price. And often, the price was going down over time, which was exactly the case of Standard Oil, when they first went, you know, when the anti trust laws first came in, you know, they weren’t actually, you know, they were dominating a market, but they were actually reducing their prices, and increasing their quantity. And some say the quality was going up as well over time. So, I think, you know, the evidence really doesn’t support, you know, the antitrust laws make much of a difference, and often actually, sometimes have the opposite effect. So it doesn’t sound like I would really necessarily supporter, I would say, usually need to go back to the as we discussed, I think once upon a time that was it, that section 230 or whatever, that that, under a different piece of legislation gives, you know, a bit of, you know, sort of monopoly power to big tech, and social media in particular. That they, they’re off revisiting that that sort of regulation that actually helps give them a bit of that sort of monopoly power, or that ability to feel like at least having an informal cartel,
Gene Tunny 1:11:59
rah, rah. Yeah, and I think your point, this is the point you’re making your submission, look at what underlying regulations are driving these phenomena that we see before you think that I have the solution is, is more government intervention? So I think that’s, that’s a fair point. And it’s just, it just occurred to me, I mean, childcare. That’s an example where we’ve got all of these regulations about the quality of childcare, the educational qualifications of childcare workers, and that’s something that just drives up the cost. And then, you know, it ends up being subsidised by the federal government. And so then that, you know, increases the burden on on taxpayers. Yeah, there’s a little uh,
Darren Brady Nelson 1:12:33
basically, I think, David Friedman, I think it’s David Freeman, or I got it right. But Milton Friedman son, who’s also quite a good economist, he goes through some good evidence on like, tax season, whatever. The analogy of like, what’s, what’s forced everybody to have a Cadillac, right? Instead of allowing some people to buy a Cadillac, some people will buy, you know, a small Toyota or whatever, you know, so, you know, the just basically just in that just basically squeezes people out of the marketplace. Yeah,
Gene Tunny 1:13:01
yeah, exactly. Okay. Darren, there’s been a comprehensive conversation. Any final thoughts before we close?
Darren Brady Nelson 1:13:09
No, look, you know, yeah, we just gotta keep on, you know, you’re doing your great part of, if you like, you know, getting these reports that are sometimes just going to be, you know, in the drawer for rater later use as well. So, you know, we just keep you have to keep on fighting for, you know, sort of truth and freedom, I suppose.
Gene Tunny 1:13:29
Very good. Darren Bradley Nelson. Thanks so much for your time. I really enjoyed the conversation. And I think we’ll have to have a couple more rounds. There are a couple of juicy philosophical issues and historical issues I’d like to come back to and talk about with you. So again, thanks so much for your time. Thank you rato thanks for listening to this episode of economics explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact at economics explore.com Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting outlets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.
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Credits
Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business, www.adepteconomics.com.au. Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple Podcasts, Google Podcast, and other podcasting platforms.
