I support goverment involvement in the economy, and government spending. While I question the idea that markets will always yield the best outcome, which I'll go into this during this talk, I also acknowledge that markets, or at least commerce, can do some good.
If we make something or provide a service to a customer without impacting on the world, and the customer is happy to pay, something positive is going on.
But, somewhere between this starting point and the world around us, where the wealthy can make decisions which effect many people and we are assaulted with attempts to influence us ... something has gone wrong.
Equally, it is possible that a lack of market operation will be taken advantage of by sectional or special interests for their own benefit. For cotton farmers, there's a good argument that they are not paying market rates for their water, with an unhealthy outcome - but one which is nevertheless coveted by the cotton farmers. Here, it's clear that a 'freer' market is an improvement.
Nevertheless, while sectional interests might seek benefit (or 'rent', to be technical) at the expense of the economy generally, it is worthwhile to share the costs and benefits of our society generously - particularly when the recipients are not actively lobbying for it.
When we post a letter, we pay the same amount regardless of destination. This is an effective subsidy to country residents, because their letters take more resources to send. But I'm happy with this. A single stamp which goes all around Australia is a significant gesture which brings us all together; and I don't mind paying extra.
While sectional interests can be destructive, so too can "distributed selfishness". This "distributed selfishness" results in what Galbraith has termed "private affluence, public poverty". Many things around us are public goods, and are best provided by Government. And a "market attitude" promotes selfishness, and means a decline in social capital.
Government service is here better than our own individual expenditure, and we need to have enough of it to make a decent go of things.
One criticism of Government expenditure is a conflict of interest - a department will never fix a problem because that would put it out of a job. An illustration of this was in the TV program "The League of Gentlemen", where a woman was teaching a class full of unemployed to get a job. But she undermined their efforts to seek employment, because once they got a job, she would be out of hers.
There is, however, a shining counter example. The WHO eradication of smallpox, which was declared eradicated in 1977. At some earlier time, people were applying the smallpox innoculation, knowing its success would put them out of a job. But I can imagine the pride and satisfaction you would feel being part of that.
I've been to see a talk on organ transplants. It's clear that the government employed doctors really do want to maximise return for the Government's money. It is a genuine challenge they've taken on board and are working towards.
For not all problems can be so simply eradicated, as smallpox was. Some problems are always there. Its not like we can do so many transplants and never need them in the future. It can make sense to spend some amount of money to reduce these problems.
How much ? Certainly, the reponsible departments will an interest in having more spent than is appropriate given the other problems in society, but this does not deny the potential to do good.
In endorsing Government spending, I'm not saying we should just "leave them to it". Goverment requires ongoing scrutiny. Government is imperfect. But, it is an improvement on the raw market. The market has real difficulty in dealing with shared problems.
One example is the "free rider problem", where if an individual or corporation spends money everyone benefits, but they bear the cost. An example is training. It's recently become clear that the skills shortage is the result of the government retreat from training and corporate australia's unwillingness to pick up the slack. Some corporations are again supporting training, but only because times are relatively prosperous.
Competitive pressures will force firms to reduce their profits, and perhaps cut out training. But we expect firms to operate in a competitive environment and still provide the public good of training. It's a contradiction. Further, its not clear whether businesses under pressure should leave the market completely because change and dynamism is part of the market - or whether they should stick around till things get better.
So far, I've been justifying Government spending rather than direct intervention in the market. And, I am more enthusiastic about Government spending and redistribution than market intervention. But, there are tendencies which are wasteful, intrusive or environmentally destructive where I would endorse some sort of intervention or a skewed tax system.
We need to look at how well the market performs, and whether its promises survive scruitiny. Some problems are the result of the market falling short of the economic ideal of perfect markets. In other cases, they're a result of market operation and competition. I'm not suggesting a centrally planned economy, which would have larger problems, but I am suggesting there are problems which deserve consideration.
In the world around us, we have stupid corporate decisions. One example is the axing of popular TV shows because a new executive sees the need to make decisions. Of course, such stupid decisions should be weeded out by competition, but it does not work that way. The barriers to entry to start a production house are too high, and we have an effective monopoly. If people could set up a production house like they might set up a newsagent, we would have the necessary competition. A production house would covet its popular shows.
This sort of behaviour does beg of a government presence like the ABC. Their decisions won't be held accountable by a properly competitive market, but at least there will be other approaches out there.
We now look at markets in a more abstract sense. Competition itself can result in a sub optimal outcome, contrary to market ideals. The promise of capitalism, that people's selfish motives are captured for the greater good, is often true. Problems can result from a lack of competition - but, equally, problems can also emerge from competition.
The classic example was identified by Hoteling, of two ice cream vendors on the beach. The best outcome for customers is to have the two vendors each at a quarter of the beach from each end. In this case, someone need walk a maximum of a quarter of the beach to get an ice cream. But, because the vendors can increase their market share by moving to the centre of the beach, they will do so, and the only stable equilibrium has the two vendors side by side at the centre of the beach, with beach goers getting lower quality service on average.
Now, perhaps you might not experience this situation much in reality, but it captures the important point that a competitive environment can result in a sub-optimal outcome, where the competition is the very cause of that decline.
Next, let's consider advertising. We have a paradox. An ideal is that we have wants and go out into the market to meet them. However, our wants are shaped by advertising, rather than advertising merely informing our choices. This brings the utility of advertising into question. It touches on a deeper issue of whether we are totally sovereign, and the extent to which influences in the world around us undermine that sovereignty.
But, there is a broader context. Advertising can be informational (like classifieds), but it can also be manipulative, trying to make associations with the product which have nothing to do with it.
Still, our social and economic lives are often free of advertising and manipulation. If we go to the local tennis courts and pay for a game, it is not because there is some great advertising campaign. When we go into the green-grocer's to buy fruit, our decisions are little influenced by marketing about fruit.
There are many similar purchases. But when it comes to alcohol, cars, detergents, breakfast cereals and many others, advertisers are out there trying to influence us.
There's an argument that the encouragement of consumption by advertising at large feeds a vicious circle driving selfishness, frustration and a lack of engagement with the world.
Advertising can also be obnoxious, instrusive and wasteful. I forever seem to receive exhortations through the post to sign up to a new credit card. You have cold calls down the phone. And lastly, spam. It is clear to see a lot of resources are wasted here, quite apart from these activities being intrusions of privacy and generally obnoxious.
I'm applying a value judgement : that waste is bad, something we want to minimise. It is something of an environmental issue, something I'll consider later. But judgements about privacy have a validity which exists outside of market ideas.
There's a particular change to taxes which would help : we remove tax benefits for manipulative or invasive advertising, if we do not ban it outright.
But what is the source of this obnoxious behaviour ? The "market" , "commerce" or selfishness ? Competing firms squable wastefully over custom. But what prompts firms to cold call ? In one sense, because they can get away with it. The market prompts firms to do what they can get away with, not what is principled.
From another perspective, we could see firms as escaping a charge for their impact, or not paying for their use of a limited resource. That resource is an intangible asset - people's general happiness. The resource of people's personal time which is claimed without consultation or any sort of transaction.
I know people who say they cannot feel happy walking down the street, because they feel they will be preyed on, nor can they answer the phone cheerfully around dinner. The behaviour of such firms is making us less happy. On the one hand, they invade our privacy - on the other, they erode the social capital of society at large.
Indeed, expectations of firms are contradictory. A firm is expected to vigorously pursue its own profits, but at the same time obey laws and customs in society ? For a firm to do this is schizophrenic.
Still, much of the time, firms will operate within legal and social norms because its more effort than it is worth to do otherwise. But the point is, they only obey laws when they're too much effort to circumvent, rather than out of a sense of duty and fair play.
You could argue that firms would operate responsibly if consumers demanded it, or if property rights prevented the intrusion. But, to me it seems sad that principled behaviour is a function of what is demanded, and there's an assymetry - for every person who appreciates a cold call, probably 100 are inconvenienced. That's not equitable.
Further, it assumes that the only people entitled to influence a firm's behaviour are its customers. But, the existence of firms is a license from the whole of society, not just the customers - and so, society at large has an interest in their operations.
And delineating property rights can be more effort than it's worth. Protecting my phone number from cold callers keeps out genuine callers. Principled behaviour from the start would remove the need for "defensive" or "property rights" measures on my part.
So far I've looked at intrusive advertising which intrudes on your domain without welcome. But another issue is the manipulation we are subjected to in another's domain. In supermarkets you'll find the most expensive largest sizes of shampoo at shoulder to waist high on the right, in the most "grabbable" position. This is at least manipulative and perhaps intrusive. But we also have people sitting at desks designing supermarket shelf layouts to maximise purchases. It seems strange that our society employees people in such jobs, let alone telemarketing and similar. In a perverse turnaround, I understand supermarkets charge rent to suppliers - I find it annoying that my mere presence is an asset which is traded.
Still, competition does have positives. Competition prompts firms to spend money manipulating us, which we obviously pay for in the purchase price. But competitive pressures also prompt firms to lower their prices. And for all the manipulation, supermarkets are an effective way of getting the goods we need to survive to us.
Shifting gears, markets can operate in a pre-existing state of scarcity. One task of the market is to allocate scarce goods to those wanting them. However, that allocation is made based on how much in the way of other relatively scarce resources we have been able to secure rather than on the basis of need. But the market is oblivious to why scarcity is there in the first place. We need to look further.
In times long past when convicts were sent to Australia, there was a shortage of jobs in England and people worked for sustenance wages in endemic poverty. I understand there were no minimum wages, and there was still a shortage of jobs, with the wages being driven down. Something else was going on, and we need to look beyond the market.
But there are corrective forces. If there's a shortage of accomodation, developers wil build apartments, increasing the supply. The sting in the tail is the improvement will not necessarily "cure" things to as good as they were before.
While it is possible to identify competitive forces which act to increase the wages for skilled labour, it is difficult to indentify forces which act to increase wages for unskilled labour and others on and around the bottom rung.
Some justify that you need scarce resources to get other scarce resources out of the market by the fact that you must have "put in an effort" to secure these other resources. Even if this is a valid justification, we have children and others in society who do not have the choice of putting this effort in.
This is why childcare should be publicly funded. Not for the sake of the parents, but on behalf of the children, so that they have a better life. This is social spending where it is possible to identify a particular moral connection. But social spending generally can be worthwhile, recall what I said about private wealth and public poverty.
A further subtlety is that as we shed responsibility for others and abandon them to poverty, we provide incubators for disease. In New York, tuberculosis is returning. And letting these conditions persist eventually comes back to us. Public spending here is not just the humane thing to do - it is in the interests of those who have the money.
Then there is the environment. Looking back, there were tanneries and paint factories around Concord, and we now have a lot of heavy metal in Sydney Harbour, which dredging brings up. We did not have much regulation back then, but I find it difficult to imagine that any form of property rights would have set it straight. Even now, there is a significant point to regulating the environment.
Elizabeth O'Brien is a lead activist who was crucial in getting lead eliminated from petrol about ten years earlier than would have otherwise have been the case. The market would have dragged its heels; but her intervention as a concerned individual, operating outside the market, changed the situation.
Pollutants differ dramatically in their persistence and impact. Pollution at the softer end, which degrades is something you can perhaps have trading rights over. But pollutants like DDT, Dioxin and heavy metals are ones you would want to absolutely minimise, and regulation is the best way of doing this.
It is clear to see that the market will be environmentally destructive left to itself, necessitating regulation. The pursuit of productivity led to mad cow disease - one area where the retreat from regulation had a devasting impact, one which probably greatly exceeded any savings which resulted from that retreat from regulation. We know that farmers feed their livestock antibiotics - as though trying to deliberately engineer more restistant strains of microbes to attack us.
Less dramatically, the increasing light in the city takes away our stars. It is the cost of living in a large city. We have a city around us which seems to not deliver a satisfying life for many of its residents - a stimulating job and a stimulating setting in which to raise a family. But rather we have a growing sprawl. There is an argument that sprawl is caused by a lack of market forces and zoning regulations, of course. But, other elements of our frustrating lives are the result of a lack of regulation of pollution and a lack of public spending.
In closing, my case is that markets are far from perfect, though we do need to acknlowledge that harnessing peoples selfish motives often benefits others. Often, but the exceptions are frequent enough to justify intervention in the market and Government spending on common problems.
John August