Archive for the 'Business & profit' Category

Corporate welfare on the rise

As the Productivity Commission’s annual Trade and Assistance review revealed yesterday, corporate welfare is on the increase. After increasing at an annual rate of around 6% until mid-decade, it increased by 14% in 2006-07 and 23% in 2007-08.

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But this is nothing compared to what is on the way. As The Age reported:

The Rudd Government’s spending plans for research and development, the car industry and the farm sector would add another $20 billion in coming years, it says. But the emissions trading scheme would put all that in the shade. The commission says free permits to emission-intensive firms alone would cost taxpayers $6.5 billion in 2011-12 under the original plans — now postponed for two years due to the global financial crisis.

The chapter called ‘Recent developments in industry assistance’ (pdf) runs to 35 pages, discussing over 40 developments – not all of them bad from an anti-corporate welfare perspective, but most of them. That’s up from 23 pages in the last full year of the Howard government.

Capital xenophobes

Two polls this week confirm that Australians take a largely negative view of foreign direct investment. On Monday, an Essential Media poll reported that only 25% of respondents agreed with the proposition that Chinese investment in mining companies should be welcomed because it helps our economy and provides jobs. Yesterday’s Newspoll, as reported in The Australian, found a small majority against any foreign company being allowed to acquire shares in Australian mineral companies.

As Tom Switzer’s recent paper on attitudes to foreign investment showed, there is nothing new in these attitudes. There also seems to be a particularly xenophobic flavour to some opposition. The Lowy Institute found stronger opposition to investment from Asian countries than from the UK or US.

While there are some political concerns in this as well as ethnic – state-owned companies raise slightly different issues to privately owned companies, particularly when the state involved is not democratic – ethnic or cultural factors do seem to influence attitudes. Japanese investment is strongly opposed along with that from undemocratic countries such as China.
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A Mammon-solution to an Allah-problem

Letter writers to The Age are not impressed with demands from Muslim students for dedicated prayer rooms at RMIT. Plausibly enough, some argue that a secular institution like RMIT should not favour one religious group over another.

It seems to me than an obvious solution is being overlooked. The University should provide a Muslims-only prayer room, but do so on a commercial basis. RMIT could either rent a room to a Muslim group, or operate the prayer room itself by issuing students with swipe cards in exchange for a fee. Maybe the very religious could get bulk discounts for using the room 5 times a day, or maybe it could be like a gym membership, in which the sunk cost encourages attendance from those whose desire to get fit or show faith is not always matched with action.

If RMIT charged too much, this would provide an incentive for other groups to offer cheaper prayer space. Indeed, particularly for RMIT’s city campus I imagine there is a good business opportunity in seeking custom from the many Muslims who now use Melbourne’s CBD.

Another win-win market solution.

Speaking truth to populism

From the 60 Minutes interview with Pacific Brands boss Sue Morphett, introduced as the most hated woman in Australia:

ELLEN FANNING: … Does the Australian consumer have to accept some responsibility for this decision?

SUE MORPHETT: They do. We all do. Long, long gone are the days where, actually, Australians are prepared to pay more for Australian-made goods and the only way that we’ll pay for Australian-made goods is if they’re giving us something that buying elsewhere or cheaper isn’t giving us.

Corporate pork watch

Most of the arguments for political donations disclosure are process-oriented, but this issue needs to be put in a broader theory of good government. That a CEO may buy dinner with a Minister at a party fundraiser is of no consequence unless some kind of bad decision – eg one that favours the CEO’s company when there is no strong public policy case for doing so – flows from it.

However, the best evidence for such bad decisions is not the annual political donations disclosure but the spending announcements of the government. Why use a proxy when you can use the real thing?

As I have been noting recently, the people calling for greater donations disclosure are strangely uninterested in the public policy bad they are ostensibly trying to prevent. So I have decided to do their job for them and keep note of corporate pork on my blog. On the recent history of the Rudd government this may become a rather time-consuming task. I’ll start with the stories in today’s media and over time try to fill in the gaps from earlier decisions. A listing does not mean that the decision is an entirely bad one (though I suspect the bulk of them are bad).
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Is Coles branding misleading?

Yesterday in its ‘essay’ section, the SMH published an article by Robert Laughlin criticising how easily patents are granted, thus locking up knowledge that in Laughlin’s view ought to be available for others to use. I have some sympathy for the view that intellectual property rights have gone too far, with the benefits (and there are some) not being sufficient to compensate for the costs. This is why I am inclined to think that parallel book importation laws should be relaxed.

So it was a little ironic that the lead news story in the same paper was an attack on Coles for supposedly misleading consumers by using a tick symbol on its products (which I notice Coles has trademarked, with a circle around it), which it is alleged is too similar to the Heart Foundation tick for healthy foods. While Coles is changing the tick, the paper claims that this is in reaction to “alleged misleading and unethical practices.”

But surely a tick is common sign for something being correct or good, which hasn’t been (and shouldn’t be) appropriated by any group or cause for its exclusive use?

The argument against Coles seems to be that in its contextual use on food it is too easily confused with the Heart Foundation tick. But in the context of a Coles supermarket it’s pretty clear that it is part of the store’s branding, and not a sign that the product is good for the heart. On a quick wander around my local Coles this morning, I noticed the Coles tick on laundry detergent, toilet paper, and an iron. Few customers are likely to think that consuming these products would be good for their hearts.

While the SMH did find an 84-year old who says he was confused by the tick, I don’t think this is enough to justify forcing Coles to change its logo or to give it a page one beating up.

Literary luvvie draws long bow

The Lavartus Prodeo Agincourt Awards for the Longest Bow – designed to highlight arguments built on exaggerated and hence tenuous links – don’t seem to have continued beyond the initial nomination and my counter-nomination of the nominator (glass houses, etc).

However, the SMH published a worthy entrant yesterday. As regular readers may recall, the literary luvvies are campaigning strongly against unrestricted ‘parallel importing’ of books into Australia, which would allow booksellers to import any book even if it is, or will be, also issued by a local publisher. The issue is the subject of a Productivity Commission inquiry.

In the SMH yesterday, author and journalist Malcom Knox tries to draw a connection between claimed low readership of books in India and the fact that India is a ‘land of piracy’, and a further connection to say that this is relevant to Australia
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Taxi users ripped off again

As I noted in May, it is nearly 30 years since the CIS started publishing critiques of taxi regulation, with the most recent publications being Jason Soon’s 1999 paper and Krystian* Seibert’s 2006 Policy article.

The basic problem is that taxi licences are limited in number, and are sold for huge sums. Jason’s article reported that a Victorian taxi licence cost $265,000 in 1998. 10 years on an Essential Services Commission report put the licence cost at nearly $480,000. The cost of servicing this capital adds massively to the cost of running a taxi, and adds significantly to the fares paid by taxi users. Taxpayers suffer too in having to subsidise taxi use by some disadvantaged groups.

The ESC report points out other problems in the industry as well, such as the depots to which taxis must be affiliated and pay fees which are ‘likely to include an element of “monopoly rent”. ‘

In its latest round of fiddling at the edges of the issue, the Victorian government has announced some extra licences and a fare increase of 6.1%, taking the total fare increases to more than 10% for the year. It also offers what I think is irresponsible investment advice:
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A wet argument for expensive water

My friend Chris James, a regular spokesman for the Victorian Employers’ Chamber of Commerce and Industry, drew the short straw today when he had to defend customers in cafes being charged for tap water.

One person who called 3AW claimed to have had to pay 40c for water, which on the water prices quoted in The Age article is at least 500 times the cost even for large glass. Extreme capitalism!

According to Chris, it is a voluntary charge and the money is to be used for water-saving measures. But when interviewed on radio he could not explain how we could be sure that the money would be spent this way, or why if water-saving measures are necessary they should be be paid for via a levy on water. Indeed, a shift in relative prices against water would lead to more consumption of other drinks that use far more water in their production than tap water does.
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Driving policy in the wrong direction

Yesterday’s announcement of massive subsidies for the car industry is a big victory for industry minister Kim Il-Carr and the auto lobby. But it is a big defeat for consumers, taxpayers, and alternative beneficiaries of government largesse. On my rough calculation, every taxpayer will contribute the best part of $700 to this plan (where is suspicion of foreign multinationals when you need it?).

My CIS colleague Stephen Kirchner points out the additional hidden costs in diverting resources away from more productive uses.

And in the latest issue of Policy, Malcolm Roberts gives the sorry history of car industry protection.

We can be sure that this latest scheme, like all those before it, will fail to make the car industry viable, and this will not be the last of the corporate welfare bail-out packages.

Update 12/11: Shaun Carney’s argument for the subsidy. Summary: Other industries, and other countries, have stupid policies, and therefore the car industry deserves a stupid policy as well.