Catallaxy Files

There really is some strange stuff appearing on Drum/Unleashed on the ABC website.

Today’s is a piece by Michael Head a law teacher at University of Western Sydney under the title Stoking Fears of Terrorism. The thesis is that the Howard government and the subsequent Labor governments have provoked fear of terrorism “To provide a pretext for anti-democratic ‘terrorism’ laws and to justify its participation in the US-led military occupations of Afghanistan and Iraq.” A raid just before the election on homes of Kurdish Australians was timed to show that the Labor government was tough on terrorism, we are told.

Head seems to be close to the Kurds in this country and writes:

“the PKK is not a terrorist group, but a political organisation. While the PKK has been involved in actions targeting civilians in Turkey, successive Turkish governments are responsible for the armed conflict. The Turkish military and allied fascist gangs have a long history of terrorism against the Kurdish minority and other political opponents.”

He goes on:

“By the time of the 2007 election, the anti-terrorism laws became discredited by the exposure of a series of frame-ups involving alleged Muslim terrorist suspects, including Mohamed Haneef, Itzar ul-Haque, David Hicks and Jack Thomas.”

Now, we can be uncomfortable about the reach of the antiterrorism laws (I am) but to argue that the PKK is not a terrorist organisation because the Turkish government started the violence and that Haneef, Hicks and the others were framed are views you might expect from a conspiracy-theorising partisan, not a scholar.

Nothing wrong with conspiracy-theorising partisans either, but I don’t believe a university teacher should use his job title when running those theories. I could also say that the ABC website could publish better stuff than this but The Drum/Unleashed (I still don’t understand the difference) is now probably beyond salvage. Leaving aside bias, the quality of the stuff being run would look bad on an amateur blog.

Let’s assume the Gillard government gets back. I don’t want to argue here how likely that is – we’ll just assume it.

What would the government look like and how would she behave?

Gillard would have had a near political death experience. That would, I reckon, make here very cautious. Certainly no major reforms. Whatever she has had to promise the independents, she will pander to them. She can’t afford to upset them. Within the party, she won’t take on the factions. They got here there.

Parliament will be a disaster, what with all the courtesies promised to the independents – time for private members’ bills and such.

Also, she will be guessing that there will be an election before three years . She will have promised not to go early but there will be a getout clause for extraordinary circumstances. (What did Fraser use in 1975 to deny supply after promising not to?) So she will give bribes to the seats she needs to win back. Not difficult but not good government either.

Or could we all be surprised?

As a respite from politics and economics, I want to raise a matter of great importance to many cyclists.

In cycling magazines, online discussion groups and outside cafes where cyclists gather on Saturday mornings there are frequent fights over whether helmets should be compulsory for cyclists. Australia and New Zealand are the only countries where helmets are required.

The arguments pro boil down to these:

You are stupid if you don’t.

If you suffer brain damage the rest of us have to pay your medical bills.

What about the children?

The arguments con are:

It’s my head and none of your business.

Wearing a helmet encourages riders to take greater risks so results in more accidents.

The requirement discourages many people from riding and so contributes to obesity, heart attacks and strokes. (It is true that for many women “helmet hair” is an even more serious condition than split ends)

One year, the first helmet war of the year on the usenet group aus.bicycle started at 12:10 AM on 1 January.

Occasionally someone tries to inject a bit of science into the argument.

Chris Rissel of The School of Public Health at Sydney University got the quite clever idea of looking at figures for cyclists presenting at hospitals, taking arm and hand injuries as a proxy for the number of accidents involving cyclists and plotting head injuries in relation to those. If the relationship remained the same, you could infer that helmets had not reduced head injuries. He found (to his disappointment, I suspect) that head injuries had declined in relation to arm injuries. Now I think Rissel would admit that this was advocacy research. He is well known in cycling circles and has for some time argued against the helmet law.

Rissel notes that the decline began before the helmet law so he concludes that there must have been other factors causing it. “from a practical and policy perspective, the introduction of mandatory helmet legislation does not appear to be temporally associated with a substantial drop in head injuries among cyclists.”

Rissel suggests a trial, suspending the helmet law in an area for a year or so. But he concedes “Helmet use is likely to prevent some head injury, particularly for younger age groups, and may also reduce severity of injury.” I think he  might have some trouble getting the test past the university ethics committee. Ethics committees usually do not like sacrificing some subjects in the interest of knowledge.

I don’t have a dog in this fight. I am a cyclist and I do wear a helmet but my libertarian instincts do not put this issue atop my list of issues to fight over. But I do get fun from watching.

The report can be found here and a sample of the tone of debate here.

51 economists (count ‘em) have released an open letter declaring that “The Labor federal government prevented the Australian economy from falling into a deep recession and a consequent huge rise in unemployment” by its stimulus activities.

What’s more they “hope that the economic achievements of the Australian Labor Government will be recognized by the population.” I wonder what they mean by that?

I reckon the NBN might just win this election for Gillard.

There is a strong swell from younger people (and some old enough to know better) that if an ALP government will give them super high speed internet, that’s enough for them. Abbott is being positioned as a luddite. If you mention the $43 billion you get an answer like “no-one questioned the cost of the Snowy River Scheme”.

I gently pointed out to a friend living in the bush (sorry, rural and regional Australia) that whoever wins she will not get high speed internet in her lifetime. Though she is almost as skeptical about politicians as I am, she was willing to trust that promise.

The best discussion on the subject I have seen is Grahame Lynch in today’s Australian. But I don’t think anyone is listening – present company excluded, of course.

If this does win it for Gillard and my friend and others do not get fibre before the election after this, will they accept the promise again?

And by the way, anyone know about government accounting? How long can they keep the cost off-budget, on the basis that the business will eventually be sold? If it was a company, auditors would require some sort of impairment charge…

Sydney ferries are beaut. We chose our current house because it is close to a ferry wharf. Getting a ferry to and from a concert in the city confirms one’s feelings that there is much right with the world.

So it’s a great pity the Sydney Ferries are so incompetently managed. The mismanagement is well described in painful detail in a report by Brett Walker to the NSW government in 2007. Even if you are not interested in the ferries, the report is worth reading as an example  of why governments should never run businesses.

The business has been reorganized many times of the past 10-15 years. It has been moved about the Transport Department (at one point, when it was part of  City Transit ferries were repainted blue to match the busses), corporatised then uncorporatised. Even when it was the responsibility of a board, the minister (without authority) interfered by firing a chief executive and vetoing a maintenance contract.

Hardly the way to attract  and motivate high quality managers. So it’s no surprise the the business has chewed up six chief executives over eight years. If you read Walker’s report it is clear that the greatest problem is union capture. Walker does not mention it but if you ride on a ferry you might see that it carries an engineer as well as a master and a deckhand. The engineer’s job became redundant in the mid 70s when the current generation of ferries was commissioned.

Walker recommended that expressions of interest be sought from companies interested in taking over management of the ferries. He said the the Manly Jetcat service was so inefficient and loss-making that it should be closed immediately.

The government accepted the report in principle and invited expression of interest. And it did close the Jetcat service. But then a company whose main business was running whale watching cruises offered to run the Manly fast service. That seemed to make sense as the fast services only cater for the peak house commuter runs and the vessels could go whale watching in the middle of the day.

The service started early 2009 and was successful despite the noisy pickets from the Maritime Union. Then early this year the government announced that another company would take the contract. That company had no experience and owned no vessels. It did however have a record of getting along with unions. The first company did not give up. It continued to operate, using different wharves.

Just stop and think about that for a minute. The Manly fast ferry service, run by Sydney Ferries, was making large losses and considered irredeemable by the government. But now we have two private companies competing without subsidy to do the run.

If that run can be make profitable, it seems almost certain that a private operator could run the rest of Sydney Ferries very well.

So what did the government do? In December it announced that the ferries would remain under government management. The Premier explained the decision thusly: “This is a tough decision, but it is the right one. Over the last few weeks, I have listened to the community and responded. We believe the decision to keep Sydney Ferries in public hands is in the best interests of Sydneysiders,”

Most observers believe she listened to the Maritime Union rather than the community.

Then the other day the government announced that several routes will have less frequent services (hourly during the day), including mine.

The Liberal Party, almost certain to win government at the next election has said it will grant franchises to private operators to run the ferries. But as past Liberal governments have never had the courage to reform transport I would not bet on it happening.

I used to believe in bonuses. It seemed to make sense to pay for performance. If we made a manager’s pay partly dependent on achievement we would get greater achievement. Incentives work. Pretty obvious.

So we set up a sceme under which a significant part of a manager’s pay was at risk. That percentage increased as you moved up the tree and topped out at 30% for a general manager. One third of the bonus depended on total company results (against plan) and two thirds of achievement of the manager’s objectives.

So the first step was to negotiate those objectives. We had always done that – in theory – as part of the appraisal system but now it became pretty serious. Senior managers are good at haggling so in  some cases the setting of objectives took weeks. How tough the objectives were depended on how tough the responsible manager was so some were soft and others hard.

The next problem was that over the year the business’s priorities changed. New product launches were postponed or added, advertising budgets cut and new customers acquired. Managers complained that this changed their objectives – it did – and wanted the bonus plan renegotiated. That took time from the real work of running the business.

Then there were the complaints that because one division had failed to deliver another could not meet its objectives and that was unfair.

All this discussion was carried out in a businesslike and civilized fashion. No furniture was thrown about. These were senior managers after all. But it did create a fairly significant distraction.

At the end of the year who got their bonus and who did not turned out to depend more on negotiating skill and luck than on performance. The part based on total company results also depended on luck  - and inflation. These were the days of high inflation.

So few were happy, few were motivated and we could not see that the business’s results were improved by it all.

I don’t think this was not a one-off or due to poor management. Related companies tried the same thing with similar results. We tried variations over the years with not better outcomes.

It seemed to me that bonuses can work for a sales force – salespeople are fairly easily measured and tend to me motivated by simple goals. It also seems that something dependent on company results can be worthwhile. It helps concentrate minds on what everyone is working to achieve. But that is more like a reward or profit sharing scheme than an incentive plan.

Now I don’t know how it all works in banking. I suspect that there was so much money flowing than no-one begrudged part of the firehose being diverted. But I’ll bet that the bonus plans in government are managed – mismanaged – in a similar way to my experience. And I’ll bet that they just end up as a way of paying more without achieving on better result.

I am a fan of Bob Ellis’s writings. I have enjoyed most of his political books though have been embarrassed for him over his attempts to write about economics. Following his stuff on Unleashed over the past few months, I feared he was losing his touch. But today he is back in form.

I still disagree with much of what Ellis writes, but he writes it so well that he has to be admired. And this piece is not too far wrong in his explanations of much of the dopiness that the government is displaying and in his advice to Gillard. I am not sure she has to get married, though, and expelling Kamahl as a Tamil overstayer is not the best idea Ellis has ever had.

Still, Ellis in entertaining and, for one on the left, quite insightful.

Anyone here who drinks wine would know that something like 5% of bottles under cork are tainted with 2,4,6-trichloroanisole (TCA) which gives the wine a mouldy taste. I am very sensitive to this – and to most other mould smells and tastes. They say that a higher percentage of bottles affected by low levels of TCA are “flattened” with much of the wine aroma and flavour gone. I can’t say that I can pick this.

Following a very bad batch of corked wine, the Clare producers, lead by Jeffrey Grosset, adopted screw caps firstly for their riesling then for most of their products. And screw caps have spread pretty widely around the Australian wine industry. CSIRO work (sorry, can’t find a link) suggests that even aged reds are not effected by use of screw tops, except insofar a TCA is avoided.

The French wine industry by and large is staying with cork though a sommelier in a Paris restaurant told me that the 5% figure matched his experience. He said that he made sure bad bottles never reached the table.

Now, a case study: you are managing a cork producer. About 5% of your production is tainted and will cause serious damage to the wine it seals. What do you do? A lot of R&D and quality control to remove the problem?

No of course not. You would run a PR campaign with the help of WWF and other Green groups saying that the Iberian lynx and other wonderful animals and plants will be destroyed if we continue to selfishly demand wine that does not smell like an old damp, second hand bookshop.

Pakistan does not have a working tax system and many high income earners pay no tax, according to an article in the New York Times.

Much of Pakistan’s capital city looks like a rich Los Angeles suburb. Shiny sport utility vehicles purr down gated driveways. Elegant multistory homes are tended by servants. Laundry is never hung out to dry.
But behind the opulence lurks a troubling fact. Very few of these households pay income tax. That is mostly because the politicians who make the rules are also the country’s richest citizens, and are skilled at finding ways to exempt themselves.

Similar, though less extreme, statements could be made about Italy, Greece, Spain and Portugal. Possibly one of the strongest indicators or an economically broken state is an ineffective tax system.
In Australia in the 70s it was said that paying tax was becoming voluntary. The Bottom of the Harbour and other schemes were marketed as easy ways to avoid tax. Legislation and prosecutions got rid of most of these devices and I think that the rate of tax compliance is pretty high.

I guess there must have been some economic research on the effects of lack of  tax compliance on a state, though I can’t find it.