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September 10, 2010
We know The Australian's opposition to the national broadband network is because it sees it as the most politically rewarding pork barrel of all. We also know that News Ltd has commercial interests here, as Foxtel is threatened by the emergence of internet television (IPTV.) Hence their line that the future is mobile wireless and Telstra, which part owns Foxtel.
So what is the Coalition's argument against the national broadband network? Paul Fletcher, the Liberal member for Bradfield and ex-Optus executive, says that Coalition scrutiny will apply forensic scrutiny to the $43 billion national broadband network. Fair enough we need an opposition to keep an eagle eye on government mismanagement and waste for us.
However, the Coalition's opposition goes deeper than that--as it is directed at the national broadband network itself, not the way it is implemented. Fletcher says it is the business case:
The business case was already fragile: Labor's implementation study predicted a paltry 6 per cent to 7 per cent return, and even that requires highly optimistic assumptions about the number of people who take up services on the new network.It is even harder with Gillard's new commitment to build first in rural and remote areas - where building a network costs much more and the number of customers is much lower.
And that is it. The Government's rate of return on its infrastructure investment is too low! The immediate response is why should the rate of return be 15% and not 7%. Fletcher doesn't say. He just assumes that it should be because this is the industry standard.
Kevin Morgan in his Deal turns NBN into shameless pork barrel in The Australian avoids the 'why a commercial investment'? issue. He says that the national broadband network:
is not a visionary nation-building project but little more than a pork barrel the government can dip into whenever it has a problem, in this case the need to cling to power....the fragile economics of building a national fibre-to-the-home network can be prejudiced if it suits the government because in assuring the independents that rural and regional areas will get priority for the fibre rollout the government has turned the business case for the NBN on its head....This commitment to a rural first rollout will mean the government will have to put more equity into the NBN or raise more debt on its behalf in its initial years, meaning the NBN cannot be considered a commercial investment but will have to come on budget.
So why should the National Broadband Network be understood as a commercial investment and not a nation-building infrastructure project? Morgan just assumes it should be; ie., that government should be run as if it were a business delivering a high return for its shareholders. Why should we adopt that business approach to policy making? He doesn't say.
The elephant in the room is neo-liberalism, as we can see from Henry Ergas' argument in Bush subsidies a romantic folly in The Australian that much of the spending by governments on the bush is ineffective:
By and large, people do not have few skills because they live in country areas; rather, they live in those areas because they have fewer skills. Were their skill levels higher, many would not remain where they are; rather, they would move to the main centres. This is because human capital is far more productive in cities....The unpalatable truth is the farther one lives from our large urban centres, the lower are likely to be one's human capital, lifetime earnings and life chances. Poorer prospects translate into riskier behavioural choices, including a significantly higher incidence of smoking, problem drinking and poor diet, and more widespread antisocial behaviour, which reduce life chances ever further.
Isn't this the inequity that the regional Independents raised? So what can be done? Ergas says move to the city because those handouts are a poisoned chalice:
Locking the bush into a culture of welfare dependency, and transforming country towns into economic ghettos without sustainable sources of wealth, will merely ensure large parts of regional and remote Australia die, leaving only pockets of economic and social viability.
But why not raise the skill levels in the regions and provide the necessary infrastructure for regional businesses to do take advantage of their opportunities? Ergas' response is:
Much of this spending is ineffective. To believe, for example, that computer use in country areas is low because networks are unavailable is wrong. As for believing digging optical fibre into the ground will solve the problem, that defies common sense. Moreover, the efficiency cost of the subsidies is high...And protecting the cross-subsidies from competitive entry will require entrenching NBN Co as a monopoly.
The proper solution is to remove the remove unnecessary imposts and distorting subsidies and the onerous regulations on the bush (land use regulation) that are so burdensome.
So why is the argument that computer use in country areas is low because networks are unavailable wrong? It is because those in regional Australia have fewer skills--eg., regional areas are attractive for retirees and people on government benefits---and those with more skills move to the cities because the regions are economic ghettos.
So why not provide the infrastructure that would enable regional Australia to avoid becoming an economic ghetto? Isn't that the reason for government intervention in to the market to build the national broadband network? In arguing that case the regional Independents are tacitly saying that neo-liberalism is deeply flawed with its market only approach to policy making.
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Is regional Oz an economic ghetto?
I don't know.
Does anyone?
Are there any clear cut detailed authoritive studies that cover this question?
I know 2 things.
My local area is in deep strife.
Past mismanagement, and present for that matter, has so severely degraded the land that, coupled with the impact of climate change, production values have declined enormously.
Its physically visible as I drive around the mallee country to the east of me.
Deserted farms, dying towns, barren paddocks that are producing less.
The decay is palpable and a lot of the production is on paper only.
I know several farms/blocks that are deliberately being run as tax losses offsetting income from other sources. Its a significant factor in my region.
As one friend of mine remarked when another walked away after telling us of his woes, "Joe has to work hard to make sure his farm runs at a loss".
But thats only one aspect of the economics of regions.
The cartoon above buys into the common belief, assiduously cultivated and loudly proclaimed by media and regional leaders, that the regions subsidise the cities.
But is that true?
I have seen a claim by one eastern region that it provides a larger % of state revenue than it receives on a per capita basis.
Yet I understand that regional councils actually are heavily subsidised by federal and state governments relative to urban local councils.
Is that true?
I mean its fair enough if so because infrastructure costs in the region are, per capita and probably absolutely, more expensive than similar in high density urban areas.
But again if true, it belies the claim that the regions subsidise the cities.
So I dunno.
Its a good question.
Does anyone have an answer?
And not just a farmer or a pastoralist or small town citizen or independent MP saying so, I mean an authoritive comprehensive credible answer.
And if the claim/belief is correct, what do we do about it?
More pork?
That is not a long term solution.
Its a good question.