SCUM AT THE TOP

I SUPPOSE you've noticed the political circus is back in town. We've seen daring high-wire acts while balancing the truth, dizzy backflips by the terrible tumbling twins Tweedledum and Tweedledummer, and some famous Canberra clowns backpedalling their unicyles into brick walls of ideological purity.

The week's entertainment began with the Friends of the ABC holding a religious rally on the forecourt of the Sydney Opera House. Twelve thousand people turned out to sing the praises of an independent ABC Board and pray for new management.

But none of the key board members turned up, and Senator Alston failed to make it either.

Barry Jones performed in full thunder, promising the next Labor government would preserve public ownership of the four pillars of Commonwealth infrastructure: the ABC, Telstra, Australia Post and the CSIRO.

Kim Beazley, it seems, should be trusted once more as the proud protector of our national assets.

Unfortunately that marvellous Pick-a-Box brain is suffering from age and amnesia, and he failed to outline ALP policy on the other two Commonwealth pillars: the Commonwealth Bank and Qantas.

There has been a conspicuous lack of detail about extending Beazley's rollback plans to the airlines, banks, mutual insurance companies and the half of Telstra that Labor had a hand in selling.

But Telstra's half-pregnancy appears not to be a problem now with the Liberals either. This week they decided to arrest gestation and hand the problem to the incoming Labor government.

But the magic stunt of the week was that leaked memo in which the Liberal Party president, against all precedent and party policy, actually told someone the truth.

He revealed to the only Australian who didn't seem to know already, that the Liberal hierarchy is perceived as "untrustworthy and mean-spirited". He then put the boot into Peter Costello to emphasise his point.

Treasurer Costello, it seems, has been "captured" by Treasury, the high-priests of laissez-faire economics. Who would have guessed, aside from about five million Australians who read the papers?

Then, in an amazing feat of derring-do and high-wire virtuosity, Peter Costello confounded his critics and escaped capture by backpedalling and backflipping his free-trade bicycle, blocking the sale of Woodside to Dutch Shell.

This might seem like a Paulian conversion to foreign investment controls, but it's probably fair to suggest Costello's support for maintaining controls over key national resources probably owes more to the fact that this is election year, and about half the backbench Liberals are demanding his blood.

So random re-regulation emerges as the new Liberal order, if only to show the hoi-polloi that the ministers still have their hands firmly on the wheel, and haven't total passed control of the economy to the managers and spin doctors of global corporate capitalism.

Re-regulation has become even more noticeable in aviation.

Ansett is, of course, being blamed for doing what all corporations do when faced with higher costs, lower prices and more competition. It cut its maintenance and safety procedures to the bone, crossed its fingers, and waited for Impulse to crash first.

It miscalculated by a couple of weeks. Now everyone is blaming Air New Zealand as Ansett's owner-manager, and CASA - the fictitious national regulator of air safety.

But the real culprit is the political culture of deregulation, which promoted the idea that companies could be trusted to self-regulate in an area of critical importance.

The idea that a traveller can select the quality of their mount by checking its teeth and temperament before undertaking a journey, doesn't carry over to Boeing 727s.

Making airlines totally responsible for aircraft safety makes about as much sense as putting cattle-feed importers in charge of anthrax and BSE prevention.

Politicians have failed in their duty to promote official, independent, engineering audits of airline safety. And while CASA and Ansett must share the blame, the buck shouldn't stop until it reaches the top - the desk of the minister.

We also heard this week that Qantas has an impulse to swallow a minnow in the same small pond.

The spin is that this isn't the end of Impulse Airlines but a continuation of the competitive environment under a different brand.

When Australia moved from a two-airline policy to four it signalled a revolution in market pressure on prices. Popular theory has it that prices momentarily plummeted because of competition.

Rationalists joyously celebrated this event as evidence of Adam Smith's ideological supremacy.

Now, despite four becoming three, they say competition hasn't lessened and although "pricing pressure" has eased, which "helps improve the viability of certain regional routes for Qantas".

This is a good thing, apparently, because it "makes Qantas more competitive". When these economists, journalist and business leaders finish improving our airlines and telecommunications markets to oblivion, I propose that we set their one-way minds to work on a perpetual motion machine.

They've already invented a flywheel consisting totally of upsides, and devoid of downsides.

Despite Ansett shooting itself in both feet and possibly the brain, Impulse never had a chance of winning a discount war against the Kiwi airline without government intervention.

Ansett could always win an open battle despite its massive debt, and so could the British carrier, Qantas, with its reserves of a few billion dollars.

Anyone with half a brain and first-year accountancy credentials will tell you incumbent infrastructure organisations with massive up-front investments (high fixed-cost ratios to marginal costs), will always win discounting wars by outlasting their rivals.

Look what happened when Optus challenged Telstra. A competitive climate can't be created by wishful thinking based on economic theories from the mid-1770s.

But at the ACCC, Professor Allan Fels is expected to create an economic climate in which competition can flourish while being hampered by the restricted range of legal tools available.

Politicians want token competition on display for public consumption, not really competitive markets.

They are smart enough to recognise that in geographically large countries with small populations, such as Australia, normal competitive forces can't operate without special legislation and higher levels of regulation than those needed in America and Europe.

But politicians don't want to pass the necessary legislation or impose regulations because they will then be labelled as anti-market and anti-globalisation.

And that's out of fashion.

If they really wanted a competitive airline industry, they wouldn't have sold off domestic airport facilities to the two incumbent airlines, as Labor did in its last year in power.

They would have run the facilities as publicly owned, rented regional infrastructure - as is done today with international terminals.

This would allow small airlines to compete with the large without the added burden of building airport facilities and employing under-used ground service staff.

So Labor's asset sale effectively doubled the start-up costs of a coemptive airline, and ensured that Impulse and Virgin would be less viable in what is historically a duopoly market.

It's the same with telecommunications. If they had really wanted competition they'd have split off the monopoly copper-wire access network into non-profit public corporations, and made access available on equal terms to each switched-service operator.

Labor created both the airline and the telecommunications problems, but the Liberal's answer is to flog off Telstra and the airports.

So essential parts of our monopoly infrastructure will now pass into private hands, and both telecommunications and air travel will be less competitive. Consequently there will be less price pressure.

To counter the overwhelming advantage of the incumbents in price wars, Australia should legislate to make all dominant carriers (airlines and telecoms) publish annual price lists, and stick to them.

They should not be permitted to offer discounts of any kind. Prospective competitors could then be able to devise sensible and sustainable business plans and compete on a real-cost basis in the long term.

Knowing this, the incumbents would need to trim their prices and profits cut to the bone.

Email Stewart Fist

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