Regulatory agencies can be described as benevolent social welfare maximisers (Laffont & Tirole 1991) who serve the public interest. However, the effectiveness of regulations is eroded by regulatory capture (regulations are designed in the interest of business and not society) and the failure to enforce regulations.
We can argue that this failure to enforce existing regulations and redesign of regulations away from the public interest has been evident in recent public policy development. The recent cry of 'smaller taxes' for business by our current government was fortunately a recent failure of an international race to the bottom.
There is perhaps nothing worse than watching the recent news story about the deaths of over 2,400 sheep over a shipment of 64,000 (I'm not putting links in), just after you have had a paper published reviewing the regulations concerning the live trade supply chain.
The comment today that the losses were due to extreme weather and crowding, is not a surprise. These are common excuses found here: http://www.agriculture.gov.au/export/controlled-goods/live-animals/livestock/regulatory-framework/compliance-investigations/investigations-mortalities
These rules and regulations have been developed in response to past failures and mounting public pressure on the live trade industry, These regulations allow for both regulation and criminal action based on losses of these levels.
Just like with the recent water thefts, its time to enforce regulations!
Jackson, E.L., Adamson, D., 2018. The live sheep export supply chain: when operational and societal complexities collide. International Journal of Business and Systems Research 12, 181-196.
Laffont, J.-J., Tirole, J., 1991. The Politics of Government Decision-Making: A Theory of Regulatory Capture. The Quarterly Journal of Economics 106, 1089-1127.
Australia in many ways has an enviable position in regards to water reform. Australia has embraced reform and highlighted what can be done and what needs to be done. The Murray-Darling Basin (MDB) has been essentially a natural experiment in water reform. This water reform has taken place in an environment where water supplies are highly volatile. To me the MDB looks like a kidney and it serves the same function. It drains water and salt from our land. As we use more water it gets saltier (yes we have spent a fortune on the salinity interception schemes that have allowed us to over extract water for private gain). As I frequently state, when dealing with the MDB we need to adapt one of the classic Game of Thrones lines to "Drought is coming".
The Murray-Darling Basin Plan (Basin Plan) is an attempt to create long term sustainability for all water users (irrigators, urban areas, other economic activities, and the environment) [Yes we left cultural water off the table]. The idea was to reduce what was then the Current Diversion Limits (CDL) to a new Sustainable Diversion Limit (SDL) with the difference going to an environmental manager to allocate water for the national benefit (its more complicated, but this will suffice). The Basin Plan included a review mechanism to adjust the SDL either up (more water to irrigators) or down (more water to the environment).
As expected by many people, the SDL adjustment in reality could only go one way. The proposed adjustment in the Northern Basin is that the environment needs 70GL less and the Southern Basin needs 605 GL less to meet their environmental goals. At this stage I will not enter the debate on the implementation of the Basin Plan and the impact that has on the environment, or the other 450 GL under debate, as that is well covered in my publications. Nor will I spend the time arguing the pros and cons of the SDL adjustments.
Yesterday the Senate blocked the proposed reductions in the Northern Basin's SDL and in response
both the NSW and VIC Governments have threaten to withdraw from the Basin Plan. This excuse has allowed the NSW government an opportunity to ignore the systematic failure in its compliance on water use (see here) and potential corruption that has been identified in the Mathews and New South Wales Ombudsman scathing reports about the process and governance failures. The official MDBA view on the decision is here.
The Basin Plan has cost well over $13 billion. Most of this money has been spent in NSW and VIC. This money was spent there as they are the ones using the most water (i.e. CDL). The political threat to the COAG process has come at a time when the Federal Government and Opposition are too busily trying to point score against each other and neither side are showing leadership on this issue.
The Basin Plan was an attempt to resolve the water over-allocation problem in the MDB. The implementation of the Basin Plan has not been what I hoped and may as I have argued in many papers potentially left irrigators, society and the environment more exposed to adverse climate events like drought. This is unfortunate, but there is still things to be salvaged from the Basin Plan that should not be lost. The threat of the states abandoning the Basin Plan needs to be dealt, and quickly.
The experimentation on the acceptance of a universal base income (UBI) in Switzerland was comprehensively defeated back in June 2016 with a referendum where 77% opposed the plan, with only 23% backing it.
The plan proposed that everyone would receive a monthly income of 2,500 Swiss francs (£1,755; $2,555) for adults and also SFr625 for each child. The UBI is designed to replace existing welfare payments with an income that covers more than the essential living costs, allowing people to choose not to work. There are a range of examples and arguments for an against the approach (here, here)
Part of the UBI discussion focuses around the premise that robots/automation will soon be taking our jobs (South Park pun intended). In the absence of job opportunities and the debates centred around inequality, the UBI is proposed as a way of restructuring society.
John Quiggin is currently working on a book chapter on this issue and notes that the minimum salary needed to encourage people to stay in the work force must be well above the UBI. There also need to be a job guarantee, I'll leave this out of this discussion.
I have spent a long time working on the unintended consequences of policy, so while I like the idea of the UBI, thought needs to focus on its design to prevent incentives creating unintended consequences. I'm not covering the things associated with paying criminals, etc that are out there already.
Ignoring the other arguments associated with the satisfaction and social interaction people gain from employment (so potentially the wage may not need to be that much greater than the UBI), most of the arguments pertaining to UBI are general focused around a single closed economy. I find this a bit limiting but we can start there.
First using the 2015-16 household expenditure from the ABS (here) 62% of expenditure is allocated to housing, food, transportation of capital. I'm concerned that the UBI may create a wealth transfer to the owners of capital (i.e. people who own rental properties). With a constrained housing market, those supplying rental accommodation are likely to increase the price of renting. Inflation then places upward pressure on the UBI.
Second, with wages needing to be above the UBI, the minimum wage rises rapidly. Yes fundamentally the impact of increased minimum wages on jobs is zero (I found this reference by reading Brad DeLong's site). However, this is a special case. Australian is a relatively open economy and the signing of Free Trade Agreements (another point of argument one day) has allowed firms to move manufacturing offshore, and a higher wage may speed up this process. In this situation, Australian imports increase, basic macro tells us that the exchange rate should fall, a lower exchange rate and reliance on imports subsequently reduces the purchasing power of the individual. In this case inflationary pressure is applied to the UBI but there is no guarantee that any capital will flow back to create jobs in Australia.
Third, the combination of existing and future FTA's and future FTA's could change labour mobility. How the policy deals with that will be interesting. It may help fill the future gaps that will emerge in the health services industry as the population ages.
Alternatively, increases in income may have positive impacts on consumption. In this case the desire to support the local industry may counter some of the above problems. While extra time may be dedicated to healthier lifestyle choices improving welfare.
However, perhaps worryingly is the recent US tax reform and the immediate response by governments around the world. Basically its a race to the bottom for corporate tax in a desire to relocate headquarters. The limits of this approach can be found in 'Last Week Tonight's' segment on economic development incentives Presently I can't see the UBI getting a lot of traction with any governments as they actively remove their revenue stream (No trickle down economics does not work). The notion of future job opportunities in the face of a changing work environment will continue to pose a issue, good thing the Governments continues to fund education to allow the future generation expand their opportunities (oh that's right).
House of Representatives Standing Committee on Agriculture and Water Resources Report on Water Use Efficiency
The report by the House of Representatives Standing Committee on Agriculture and Water Resources on water use efficiency has been released (here) (my joint Submission, and Hansard testimony to the Committee).
The report is very well developed and researched and its one of the few instances where I can clearly say, that what I wrote and talked about was carefully considered.
I can also clearly state that the Committee also carefully understood their Terms of Reference
“The Committee will inquire into and report on water use efficiency in Australian agriculture. The inquiry will have particular regard to:
And the guidance given to it by Government Members
“1.6 The Minister for Agriculture and Resources, the Hon. Barnaby Joyce MP, also noted that the House of Representatives Standing Committee on Environment and Energy would be conducting an inquiry into the management of Commonwealth environmental water resources and therefore suggested that the Committee on Agriculture and Water Resources ‘may wish to limit its consideration of environmental flows in order to avoid duplication’.” P2, repeated on p 65
This document is very clever. The Committee clearly understands what is going on in this space, its wider connotations, and difference that WUE has for the individual versus society. This understanding and ability to limit its responses back to the terms of reference and guidance by Hon. Barnaby Joyce MP, carefully allows the report to directly bypass the concerns raised by the author, and numerous other submissions and speakers at the public hearings, dealing with the rebound effect and their impact on the environment when it comes to their recommendations. However, the report does not shirk away from its responsibility and carefully raises a very important issue in
6.39 The Committee recommends that the Australian Government require any water efficiency infrastructure funding or assistance provided to set out:
This I think nicely relates back to a point I raised
“3.48 Dr Adamson noted that in time Governments will be asked to justify the amounts of money they are spending on WUE programs:
The Murray-Darling Basin Plan is what was in the national interest. The national interest is wider than irrigators—it is the community, the society and the environment.” P 34.
I have been reflecting on my work in this area and I think we need a new line of argument, its no longer just that the subsidisation of WUE may change the risk attitudes of individuals (i.e. incentivises are wrong) but this policy goes against everything Australia’s drought policy is designed to do.
WUE encourages risk by failing to understand water supply uncertainty. Drought policy is designed to make individuals accountable for and understand the risk that our variable climate poses and to protect Australia’s environmental resources. To enable this, government policy (see: here and here) has encouraged: the development of individual:
It is unfortunate that the current signals from one policy are un-doing the benefits from another.
Well isn’t it fun to watch the current debate on energy in Australia. A lack of leadership: a raft of novel ideas mired in uncertainty and other potential social harm (Snowy River Part Deux); the desire to subsidise (cash, environmental standards, and water) and continue to mine a commodity that the rest of the world doesn’t want at potential expense of the reef ; and the sudden nationalistic fervour to buy back or subsidise coal power plants that have reached the end of their operational life (Liddell and Hazelwood)
So it’s probably time to dust off one of my favourite expressions about bad policy:
On 23 August, I appeared before the House of Representatives, Standing Committee’s public hearing into 'Water-use efficiency in Australian agriculture' along with Associate Prof Wheeler and Dr Adam Loch to discuss our joint submission (here).
The draft Hansard transcript of the day (is here), and our session starts at page 13.
Yesterday was a good day. Yes, I work in academia but as much as possible I make sure the work I do has some relevance to reality. I was recently part of the review of the Red Imported Fire Ants (RIFA) eradication campaign, chaired by Bill Magee at the CRC for Plant Biosecurity. (Report here:)
Well yesterday the structure, time frame and commitment to the plan the whole review committee proposed was endorsed by the Agmin council (state, territory and federal agriculture ministers) with over $411 allocated during the next 10 years with the objective of eradicating RIFA. (The announcement is above) Will this funding guarantee success? The answer is no, but it is probably the best and last chance we have. Stories about the funding (here, here)
RIFA, like all biosecurity (introduction of an invasive species) events is an unintended but known risk of engaging in trade. Think of biosecurity like a negative externality which impacts on agriculture, the environment and society. Biosecurity events are a daily two way street as Australia can both import and export biosecurity events. The risk and cost of a biosecurity event is internationally recognised and the World Trade Organisations 1995 Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement) (here:).
The SPS Agreement guides the internationally accepted rules and regulations for how we protect against the pre-border (efforts at reducing the risk of transfer to Australia), border (how we detect, monitor and eradicate pests before they become established) and post-border (i.e. once they are established) incidents in Australia. See here for Australia Import Risk Analysis processes.
The economic advice within the SPS Agreement is provided in Article 5 where….
“Members shall take into account as relevant economic factors: the potential damage in terms of loss of production or sales in the event of the entry, establishment or spread of a pest or disease; the costs of control or eradication in the territory of the importing Member; and the relative cost-effectiveness of alternative approaches to limiting risks.”
Unfortunately, in application most economic analysis fail to consider the impact a biosecurity event has on capital investment as to me this is a critical oversight in failing to separate normal pest management versus a biosecurity event.
“A bio-security breach leading to a pest or disease outbreak is a situation where the pest base load [...the normal background pest level a farmer faces...] is altered in such a way that either management costs increase or there is a negative influence on yields or price, thereby changing the comparative advantage of production systems beyond the known distribution”.(Adamson et al., 2014)
This statement can logically be applied to the environment and society.
RIFA poses risks to all of Australia. RIFA can chew through electrical and communication cables (think of the investment in the NBN), they have a fondness for recreation areas (parks and playing grounds) and while people react differently to the bite from mild to fatal, they if left uncontrolled would be everywhere in Australia and in many places pose serious (including fatal) problems for native animals and household pets.
A major reason as to why the review panel debated the need for on-going funding is that the people working on RIFA have already eradicated an incursion at the port of Brisbane, two separate biosecurity incursions of RIFA events in Yarwin (near Gladstone), at the time of the report being developed the incursion into Botany Bay was close to being eradicated. Additionally their expertise had been used in the Electric Ant eradication campaign that was well on its way to achieving its goals (here).
This 10-year commitment takes away the uncertainty associated with a rolling annual budget and allows experts to concentrate on their job of eradicating RIFA.
Adamson, D., Zalucki, M.P., Furlong, M.J., 2014. Pesticides and integrated pest management: practice, practicality and policy in Australia, in: Pershin, R., Pimentel, D. (Eds.), Integrated Pest Management- Experiences with Implementation, Global Overview, Volume 4. Springer, pp. 387-411.
Well the fallout from the 4 Corners report into alleged water theft and preferential information being given to a select few in New South Wales (NSW), has been swift and will be on-going. This information will be updated over the next couple of days.
New stories from 26/07/17
New Info 28/07/17
New Info 31/07/17
New Info 1/08/17
New Info 2/08/17: Thanks be to David Pope
Well the 4 Corners report has gotten things interesting around the office.