From the horse's mouth

"Many people have asked me whether it is possible to cut emissions without an ETS, a carbon tax or raising electricity prices. The short answer is no. By putting a price on those CO2 emissions, the cleaner, less emissions-intensive forms of generation become more competitive because they have a lower carbon price to pay.

The reason an ETS is the preferred approach around the world (and indeed was the policy of the Howard government) is because it is more efficient and offers the lowest cost abatement. While I look forward to what emerges from the new policy development efforts, I note in passing that many of us would find it incongruous if a free enterprise party, the Liberal Party, abandoned a market-based means of pricing carbon and reducing emissions and replaced it with heavy government regulation and the increased bureaucracy to administer it."

Malcolm Turnbull

Heating up

Its been quite remarkable to watch the Coalition tear itself apart over climate change.

The issue has become so politically charged that one of the potential leadership candidates (Joe Hockey) is considering reversing his position on climate change due to agitation from the Coalition base.

This highlights the deep political divisions this issue creates, which while they are too complex to be fully explained by the left/right dichotomy, seem to align somewhat with David Burchell's assessment:

We know that we believe in climate change because we also believe in solar energy, social welfare, indigenous culture and women's rights. We know that we disbelieve in it because we believe in the coal industry, personal thrift and responsibility and the traditional family. There never was a catechism more hypnotic, more elemental, or more purely devoid of thought.

I'm not denying some people approach the issue more rationally and scientifically than described by Burchell. But how many people do you know who've waded through both the IPCC's reports and Ian Pilmer's musings on the matter?

I would argue most of us, whether consciously or subconsciously, use shortcuts to decide how we stand. I guess the trick is to try, as much as possible ,to use intentional and informed (rather than random) shortcuts when deciding how we will respond.

So here we go... I am in favour of policies which seek to reduce carbon emissions. The key questions I've considered and the shortcuts I've used to answer them are:

Q. Does the science support the idea humans are causing climate change?
A. Yes but this point is contested. Not being a scientist all I can really do is listen to climate change scientists and major international scientific bodies. I'm yet to hear of a climate change expert who has published peer-reviewed research that refutes it*.

Q. Is an emissions trading scheme (ETS) a good way to address climate change?
A. It seems to be a good start. People say an ETS is a waste of time because Australia's emissions are so small in a global context. But this is like saying Australia's relatively small contingent of troops in Afghanistan doesn't impact the political and military reality on the ground. Also, an incremental (rather than revolutionary) approach is consistent with how Australia usually approaches these things.

Q. Will an ETS hurt households and/or the economy?
A. Yes and no. According to Meganomics' predictions in the Aus, the vast majority of households will be better off once government compensation is taken into account. In terms of the broader economy, clearly high-emitting industries will face higher costs. This is inevitable when you are trying to re-align incentives and internalise the cost of 'externalities' (i.e. carbon emissions) that would otherwise continue to be costless due to market failure.

Q. Are we getting too far ahead of other countries in signing up to an ETS before Copenhagen?
A. I don't think so. Quite apart from the outcome of Copenhagen, the EU has had an ETS in place for several years, the US has one before Congress and Japan has a target of an 8% cut in emissions by 2020. China and India tend to be the countries most people talk about - India probably won't cut its emissions and fair enough - 50% of the population doesn't have access to electricity. Re: China, after the recent high-level US-China talks there is growing confidence China is moving to curb emissions due to the obvious effect climate change is having on the country.

I'd be interested in hearing how you would answer these questions using your own 'shortcuts'.

*Of course there is a possibility of a conspiracy theory involving all reputable climate change scientists across the world. But I consider this less likely than the proven track record of high emitters paying less reputable scientists to come out against anthropogenic climate change.

The Battle of 1944 (Polanyi vs Hayek)

1944 was the year Allied forces took to the beaches at Normandy, beginning one of the bloodiest and most pivotal phases in World War II.

It was also the year in which two mighty salvos were fired in the battle of ideas about political economy: Karl Polanyi's 'The Great Transformation' and F.A Hayek's 'The Road to Serfdom'.

Both texts have the rare quality of being intimately linked to their context while retaining the power to inform today's debates.

Hayek's work is arguably more famous and influential, courtesy of his status as one of the 20th Century's great economists and role in shaping the 'neoliberal' revolution and its leaders: Thatcher and Reagan (and in Australia, John Howard) all regarded Hayek as a guiding light.

'The Road to Serfdom' tried to hang fascism and communism by the same noose, arguing that both had the same roots in denial of individual freedom and overarching belief in the state. More explosively, Hayek argued that even seemingly benign state interventions in the economy - such as the welfare state and demand management (e.g. fiscal stimulus) - were likely to result in deprivation of liberty and authoritarian government as the 'planners' took over.

Hayek's book was a direct challenge to the Keynesian consensus that emerged in Britain and the US during and after World War II. Later, it would shape the neoliberal reaction that swept the Anglosphere from the 1970s.

Polanyi's book will never be as iconic but provides a compelling alternative to Hayek's neoliberal interpretation of modern political economy.

'The Great Transformation' begins with an examination of how the Industrial Revolution ruptured the fabric of British society in the 18th and 19th centuries. Polanyi shows how the creation of national markets for labour and land was based on the belief that economic forces were autonomous and could not (and should not) be subject to social control. The result was a dizzying increase in production accompanied - and driven by - a stagnation in the wages and living conditions of the working poor.

Polayni also argues that reactions against laissez faire in the 19th Century - labour laws, minumum wages, trade unions and 'poor relief' - were spontaneous attempts to limit the damage caused by the unfettered market, rather than a conspiracy of 'vested interests' against 'progress', as was claimed by some liberals. He dubbed this process of economic liberalisation followed by attempts at social protection as a 'double movement'.

As it turns out, both Polanyi and Hayek were right and wrong.

Hayek was right about the market economy being a more efficient and individual liberty-enhancing mechanism than command and control, but wrong in his doomsday predictions about social democracies turning into authoritarian monsters (Sweden anyone?).

Polayni was right about the legitimacy and importance of social protection in providing an acceptable level of equity but probably wrong in assuming the working class would be worse off under capitalism.

Either way, its fascinating to see how many of these debates resonate in the current (post?)-GFC climate - think of the term 'market fundamentalism' (made popular in Australia by our very own Prime Minister) or anxieties over the corrosive effect of 'middle-class welfare'.

It all goes to show while the guns of Normandy have died down, the battle of 1944 continues...

Torres Strait media coverage

The Torres Strait - and particularly the issue of health risks arising from PNG overstayers - has hit the headlines in the last couple of days here and here. This follows earlier stories (here and here).

Thanks to Brad who pointed out that the Torres Shire Council is currently holding consultations on whether the region should become a territory in its own right.

With all this bubbling away in the background - and as submissions to the Senate Inquiry keep rolling in - it will be interesting to see how things play out.

It's quite clear to me that despite the diverse range of issues the Torres Strait faces, the problem of PNG overstayers will now frame the whole Inquiry and its recommendations. That's the way our political system seems to work.

The forgotten Straits?

The Torres Strait Islands, which lie off the northern tip of Queensland's Cape York Peninsula, are one of the most unique - and arguably least understood - regions of Australia.

A population of about 7000 live on the 17 of 274 islands which are inhabited.

Unlike mainland Indigenous communities, Torres Strait Islanders weren't dispossessed of their land by colonial policies and managed to integrate, rather than be overrun by, western culture.

Having said this, the region has serious policy challenges in the areas of economic development, climate change, border security and health - some of which I've outlined below.

From my limited involvement in the issue, our policy elites in both Brisbane and Canberra seem poorly equipped for the challenge, partly because of the Islands' isolation and developing country characteristics.

Border security and health

The northernmost island of the Torres Strait, Saibai, is just 5 km from Papua New Guinea (PNG). Under a treaty with PNG, residents can travel across the border to engage in customary trade and ceremonies.

The disparity in living standards between the Torres Strait Islanders (disadvantaged by Australian standards) and PNG people is large, with a growing number of PNG people coming into the region to access health services. There are concerns about the risk of HIV and TB infection as a result of this movement.

The dispersed nature of the islands also makes it an easy target for drug trafficking and illegal fishing. A Senate Inquiry is about to look at the issue of border security in the region.

Employment and economic development

At least 1400 people in the Torres Strait (rough estimate) rely on Community Development Employment Projects (CDEP) subsidies to keep them in a job. CDEP is meant to prepare people for real work, but in reality its more like work-for-the-dole.

That's why its a good thing the Australian Government is planning to reform CDEP from July 2010, like they did recently on the mainland. This would involve converting positions that are involved in essential service delivery to fully-funded government jobs, while transitioning the remainder to fully-funded private sector jobs.

The risk with this approach is two-fold: firstly, a sudden removal of CDEP without alternative options in place would have a devestating economic and social impact; and secondly, businesses, already struggling in the region's small and isolated economy, may find it hard to employ the additional people and may also struggle to remain viable without CDEP subsidies.

One industry that does have potential is fisheries: the region's fishstocks are under-utilised. However, making the most of this resource will mean resolving issues around Indigenous aspirations for ownership.

All in all, bringing the Torres Strait Islands fully into the mainstream economy is going to be a huge challenge.

Climate change

If climate change isn't happening, someone forgot to tell the Torres Strait Islanders.

A recent House of Representatives Inquiry found climate change is already - or soon expected to - impact on marine ecosystems and fisheries, water supply and health including the spread of diseases. It also found erosion and inundation is already a major hazard threatening communities, cultural heritage sites and infrastructure in the region.

Looking ahead

It may sound like I'm trying to peddle doom and gloom here. But in reality the people of the Torres Strait are far better off as part of Australia, with our vastly greater resources and expertise, than PNG. Which is just as well, because resolving the issues I've outlined will require plenty of both.

The question is whether our leaders are prepared to take the time to learn about the region, its people and its challenges, even though there isn't much political mileage to be gained from doing so.

When push comes to nudge

I'm currently reading Nudge by Richard Thaler and Cass Sunstein.

It's a highly accessible journey into the growing field of behavioural economics.

The central point of the book is that people can be "nudged" towards desirable behaviour in simple and non-controlling ways that maintain choice.

A nudge is defined as:
any aspect of the choice architecture that alters people's behaviour in a predictable way without forbidding any options or significantly changing their economic incentives. (p.6)

The case for 'nudging' comes from the seemingly self-evident idea that people are humans not econs.

In other words, people are subject to limited rationality and flawed decision making, rather than being rational, utility-maximising individuals ('econs') as described in mainstream economic theory.

Humans have an inbuilt propensity for seriously flawed decision making and behaviour, which has major implications for public policy. Psychological experiments have shown that rather than doing detailed analysis before making decisions, humans use a variety of shortcuts or 'rules of thumb'*. Humans also tend to be over-optimistic, overconfident, loss-averse and biased towards the status quo.

For example, people tend to hugely underestimate their risk of developing health problems, resulting in many being under-insured.

The good news is that by tapping into these psychological flaws/tendencies, people can actually be nudged towards doing the right thing by themselves and others. (this can also be exploited for 'evil' by advertising companies!).

The book is full of amusing and effective examples of nudging, like the case of the European airport that wanted to reduce its cleaning costs. It stuck fake flies on its urinals and found that men began aiming at them, reducing spillage (and cleaning costs) significantly!

Many charities have long dined out on the fact that people tend to give more when the suggested minimum giving amount is high (e.g. $100 instead of $20).

Thaler and Sunstein believe in nudges so much they have even suggested a new political philosophy - "libertarian paternalism".

I can see a lot of benefit in policy makers taking on board the insights of behavioural economics. It means government having an active role but developing policies that are smarter, less intrusive and less costly.

Having said this, the 'nudge' paradigm is limited - it trivialises harmful behaviour as a psychological rather than moral/ethical problem. And it assumes that people can be sub-consciously led towards good behaviour without having to explicitly turn away from their old way of doing things.

So.... have you been 'nudged' lately??

*Rules of thumb include anchoring (using a familiar starting point and then adjusting), availability (assessing likelihood of risks by how readily examples come to mind) and representativeness (making judgements based on stereotypes).

Evidence and ideology in Indigenous policy

To achieve good public policy outcomes we need more evidence and less ideology.

Do you agree with this statement?

Because its the constant refrain from politicians, academics and certain sections of the bureacracy and media.

Its been especially evident in Indigenous policy, where successive governments have claimed to be driven by "what works" rather than "the failed ideologies of the past"

In my opinion this approach is flawed in that it creates a false dichotomy between values and ideas ('ideology') and scientifically formulated knowledge ('evidence'). It also assumes that:

• evidence replaces the need for a political process to decide what the policy goals and ethical constraints should be.
• evidence (particularly quantitative data) will always provide a clear policy direction.

A classic case in point is the current debate about whether the Cape York Welfare Reform trials in North Queensland have been responsible for the dramatic increases in school attendance in Aurukun and Hope Vale.

The Australian certainly thinks so, having backed the Noel Pearson-inspired trials from the start. Others, meanwhile, are not so sure.

Its a tricky one because while there is a clear correlation between the commencement of the trials in mid 2008 and improved school attendance, there are plenty of other possible causes, such as improvements in school leadership.

There is also the problem of isolating cause and effect. If CYWR was responsible for the improved attendance, which part of the reforms made the most difference? Was it the 'tough love' income management measures imposed on parents (as The Australian suggests), or the support services provided?

At this point the "evidence" raises just as many questions as it answers.

Yet it seems that the politicians have already (rightly or wrongly) decided that income management works and should be expanded to other communities - Logan being the first cab off the rank.

A case of ideology trumping evidence perhaps?

Or just an indication that in public policy the two can never be completely separated?

Over to you.