Regulators are the same as marriage counsellors. They cannot create anything positive – only facilitate others doing it for themselves. Relying on them is a sure sign of failure.
Such realisations are sorely lacking in the current debate over solutions for Telstra and other infrastructure dilemmas. There is confusion over what the Australian Competition and Consumer Commission and others can really do for us. The starting point for resolving this conflict is an acceptance that regulation is actually at odds with the policy framework that has delivered Australia so much.
At the heart of our economic success is the notion that a third party – whether a crusty old apparatchik or a slick ex-banker – cannot adequately appreciate the intimate dimensions of the relationship between a buyer and seller. Governments have removed restrictions on business because they accepted that attempting to second-guess the forces that optimise our flow of resources, is a losing strategy.
In spite of this, we continue to deny the inherent tension between our favoured free market philosophy and mandated access to infrastructure.
The Hilmer Committee that laid down so much of the foundation for competition policy in the early 1990s said: “The efficient operation of a market economy relies on the general freedom of an owner of property and/or supplier of services to choose when and with whom to conduct business dealings and on what terms and conditions.”
And it added: “This is an important and fundamental principle based on notions of private property and freedom to contract, and one not to be disturbed lightly”.
Good intentions aside, the reality is regulation of infrastructure cannot avoid disturbing this core tenet. In fact, the very theory upon which it’s based deems regulation an unavoidable cost.
Of course this doesn’t mean it has no role to play. Regulation may make sense if its costs are less than the inefficiencies associated with natural monopolies – most notably over pricing, “gold-plating” and restricted supply. Problems arise when we forget this and help with commercial nuptials becomes institutionalised.
Regulation has created a positive image for itself. Instead of considering if it’s less detrimental than other flawed options, key players have convinced the public that infrastructure regulation is in some way innately beneficial.
Such a misconception has so far eluded our day-to-day legislative and policy processes. This has come about because the architects of the regulatory regime shied from declaring the truth. They didn’t want to give publicly owned, inefficient infrastructure owners an opportunity to avoid much-needed reform by arguing the problematic point: when do the costs of regulation exceed those of wayward monopolies?
The latent liability with this approach is that it encourages us to see regulation as promoting efficiency when it can’t. None of the prosperity created in Australia during its two decades of economic reform is due to regulators. They may have played a role in distributing such wealth, but they did not generate anything in a fundamental sense.
This subtle distinction has been gradually buried beneath the propaganda and politics that are now endemic to infrastructure.
Consistent with the free market theory, the Federal Government doesn’t want to impose new controls on Telstra for fear they will limit its ability to invest and innovate. The Nationals are ridiculed for their quixotic alternatives. What Minister Nick Minchin, Treasury and others fail to see, however, is that it was ardent reformers who engendered the naïve belief that all our economic needs can be met through enforced transparency and an ever-growing regulatory presence.
Meanwhile, the ACCC claims record investment in energy infrastructure and broadband take-up equates to success. This is part of the trap. As seen with the Dalrymple Bay coal terminal debacle, regulators who forget their limitations only end up poisoning relationships and delaying needed investment. They can’t make things happen. The question ACCC Chairman Graeme Samuel should be asking himself is what opportunities have been lost because of his interventions and how such costs stack up against the downsides of having unregulated infrastructure.
Australia needs a dispassionate debate over infrastructure. This process must begin with an objective account of what regulation can and cannot really achieve.
ENDS
© 2005 Mark Christensen
This article appeared in The Australian Financial Review on 13 April 2005, under the title “Infrastructure Owners Best Left Alone”.
