Political bad habits die hard

Will the Australian government ever learn that meddling in markets and political favouritism is politically dangerous, economically harmful and arrogant? While the rhetoric on the right of the political spectrum has changed since the interventionist Menzies-McEwen era of the 1950s and 1960s, a wrong-headed nationalist-protectionist mentality still has an ominous hold in conservative policymaking circles, not least within the Nationals.

Just as we are embarrassed daily by damaging facts about the corruption of the government-sponsored wheat export monopoly, Nationals Transport Minister Warren Truss informs us that cabinet has barred Singapore Airlines from competing with the Qantas-United Airlines duopoly on the highly profitable route to America .

Admittedly, international air traffic is enmeshed in webs of government intervention, and competitors, such as Singapore Airlines, are often at least partly government-owned or government-sponsored. But the trend has been to open skies and creative competition. This has stimulated technical and organisational innovation and given passengers and freight forwarders huge benefits. Besides, Australia has signed a free-trade agreement with Singapore , one of the freest economies in the world and an important political ally. Whatever spin Truss has put on it, the decision violates the spirit of free trade and open competition.

Judging by worldwide experience, the participation by an avid and first-class competitor, such as Singapore Airlines, would have reduced trans-Pacific ticket and freight costs, some argue by as much as one-third. The lucrative American tourist market would have got a boost, as our tourism industry could have drawn on the goodwill and reputation of safety that Australia enjoys in the United States . Many jobs in tourism, as well as in export and import businesses, would have been added.

Truss tells us his department did some modelling that showed the gains were minimal, but no one will be shown the model. This is the bad, McEwenist arrogance we know best. Anyone in the trade knows that econometric models show whatever is programmed in: GIGO – garbage in, garbage out.

The truth is that Australia ‘s dominant airline has lobbied successfully and that the Transport Department’s bureaucracy has given protectionist advice, true to old form. What is amazing is that the Howard cabinet went along, ignoring the historic lessons from liberalisation. Has it forgotten that liberalisation has enabled the 14-year-long upswing in the economy and that Qantas is private now and expected to compete?

When politicians still intervene, granting elected businesses favours in the form of monopolies or de facto duopolies, they share responsibility for the outcomes, be it kickbacks to Iraq or rip-offs of airline clients. Political parties that hand out favours to selected businesses may hope for political and financial support in return, but they also have to face up to being implicated in shady deals. This danger is much greater than it was in former trade and industry minister Jack McEwen’s time, not only because of better information flows, whistle-blowing and globalisation, but also because we understand much more clearly that freedom from interventions goes along with better economic and jobs growth, social optimism and international harmony.

The Singapore government, according to The Straits Times , called the Australian decision “extremely disappointing”. What else but diplomatic protestations can they offer in the short run? But in the long run, Australia ‘s international partners will conclude that short-sighted political selfishness and lobbying determine policymaking in this country, that we cannot be trusted as fair, competition-oriented partners and that the harmful McEwenist mentality is still being embraced by the Howard cabinet.

And we, the citizens, can yet again come only to the cynical conclusion that powerful business interests, thinly disguised as “public interest”, rule Canberra politics, rather than our shared interest in economic freedom and prosperity for all.

Wolfgang Kasper is an emeritus professor of economics of the University of NSW and senior fellow at The Centre for Independent Studies