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Debating NBN and the price mechanism

June 22, 2016

I just finished up at a breakfast forum hosted by the Brisbane Inner West Chamber of Commerce, which included nine candidates standing in the seats of Brisbane and Ryan. It was good to catch up with Jane Prentice (MP for Ryan), though Sly Gryphon – Liberal Democrats candidate for Ryan did an excellent job arguing why he should have Jane’s job.

As a short event, not much could be said, but at one stage I did lock horns with Pat O’Neill (Labor candidate for Brisbane) about the NBN and more broadly about the price mechanism.

Responding to a question about the NBN, Pat had argued the Labor Party line about upgrading NBN if/when they get in power, Jane argued the Liberal Party line about rolling out a quicker and cheaper version, and I argued that the government shouldn’t own a telecom business and that the decisions about quality and price should be a private business decisions and not political decisions. No surprises in any of those answers.

Then it got more interesting. When Pat had a chance to speak again, he responded to my point by saying that health, education, internet, etc should not be part of a market system. He objected to the idea of internet services being a business decision, rejected the price mechanism as a way to allocate resources, and claimed that government ownership and political control are necessary to help the poor. It’s not clear whether he believes the same for food and clothing.

My response was to accept the idea of helping the genuinely needy, but then defending the price mechanism. I asked the rhetorical question of “why do we have money and prices”, and gave the answer that prices help us to allocate scarce resources between various options, noting that different people have different preferences. It is not necessarily true that everybody wants exactly the same internet service. In the face of scarcity and diversity, the price mechanism ensures that resources are directed to where they are needed most, while the political system ensures that resources are directed to wherever gets the most positive media attention.

It is remarkable to consider that one of the major parties would still be arguing against the price mechanism. There have been many experiments in the past of non-price allocation, and there is no excuse for us to continue blindly repeating the mistakes of the past. The crisis in Venezuela is a modern example, where the political control replaced the price mechanism, and now there is a shortage of things like toilet paper and food. Obviously Australia and Venezuela are very different, but we should not ignore the lessons of those failed experiments. The price mechanism is important. Thankfully, notwithstanding Pat’s comments, the Labor policy doesn’t fully reject the price mechanism, as they still plan to charge people for using the NBN.

If Pat and Labor are genuine about helping people in need, then they should ask themselves two separate questions… (1) what is the best system for ensuring we get the maximum benefit out of limited resources; and (2) how can we ensure that everybody has access to a minimum standard of living. At the moment they are conflating the two issues.

Most people can agree that the second goal is worth pursuing, but it is an absurd non-sequitor to say that we can only help poor people by having government ownership of business. The more obvious solution (as pursued under Hawke, Keating & Howard) is to allow competitive private business to make business decisions, while the government directly helps those people who need help. If politicians insist that internet must be a priority for everybody, then they could offer “internet vouchers” for people to use when buying internet services from private businesses… though it would make more sense to simply give people money and let them make their own decisions.

The debate about public or private ownership had been done and won already, and for ~30 years both major parties had accepted that private business works better than government-run business. While the privatisation agenda was not politically popular, it was economically sensible and it worked. With both major parties now supporting a government-run NBN it seems that (sadly) the economic debate is going backwards… and only the Liberal Democrats are left consistently defending private ownership and competitive markets.


Categories: Uncategorized
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