Tag Archives | economics

✱ An Open Book

The influence of globalisation can be felt in countless obscure policy areas, in situations where it not obviously apparent what is the best thing to do. One such example is the arcane matter of parallel importing as it pertains to Australian publishing.

Most products manufactured overseas have authorised distributors in Australia. Parallel importing refers to a process by which someone other than the authorised distributor legally imports such products (genuine products, not knock-offs) and sells them on the market, often at significantly cheaper price points.

The Copyright Act 1968 includes protections for Australian publishers from the parallel imports of books. Upon the publication of any overseas title, Australian publishers have 30 days to publish an Australian edition, which local booksellers are then obliged to buy. Economics of scale being what they are, the local version often costs $10-$15 more than the equivalent overseas edition, even taking into account shipping. In 2008, the federal government asked the Productivity Commission to investigate whether these protections should be removed for the benefit of consumers.

Australian authors soon launched a concerted (though poorly articulated — much irony to be had there) campaign against removing the protections. This is where it gets complicated. Parallel importing does not directly affect the majority of local writers. Rather, by ensuring the existence of a local publishing industry that can pick and choose which overseas titles are bankable, it supports an ecosystem of local authors and their more uncertain commercial success. It is this ecosystem that the local campaign argued was under threat if the rules were changed.

For the bestselling Australian authors, parallel importing also raises the threat of remainder sales. In the odd supply chain system of the book industry, once a publisher decides a title is no longer commercially viable, it pulls it from shelves, and booksellers are able to send back all their unsold copies for full credit. The publisher then sells this invariably large stock of ‘remainders’ cheaply and directly to wholesalers, where they end up in bargain bins for a few dollars. Importantly, authors receive no royalties on these remainder sales. It is therefore entirely possible to imagine a situation (for a few authors, anyway) where the overseas run of an Australian title ends and Australian bargain bins are full of copies of it, selling for prices that hugely undercut the local edition and on which the author makes no money.

In a perfect market, presumably, authoring would be done where authors enjoyed the greatest market advantage and local authors would simply move there. This means we probably wouldn’t have another Storm Boy, but it may also spare us from Gretel Killeen’s My Life is a Toilet. Qualitative judgments are never straightforward.

The interesting question for our purposes is what role does policy have in all this? The Productivity Commission recommended the removal of parallel import protections after three years, to give enough time for another appropriate means of support for the local industry to be developed and implemented, though what that might look like, the Commission gave no indication. The Government apparently decided this was too hard or too unwelcome a conversation to have and announced it would be leaving the legislation as it was. Tellingly, it said ‘if books cannot be made available in a timely fashion and at a competitive price, customers will opt for online sales and ebooks.’6

This decision appears to benefit both consumers and the local publishing industry, but it leaves the actual local booksellers in perhaps the most unworkable position. They are obliged to buy the higher-priced local editions, while exposed to the market and distribution power of Amazon and the Book Depository (free overseas shipping!). This is a large factor — as well as poor management — in the recent collapse of REDGroup and its Borders and Angus & Robertson brands. It’s also why you now see many independent booksellers with in-store signage demanding/pleading that customers not simply use their store to conduct research for a later online purchase. Then there’s the ebook, which threatens to disrupt the entire print publishing industry altogether.

It seems to me that this is not so much a problem of free trade/protectionism as it is of ensuring a flourishing capacity for imagination, knowledge and cultural life (or cultural capital, if we must insist on that language). Policy should be directed at ensuring this capacity, rather than maintaining a particular institutional set of affairs or attempting to pick and choose winners, as neoliberals sometimes call it. In other words, it matters less how we ensure we have a capacity for unique cultural life than that we do it. This will first require that we begin to think of people, wherever they are, as producers and readers of books and ideas rather than simply vendors and consumers of them. ◾

The Price of Everything: Neoliberalism and its blind spots

Neoliberalism is among the most influential social, political and economic forces of our time. Danu describes the neoliberal project and examines its effects upon higher education in Australia by beginning with a simple question — does it produce good social outcomes?

The Price of Everything

Have the economic reforms pursued in Australia since the early 1980s produced positive social outcomes?

To give this question proper consideration, we shall need to do a number of things, beginning of course with an explanation of what economic reforms are in question. To do this, I will focus on one particular policy area — higher education policy. This is an area of policy to which the sort of economic reforms we will be discussing have been applied visibly and purposively; it is also a policy area in which we can comfortably discuss social outcomes. We will also need to tackle the more difficult issue of evaluating what constitutes a positive social outcome and how we might recognise one.

Let us turn first to the discussion of the economic reform itself. ‘Since the 1980s’ is code for a number of related and complementary notions and assumptions about economics, society and human behaviour that became widely influential and accepted around this time — the sort of constellation of ideas that we might best describe as a movement. The movement in question has been variously described as ‘neoliberalism’, ‘economic rationalism’, ‘free-market’, ‘Friedmanite’, ‘lassez-faire’, ‘small government’ and even ‘Reaganomics’. These labels all emphasise different aspects of the movement and are largely interchangeable, though my preferred term is neoliberalism, which I will use hereafter.

Attempting a precise definition of such a fuzzy category as neoliberalism is a futile exercise, so let me instead lay out some of the core principles that underwrite it. At heart, neoliberalism combines a libertarian political philosophy with an economic world-view. That is to say, it invokes an image of humanity as a collection of rational individuals each acting in their own self-interest — the role of public policy on this view is to ensure each individual has freedom to exercise his or her rational choices as efficiently as possible. Efficiency here means with as much information (price signals) and as little interference (government) as possible. Neoliberals believe that in this state of affairs, the sum of each individual’s rational, self-interested choices in a perfect market will secure the best possible outcome for all. Free markets, free people. (In that order.)

By valuing education wholly on economic terms, we begin to deprive ourselves as a society of the capacity to comprehend our own folly in doing so.

When former US President Ronald Reagan famously said, ‘government is not the solution to our problem, government is the problem’, we can see what he was getting at. Similarly, when former UK Prime Minister Margaret Thatcher more ominously said ‘there is no such thing as society’, we see she was appealing to a vision of homo economicusEconomic Man. Continue Reading →

✱ Being economical with the truth

When Malcolm Turnbull asked Cabinet Secretary Robert Armstrong, during the famous Spycatcher trial, the difference between a misleading impression and a lie, Armstrong replied that a lie was a straight untruth whereas a misleading impression might be regarded as being ‘economical with the truth’. The phrase promptly lodged itself firmly in the language.

If the phrase is pithy and/or apt, it’s because we have some idea that economics is concerned with making choices about distribution, and doing so as efficiently — that is with as little ‘waste’ — as possible, where in this case waste refers to sharing information that did not need to be shared.

The choices that economics is concerned with are those that involve some sort of goal-directed action, which is to say they are practical choices. Economics is, after all, a practical science. It is therefore inseparable in some sense from other practical sciences, if we are to take seriously, as Aristotle did, the idea that the goal such actions are directed at is a good, or flourishing, life. For Aristotle, the practical sciences were economics, politics and ethics, though economics then meant something closer to ‘household management’ than perhaps what we mean by it today.

Incidentally, the ‘economy of truth’ line comes originally from Edmund Burke, where he relates it to the exercise of virtue in the proper amount (an Aristotelian idea), which shows how much things change even as they remain the same.

Policymaking, also a decidedly practical activity, can be regarded as a combination of all three of the practical sciences — what ought we do, who for and how much? This is probably not how many would frame it today, though it comes close to the view of Adam Smith, who also argued that questions of morality, politics and economics were inseparable.

There seems to be a great deal of confusion today as to whether to regard economics as a branch of knowledge — a technical means for providing information to help make choices — or as a framework by which such choices can be made. Some people argue for a conflation of both. It seems trivial and a little churlish to point out that it might be helpful to decide on this in some fashion before we engage in policymaking, but all evidence suggests this is advice that frequently goes unheeded.

A major source of this confusion is that money has for some time now been supposed to act as a stand-in for utility, which is to say, happiness. The rather loopy train of thought leading to this proposition is far too convoluted to relate today, but it’s hard to talk seriously about contemporary economics or policy without making reference to it, as it informs much of what we think we know.

In hugely oversimplified terms, the thinking goes like this. What’s good is what produces happiness. We’re unable to say precisely what happiness is (utility might be a more useful term) but it would be helpful if we could quantify it somehow. If we can somehow measure happiness (or utility), we can do things that will increase the amount of it that we gain over the amount we lose — we can maximise our marginal utility. Despite a number of variously amusing and/or embarrassing attempts to measure happiness (including the hedonometer), economics as a discipline has largely settled on using money as a proxy — close enough!

In this sense, economics is connected with ethics — utilitarian ethics — so much so that the manner of the connection has become very nearly invisible. Economists often proceed as if what they are doing is value-free, but the very methods they employ are profoundly value-laden. This would be perfectly fine were it not for the fact that the ethical system being employed is mostly incoherent, in no small part because of those methods.

All this is simply by way of saying that when we want to analyse how economics informs or shapes a policy we must remember that economics is hardly the neutral, value-free approach it is often assumed to be. Rather it comes fully laden with its own values (many of which derive from utilitarianism) — it just usually doesn’t declare them as such. This is not to devalue or discredit economics as a valid way of thinking about things, it is merely to insist on the inseparability of economics from ethics and politics. Good policymaking begins when we proceed from this observation and think through the implications carefully. Anything less is simply being economical with the truth. ◾

Recovering Adam Smith’s Ethical Economics

Contemporary economists have been eager to claim Adam Smith and his ‘Invisible Hand’ as an early forerunner for modern ideas of people as self-interested, utility-maximising creatures. The truth, as Thomas points out, is a good deal more complicated than that.

Adam Smith

Originally published at The Philosopher’s Beard. Gratefully reproduced here with permission from the author.

“While some men are born small and some achieve smallness, it is clear that Adam Smith has had much smallness thrust upon him.”Amartya Sen

Adam Smith is famous for founding economics as an independent field of study by synthesising and systemizing classical economics in The Wealth of Nations. But he was also a significant moral philosopher in his own right who deserves to be recognised alongside his close friend David Hume as a key figure in the Scottish Enlightenment. Smith saw economics as a branch of moral philosophy, and he saw capitalism as an ethical project whose success required political commitment to justice and freedom, not merely an understanding of economic logistics.

These days Adam Smith is most familiar to us as an economist, and specifically as the defender of the famous Invisible Hand of free-market economics, wherein the private self-interested actions of private individuals, mediated through free markets, generate results that are good for all. The market-system comprehends the true level of demand for any good and provides the appropriate incentives – profits – for producers to adjust their output to match. No external intervention or guidance is necessary. A great deal of contemporary (neo-classical) economics can be understood in terms of translating Smith’s Invisible Hand metaphor into a systematic theoretical form, with a particular emphasis on the economic efficiency of perfectly competitive markets.

Anyone who cares to read Smith’s Wealth of Nations for themselves will find an economics discussed and justified in explicitly moral terms…

However the popular view of Smith that has resulted from this emphasis is twice distorted. Firstly, it is based on the narrow foundations of a few select quotations from The Wealth of Nations (WN) that are taken in isolation as summing up his work (Smith only mentions the ‘all important’ Invisible Hand once), and secondly these quotations have been analyzed in a particularly narrow way. Both selection and interpretation have been driven by contemporary economists’ interest in justifying orthodox economic methodology and their peculiar (Mandevillian) assumption of the selfish utility maximising homo economicus. The Chicago School economist George Stigler once famously declaimed, “I bring you greetings from Adam Smith, who is alive and well and living in Chicago”. What such ‘historians’ have achieved is the diminution of Smith’s economics to those bits which can be claimed to be early (and flawed) fore-runners of contemporary economic concepts and techniques.

But anyone who cares to read Smith’s Wealth of Nations for themselves will find an economics discussed and justified in explicitly moral terms, in which markets, and the division of labour they allow, are shown to both depend upon and produce not only prosperity but also justice and freedom, particularly for the poor. With those concerns in mind, it should not be surprising that Smith was a staunch and vehement critic of those particularly grotesque sins associated with early capitalism: European empires and the slave trade.

Continue Reading →