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Introduction +
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Introduction
There was debate in Australia in late 2010 about the federal government's National
Broadband Network (NBN) scheme. An indication of the nature of that debate is
available in
The Top 10 NBN Myths Debunked. The latter identifies both the criticisms
that have been levelled at the proposal and the responses to those
criticisms by supporters.
However what seemed to be overlooked in this debate was whether the
method chosen to implement the presumably-desirable goal of creating
such broadband network was sensible.
Was Creating NBN Co Foolish?
Some reasons to suspect that the method the
federal government chose to develop a national broadband network (ie via
creation of NBN Co) was foolish are presented in the email reproduced
below.
NBN' Bigger Picture (email sent 18/10/10)
Mark Day
RE:
Let's focus on the NBN's big picture,
The Australian,
18/10/10
Your
article is presumably correct in arguing the case for general access to
super-fast broadband.
However the
method chosen to achieve this - a super-expensive 'king hit' involving
the establishment of a NBN Co to roll out the network at government
expense - appears foolish. Alternative methods are available that could
perhaps have been used to stimulate market-driven initiatives to achieve
these ends (see
Improving Australia's Strategic Position). This involves the use of
methods which could be referred to as 'strategic market management' (and
involve development of market-oriented indicative plans for taking
advantage of opportunities in such a way as to allow networks of those
with relevant capabilities to explore their options and perhaps develop
independent initiatives). Prior experimentation with such methods show
that they potentially allow the discovery of huge unexpected value which
might make implausible development options commercially viable.
The
establishment of NBN Co implies that fast broadband is a natural
monopoly which has to be controlled by government - but the case for
this was not made. Moreover a recent proposal for the establishment of a
fast broadband network in Brisbane which would be cheaper to deliver
than the NBN's option (see
Brisbane's NBN will transform people's lives) suggests that this
function may not need to be a monopoly.
Furthermore
addressing the need for fast broadband by establishing the NBN Co (and
the National Competition Council's argument that no cost benefit
analysis was needed for the NBN - see
Competition chief rejects cost-benefit analysis) raises huge
questions about Australia's National Competition Policy (NCP). Though
complex, the NCP's main impact was requiring that what had traditionally
been regarded as public goods and services should be provided
'commercially' in response to market signals. Though the NCP included
provision for a 'public interest' test (ie that there can be occasions
in which the public interest required governments to act
non-commercially), in practice this provision was seldom used as it was
hard to make a case and all the political pressure was to move in the
opposite direction. Thus pseudo-commercial arrangements have at times
been put in place that are likely to be counter-productive (of which the
worst example arguably involves attempts to reform Australia's health
and hospital system - see
Making a Bad Situation Worse?) Moreover the most serious
adverse impact on the public interest (ie reducing governments' ability
generally to govern in the public interest - see
Neglected Side Effects of NCP) still remains neglected.
John
Craig
In brief this suggested that: (a) rather than simply establishing a government owned corporation
(GOC), efforts could first have been made to increase and test the commercial
value of independent initiatives; (b)
establishing a GOC made sense if a broadband network is a natural monopoly -
but this had not yet been proven; and (c) undertaking
such a function through a GOC called even further into question the
adequacy of the major plank of micro-economic reform over the
past 15 years (ie the National Competition Policy).
This Question Does Not Seem to Have Been Considered
It is important to get details right, if the presumably-worthy
goal of establishing a national broadband system in Australia
are to be realised.
However an examination of
The Top 10 NBN Myths Debunked suggests that the methods for developing
this function have probably not received much attention. For example:
- Item 2 suggested that the
private sector could not afford to build such facilities. However this
overlooked the possibility
of exploring the opportunity to create such a network in such a way as to potentially allow the discovery of initially
unrecognised benefits (and so make commercially implausible investments
commercially viable);
- Item 4 suggested that the OECD supports governments building FTTP networks.
However there was no mention of the reasoning behind the OECD's view. Another document,
OECD makes the case for a better-than-the-NBN FTTP rollout, referred to what
seems to be the OECD's report on the subject - and noted that the OECD
believes
that externalities exist (ie benefits accruing to other parties that could not be
captured by those who develop the network) that would make a broadband network
suitable for governments to take the initiative. While this may be so, one outcome of
the method for exploring such opportunities suggested above is to enable such secondary benefits to be identified and perhaps incorporated into
commercial dealings. Thus, even though the OECD may be right about the
existence of externalities, it may simultaneously be wrong about the conclusion
it drew from this.
The OECD undertook a cost-benefit analysis, but this is quite inadequate
because cost-benefit analyses allow economists' assumptions about benefits and
costs to be compared, whereas it is possible (and now necessary) to increase
the benefits by adopting a different approach.
Why? Economists emphasise analysis
rather than stimulating learning within the real-economy. Some observations about the limitations of conventional economics are in
The Advantages and Limitations of Financial Criteria. Economists
emphasise analysis because economics is seen
as a 'science' (ie as dealing with matters concerning which behavioural laws
can be developed as the basis for analysis).
However the standard is now
higher - and requires changing the behavioural laws of economic
systems, rather than merely using them as the basis for analysis.
This alternative
is illustrated by: (a) the
methods for accelerating economic development in East Asia; (b) the shift
in emphasis from comparative advantages of regional economies (ie their
pre-existing advantages) to their competitive advantages (ie those that can be
created by strategy); and (c) the
shift in favoured corporate management styles in the 1990s from strategic 'planning' to strategic
'management')
Details Matter
No matter how beneficial a broadband network may be, getting the details right
in the way such functions are developed is necessary, if governments are to
be effective in what they do (as the now well-understood cases of grandiose school
building and ceiling insulation programs launched by the Rudd Government tend
to prove).
The functions of
government are getting harder - for reasons suggested in
Australia's Governance Crisis and the
Need for Nation Building.
The latter notes that one of the responses to those difficulties has been a
shift by politicians towards
populism (ie making announcements that sound trendy, even though they may
not work in practice) - see also
On Populism .
One of the favoured techniques of populist politicians when confronted by an
intractable problem seems to be announcing the creation of a new organisation (eg
Infrastructure Australia, NBN Co) whose name implies that it is the solution to the problem.
While this tactic
defers the need to really solve the problem for several years, it can
ultimately prove quite counter-productive.
An example of this was the 'reform' process for Queensland's neglected
public sector by the Goss Government in the early 1990s. That 'reform'
process (in which Australia's former Prime Minister had a central role) was
based on across-the-board restructuring and restaffing (ie creating umpteen
new organisations whose names implied that they would perform miracles). This
sounded fantastic to the media and to academics - but it actually achieved
almost nothing because the real challenge was to figure out what government needed to
do and how to do it (ie to get the details right), and this never happened.
The result was that, almost unbelievably, an already bad situation was made much worse,
and Queensland's system of government remains ineffectual and crisis prone to
the present day (see
Queensland's
Worst Government?)
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