Contact MHC

QSI Online - a wealth of insight

Understanding the difference between public and national interests

James Reynolds — September 2011

Emerging Issue: Australia’s strong and dynamic economy has a number of doting parents – whether it’s the political dynasties of Hawke-Keating and Howard-Costello or the micro-economist Prof. Hilmer, these players can rightly claim to be significant contributors to the tough decisions that have created opportunities for Australia to adapt and compete in a globalising economy. Since the early 1990s, Australia’s political psyche has been fixated on sweeping aside institutional, structural, and behavioural barriers to ensure that the economy is flexible, nimble, and above all, competitive.

In the past 20-odd years, the political debate has centred on concepts of “efficiency”, “competition”, and “public benefit”. In the background and foreground of these debates there have been a number of economists – largely educated, trained, and mentored on the theoretical underpinnings of Milton Friedman and Adam Smith’s market – determining the most efficient resource allocation. Within Australia (and not to mention many other countries), economic concepts and theories have often been translated into drivers of legal and regulatory change causing substantive disruptions and opportunities in commercial, community, household, and personal arrangements.

Justifying this drive for change has often been the resolution that the change will improve the public’s welfare or interests; or, more critically, that the absence of change poses the public risk of losing their welfare or interests. Maximising the public interest has become an economic and political orthodoxy which, by and large, has made substantial contributions to Australia’s current prosperity.

Yet, as national economies integrate, there is a growing need for Australian economists and politicians to consider regulatory options based not only on maximising public interest, but also on national interest. Ideally, these interests should always be aligned, as a small economy within a global economy depends on both perspectives; however, the reality may be a paradox. A current example is Australia’s dogged attempts to introduce a price on carbon. As an economic concept, pricing an externality such as carbon (or other harmful emissions) would increase public welfare by making users of carbon internalise the costs associated with this behaviour, thereby managing these costs more effectively.

However, without a comprehensive legally-agreed carbon trading scheme – including China and the United States – a local carbon price will result in Australia sending financial resources off-shore to pay for accredited abatement, or paying for domestic abatement when the majority of our trading competitors are not. Apart from the loss of international competitiveness, the ‘act of going’ without an international scheme must be viewed against two critical economic factors.

Firstly, and as recognised by many commentators, for efficient and effective international carbon abatement, we need the two largest carbon-using countries to provide the necessary economies of scale to minimise abatement costs, and maximise the capital efficiency of the investment. Second, domestic abatement options are expensive, the Commonwealth Government has already said as much, but will more likely than not be more costly than they otherwise would as domestic carbon abatement investments compete for the same scarce labour and capital resources being pursued by the resource investment boom.

With a global economy, does Australia’s current orthodoxy on public interest now need to be complemented by explicitly considering national interest?

Get in touch with the author — James Reynolds »

You might also be interested in:

« Back to QSI Online