Privilege in Australia, Part II

In part I the question was posed to the readers which privileges bothered them most about Australia and what they thought could be done to reduce them. In this part I want to start to consider the barriers by talking about the ‘face’ of any privilege and how this creates particular difficulties in tackling them.

The reaction to the first part though revealed a lot of people have pet hates when it comes to privilege. Apart from my own particular bones of contentions (mining chief amongst them), there were those bothered by welfare privileges (Mike Russell), the whole secret system of military expenses and PV subsidies (Ben), captured markets for GPs (Selzick), allocations of water rights (Sam Wylie), subsidies to private schools (Michael Stanley and Mary jenkins).

The proposed solutions were varied, including electoral reform (Alan), the use of taxation measures when it came to the subsidisation of elite education (conrad), better general education on these issues (Sam), or the removal of particular laws pertaining to this or that privilege.

Rather than discuss all these, I want to give you an idea of what one is up against when it concerns privilege and then re-assess what can be done.

What is not commonly understood by economists about existing privileges is that they invariably have a defensive story that surrounds them and protects them. This defensive story, its ‘face’ or ‘cloak’, has as its central tenet that the privilege is in fact a good thing for society and that one should expect nothing but bad from removing it. The particulars of the protective story are entirely dependent on the audience: whatever the audience is prepared to believe will be in the story so whatever the favourite ideals or delusions of the audience are, the protective cloak of privilege will cater for it. And invariably, many people are fooled by the cloak and turn into willing protectors of the privilege because they are so enamored of the cloak.

Let me give two examples. One concerns medical specialists and one concerns the mining tax.

On medical specialists, the basic economic story is of an almost childish simplicity; medical specialists have a legally guaranteed monopoly on particular medical activities (like heart surgery or providing anaesthetics). Moreover, the medical specialists have organised themselves into cartels wherein they as a group decide on the minimal requirements of new competitors, ie more specialists, via the number of training places. As a result of this legally guaranteed cartel as well as a deliberate policy of having few medical places at university, wages of medical specialists are now astronomical (though, of course, partially secret), easily close to a million a year for particular specialism like anaesthetists. It’s a clear case of a privilege, perfectly well recognised by most economists and economic think-tanks. Solutions are debated and then resisted, such as when governments try to get more foreign doctors but the Australian Medical Association is uncooperative in recognising qualifications (or setting impossibly hard exams for foreigners) or checking them.

Now, whilst this reality is known by the insiders, this is not the public face of medical specialists at all. In the eye of the public, these are the heroes in Dr House and Gray’s Anatomy. They are the saviours who have rescued a family member. The public image of medical specialists is hence very different from the grabbing self-interested behaviour as a cartel.

It is this face you continually have to battle when talking to the general public, politicians, or journalists. It creates an immediate hurdle to rationally debating it in the open.

A similar cloak surrounds the mining deal that Gillard struck to cement her elevation to the top political job. I am pretty certain that in reality the deal cost us many billions per year and is the direct cause for all the budget problems the commonwealth and the states now have. It was a humiliating climb-down that makes the commonwealth the protector of the mining industry vis-a-vis the States. Without the deal, royalty rates (which are set by the States) would probably have continued on their rising trajectory and many billions would have flooded the Australian treasuries.

But the ‘face’ of this deal is entirely different. The face is one of a necessary deal that ironed out the difficulties with the original proposal and that supposedly makes us billions. In order to hide what a botch-up it really was, many of the real figures on tax receipts are secretive, which protects both politicians and civil servants from accountability on this issue.

Now, in both cases will any civil servant or interested journalist or member of the public first have to pierce the cloak.

That is not easy to do because everyone in power has an interest in maintaining the cloak: it is not just the protected privileged group that benefits from the cloak. Politicians also perpetuate and support the cloak because it allows them to save face themselves as they can claim that there is no problem for them to address. Furthermore, it allows them a lubricant in their interaction with the privileged group: if they cannot mount a successful campaign against the privileged group, then to a certain extent they must join them up until the time they can betray them. So the logic of politics, which is that one makes no open enemies up until the moment you shaft them simply because until then you will need them, means they are forever framing everything in terms of the privileged cloak.

For the same reason will civil servants be forced to go along with the face of privilege: they too would face a moral obligation to fight the privilege if a privilege was de-faced and so many of them too want to go along with the face until such moment as there is an active campaign to undermine the existing privilege.

This need for policy makers and civil servants to go along with the facade of an existing (winning!) privilege spills over into the whole public sphere: in textbooks, official documents, research reports, etc., will you find people towing the official line, either because they do not wish to offend the politicians, bureaucrats, or the privileged themselves who benefit from the official line, or else simply because the official line has become the way they truly view things.

Taking the two examples above for instance, I would guess that few people really buy into the official cloak surrounding the mining deal: the journalists, politicians, and civil servants all pretty much know that the Rudd/Gillard government went up against the mining privilege and lost big time. This also means that the willingness of everyone to really go along with the cloak is diminished because it would mean adopting the language of the losers of the battle.

Yet, on medical specialists, there is no doubt that many ardently believe in the fairness of the current arrangements. Because little data is freely available on it (though the Melbourne Institute has unearthed figures), their wages are not widely known. And of course, there is the element of a lottery here in that it is possible for many to hold onto the hope that they or their kids will also be able to cash in on this bonanza by joining the medics. So aspirations, ignorance, and hero-worship maintain public support for medical specialists.

Now, this business of the cloaks is crucial for the whole question of how privilege can be tackled. It namely leads to several crucial points:

  1. Official support (from politicians and civil servants) to undermine a privilege can only come after another group has shown there is support in the population and semi-official institutions for going after a privilege. Until then, officialdom by necessity has to go along with the face of privilege. Simply put, politicians will only stick their necks out when they believe it is a vote winner, which means others must rustle support from the population and the intellectual and economic elite for change. It hence automatically means there is a role for civic society here. The state cannot itself be an anti-privilege champion for it would not itself rustle support against privilege until entrepreneurial politicians thought on the basis of what they hear and see that there is a real chance they can win.
  2. By design, one cannot go up against many existing privileges at once, simply because one needs the support of many to have a chance to win against a few. Once there are a few wins, there is the possibility of having a whole wave of reforms, but to set the ball rolling one would need to keep quiet about most privileges and focus on a few in particular. This in turn leads to a very difficult coordination problem: since those opposing privilege are often unorganised and less-informed, the question of which one to focus on is one of competition itself, where accidental champions successfully get issues on the agenda and crises force rethinks. For the vast majority of privilege reforms it must always be an issue of ‘waiting in the wings’.
  3. There is a need for a perennial back-ground fight against the existing face of privilege. Any book, article, theory, or discipline that has a core story going against a privilege is basically a means of de-facing a privilege. In large part, this is a role that academic economists and official ‘privilege watchers’ (like the Productivity Commission which by its very nature is charged with keeping tabs on inefficiencies in the economic system, such as privileges) have: to keep records of how the privilege really works, how costly it is, and what maintains it. They have little chance of winning all the battles and so there is a real issue as to whether they should leave ‘advocacy to others’, but as ‘keepers of the knowledge of how the rest of society is impoverished by existing privilege’ they are invaluable as a resource to those entrepreneurial journalists and politicians wanting to fight a good fight.
  4. Since information about what lurks behind the ‘face’ is often known to only a few and since it really often is very hard to pierce that cloak for outsiders (including myself on many areas!) there is a potential role for civic society in organising whistle blowing and aggregation of information. I would for instance love to know where I would have to look for a truly good opinion of what goes on with, say, the NBN or large land-owners. There are a couple of people whose writing on the subject I trust to reflect their real opinion but it doesn’t mean I trust their opinion because it is damned hard in case of the NBN to know what really goes on behind the facade. Some sort of iterative weighing scheme of ‘agrees’ and ‘disagrees’ with what those people say about an existing privilege would certainly help me. Perhaps it is even worthwhile thinking about some kind of ‘voting system’ whereby one gets public signals as to what the real experts think about this or that issue.

Where does this leave us? It leaves us with the question which privileges people think are ripe for the challenging. Well, which ones do you think are up for grab? And, since I want to discuss electoral reform as one of the mentioned options, do people really expect it makes a difference if one goes proportional representation rather than first-past-the-post?

Author: paulfrijters

Professor of Wellbeing and Economics at the London School of Economics, Centre for Economic Performance

24 thoughts on “Privilege in Australia, Part II”

  1. “And, since I want to discuss electoral reform as one of the mentioned options, do people really expect it makes a difference if one goes proportional representation rather than first-past-the-post?”

    Yes. Just ask Al Gore.


  2. I hate to get back to this, but I don’t really know what information you would like about the NBN, I still don’t understand how you see it is a privilege in the same sense as say a tariff on imported goods is for local producers, where there is a clear winner (the trade protected industry) and losers.

    As for how to combat these things. As a broad principle, how about this – for every legislated privilege, there must be publicly accessible data of the effect, so in the case of doctors, a database of salaries (with identifying information removed) perhaps. (Could probably add plumbers and electricians to this list too)


  3. This is a magnificent description. I found it tremendously useful. I would add electricity to the list of privileges waiting to be popped.


  4. The power of consumer info is very real. In Victoria, you can use YourChoice to compare utility prices. A similar service for GP consultation fees could be introduced. Also dentist fees, school fees, bank fees… Allow market pressures to push better behaviour. For a big sector like mining, a politician or journalist or the Productivity Commission should regularly publish the level of direct government assistance that they receive. Or for failing manufacturers (auto makers), put their government input alongside their (measly) sales output over time.


  5. “Yet, on medical specialists, there is no doubt that many ardently believe in the fairness of the current arrangements.” I think this is a big part of the story, that ‘rent-seeking’ and the ‘public interest’ are highly contested concepts, and that self-interesting politicking under-explains support for what economists regard as rent-seeking or ‘privilege’. I’ve recently been reading about the rise of protectionism in 19th century Victoria, which was driven by ‘nationalist’ development ideas as much as sectional interests in industry. Polls (though of course not consumer behaviour) suggest that protectionism has significant support even after the costs are explained. It was the ability of Keating and others to tell a contrary story about national need that helped push protectionism back, though doing so was never popular outside educated elites.

    The strength of party systems is probably more important than the electoral system itself (though PR tends to undermine 2-party systems). Strong party systems make it easier to push through big changes (for better or worse) and to undo them. Strong party systems focus on political issues of more national concern, weak party systems orient pollies to local (possibly sectional) issues. Weak party systems open up individual MPs to lobbying, as in the US. On the other hand, my memory of the pol sci literature is that it’s hard to find robust relationships between economic outcomes and political systems within the democratic world. There are always too many other things going on.


  6. Also on the NBN, the mantra that it should be subject to a cost benefit test is all very well, but a cost benefit test is meaningless if the benefits can’t be measured. According to John Kay, London would never have been sewered in the 19th century if it had been subject to a conventional cost benefit test.

    You’re thinking about building another bridge in Brisbane? Fine, subject it to a textbook cost benefit test. You’re thinking about a project whose major benefits will be realised in 30,40, 50 years time or longer and which currently don’t exist? You need a different kind of analysis. That doesn’t mean simply giving in to the political whim of the day, but it does mean taking your head out of the textbook (even the advanced textbook) and actually thinking about the problem.


    1. Yes, the mantra ‘we dont know so let us presume the best and spend a lot of money that benefits particular industries for sure anyway’ is a familiar one on the NBN. Sounds very much like the cloak to me and in today’s age it is a real cop-out even though you are right that it aint easy. As I said in the post though, it would be nice to hear some simple bottom lines by people who really know what is going. I have seen despairing comments made on it and its rushed nature looks very suspicious, but i am no expert on that one.


      1. It’s a bad example, IMO Paul, because it’s not helping to clarify the discussion about privileges. It’s obvious that there is some disagreement and that is muddying your argument rather than clarifying it which is the entire point of an example.

        For starters, we still have no idea which particular industries you feel benefit from the NBN. It’s not clear who loses, given the NBN is meant to pay for itself via line rentals, and for each of those consumers, if they feel that the utility they receive is less than the line rental, they have other options for data and phone. Further a CBA is meant to answer one question:do we proceed, which happens if the benefits exceed the costs. The benefits side of that is the hard part – as an economist, is there any way of modelling the effects of a suite of technologies that haven’t yet been invented? What would be the magnitude of the error on such modelling?

        How about this for an idea – you can put a lower bound on the
        benefit by using the projected revenue of the NBN itself, as for every user the marginal utility benefit of access would exceed the cost of line rental (otherwise they wouldn’t use it).

        Anyway, it would make an excellent discussion for another post, but for now, it’s not helping your thesis on this one.

        Heres a question – can your privilege cloak exist outside of government too, for instance between large monopolies, or within industries with very few players? Two examples that spring to mind are media (for instance Gina Rinehart taking over Fairfax, presumably to allow her to influence public opinion in a particular group of voters, why else buy a newspaper these days?) and technological privileges, such as region encoded DVDs. In government we have at least some leverage, through FOI etc. Does this leverage exist elsewhere?


      2. Ben, the main thing you are after is a definition of privilege which is fair enough.
        I envisage privilege quite similarly to how I would envisage political rent-seeking: a privilege is a preferential economic treatment by the powers-that-be. In the current era this would thus mainly include laws favourable to the economic activities of a particular group or preferential access to government contracts and recurrent favours.

        Under this type of definition, the NBN would fall under preferential access of particular providers to contracts (where the alternative is not just providers of same network but also completely different services).

        Now, you might retort by saying that the NBN is a one-off, which is both not quite true if you look at it broadly enough (it is just another construction program), and would simply put it in the same basket as, say, another subsidy for medicines.

        The example of the NBN is hence quite apt for it represents a privilege of a different type to a granted legal monopoly.


        the links you provide are tangential at best. A bit akin to linking to websites on medicinal herbs when the question at hand is whether or not to build a hospital. I am glad I was shopping on Saturday morning.


      3. I understand the definition; Stephen King’s latest post about gas is a prime example, where locals are asking for favourable treatment at the expense of exporters. You could have used his example very well to elucidate your case. I just don’t understand your application of the NBN as a concept to it; and that confusion muddies your argument.

        “the NBN would fall under preferential access of particular providers to contracts (where the alternative is not just providers of same network but also completely different services”

        I must be eating the stupid pills again. I don’t understand this. Are you saying you feel that there was inadequate tendering process for the subcontracting process to build it? Who is the contract meant to be in in this example? Who, in your mind, is the privileged party? Who is paying a price with no corresponding gain in utility? These aren’t rhetorical questions. You haven’t communicated those things, and without it, I can’t make sense of how this example is meant to apply to your thesis.

        I also don’t understand how a subsidy in medicines is a one off.

        My only claim of ‘special case’ for fibre is as a very rare example of a near ultimate technology, where a winner can be picked, thus running against the rule of thumb where governments generally shouldn’t try, cos they’ll get it wrong.

        I’m very happy to call the NBN another construction project though, because it’s really just putting a bunch of long skinny bits of glass into the ground. It’s not magic, there’s not a lot of high tech there; that gets handled by the ISP at both ends, and will ultimately be pushed forward by market forces, as it should, because it’s easy for the ISP to drop a box in at both ends, and easy for the end user to change ISPs. I’ll also point out that every other construction project of this scale has been done or commissioned by government.

        And did you have an opinion of the ‘cloak’ existing outside of government? Just so we don’t get entirely hung up on your example?


      4. I like paul’s (other paul) response on part 1 too, pointing out that high speed access is a way of reducing the privilege of access to services that urban dwellers take for granted.


  7. On the medical specialists, well of course the barriers to entry are outrageous.

    But you exaggerate. You can get income data by profession from the ATO web site. For anaesthetists, mean taxable income in 2009-10 (the latest available) was $287540. So they are not exactly struggling, but it’s not investment banking either, and a long way from “close to a million a year”.


    1. Dug a bit more. gives the 2010 figures by various specialisms, arriving at a pre-tax figure for the average specialist of 316,570, considerably higher for men and those specialists working their own business rather than on a hospital salary. So whilst you are right that a million is not the average, not even if we include the ‘costs’ that would have to be counted if we go to revenue, the specialists working long hours in the more lucrative ones will indeed be making ‘easily close to a million’.


  8. With all due respect, I guess this ACADEMIC paper is what you are looking for:

    Broadband Infrastructure and Economic Growth

    “Perhaps it is even worthwhile thinking about some kind of ‘voting system’ whereby one gets public signals as to what the real experts think about this or that issue.”

    Do you think it is interesting for people to vote it out on EVERY single case of parliamentary debate? Come on, just move on with this issue …. It has been published for several years!


  9. Better be quick … Since you have put such a bold statement …. on your so-called “REAL EXPERT” claim.

    Lessons from broadband development in Canada, Japan, Korea and the United States

    Internet & Learning: A Decade of Transformation in Learning Practices

    The Economics of Internet Market


  10. Cities @ crossroads: digital technology and local democracy in America.

    Is Internet a Maturing Market? If So, What Does that Imply?

    A Conceptual Model of National Skills Formation for Knowledge-based Economic Development


  11. Geez …. I am not a fully-trained economist. I am not working in a research institution either. I have read those publications for awhile already …. and somemore I don’t have the broadband speed of yours …. I have waited for few hours …. and I haven’t gotten a response yet …. Geez …. Isn’t that 9.30 am Saturday morning …. You can’t be busy shopping in the market, can you?

    You still cannot see why you want to consider NBN?


    1. Yes, I have. But the market would be very thin and constrained to precise predictions on particular privileges. Not really what you want, which is information about who thinks how bad what privilege really is.
      In some cases though, one can use predictions to make real opinions visible. I for instance offered a bet to anyone that the world was going to increase the burning of CO2 and that Australia was not going to meet its Kyoto commitments via own reductions. No takers and that was a pretty clear message as to what was really going on.



    I struggle to understand that there is privilege in subsidies to private schools a la Stanley and Jenkins. The private school fees I pay are offset by about 10% in total from State and Federal grants. So I am paying for positions in the government school system that I do not use (and someone else can for free) and recover about 20% of those in an offset.
    Personally I am indifferent if it is removed as it is such a small amount (to save argument) but I suspect that if it is removed there will be people at the margin who will opt out and cost the taxpayer 500% more. It just sounds like a bit of class warfare with disinformation to me. Maybe Stanley and Jenkins would propose a voucher system?


    With regard to NBN the government is going to pay a $108 bounty to Retailers to sign customers up on top of the 40 billion or so that hasn’t been subject to a cost benefit. Apparently the uptake among the 12 or so already connected is so low (we apparently didn’ learn from Foxtel) the poor punter is going to be bombarded by doorknockers and telemarketers to sign up for something he/she doesn’t want or need even after he has paid for the privileged minority who want it and get it subsidised. Doesn’t anyone understand we don’t use computers that are “plugged in” anymore?


  13. As far as I’ve read, no-one has mentioned the implicit threat that medical practitioners carry.

    The public face(s) of any effort to remove the priviledge inherent in medical wages would have to live in constant terror of falling ill.


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