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Insights 12: 14 April 2022
NZ Herald: Michael Johnston on the demise of the University as an institution
Podcast: Understanding Ukraine with Alex Sundakov, former IMF representative to Ukraine
Newsroom: Eric Crampton explains why we should take in more Russians

Extortion is a poor business model
Dr Eric Crampton | Chief Economist |
For decades, newspapers’ business model was simple.

Classified ads paid most of the bills. Print ads paid much of the rest. Subscribers paid a bit, sometimes just for the sports section. A few news-hounds demanding in-depth journalism were cross-subsidised by everyone else, including newspaper owners who enjoyed the prestige.

That model is long gone. Classified ads fled online in the 2000s. Companies wanting to advertise have a broader and better targeted set of online options. And a small number of infovores willing to pay for rigorous journalism has a hard time covering the cost.

There have been many experiments in finding better models but the most unfortunate recent gambit is, at its heart, an extortion racket.

Australia’s News Media Bargaining Code can compel online platforms to bargain with new sites, under threat of final offer arbitration. Simply linking to a newspaper’s website can there lead to compelled payment. 

This week, the Commerce Commission granted preliminary authorisation for New Zealand’s media companies to launch their own collective bargaining efforts with online platforms.

But bargaining seems the wrong word when any negotiations will fall under the shadow of potential regulation or compulsion if the government does not like the results. Extortion may be more accurate.

The whole approach is misguided.

The web is built on links. Any website can link to any other website, can choose to set a subscription paywall, and can decide to block search engines from indexing their site.

Coercing payments for links breaks fundamental principles of the web.

Doing so when Sapere’s report for the Ministry of Culture and Heritage, released in February, concluded that “digital platforms provide considerable commercial benefits to news firms” is absurd.

No principle of public economics justifies taxing platforms like Google and Facebook to subsidise news.

If you think that web platforms are undertaxed, support multilateral efforts around tidying tax on multinationals – but you may find that plenty of tax is already being paid.

If you think that good journalism deserves better funding, contribute to it and encourage others to do likewise. If that isn’t enough to support the public goods provided by rigorous journalism, look at measures like the public interest journalism fund.

But extorting web platforms to pay for journalism is worse than taxing hipsters’ beard oil to fund tīeke recovery. It breaks principles of good tax policy and foundational principles of the web.

Viable business models should not rely on extortion.

FPA bonanza for unions and lawyers
Roger Partridge | Chairman |
Is a van driver who delivers shopping ordered online a member of the transport industry or the retail industry? Either way, why would you want to know?

Well, you would if you were a driver – or a retailer – in Australia. That is because, under Australia’s so-called modern awards system, occupation-wide awards set rates of pay that apply to everyone employed in that occupation. The terms set by some awards are more generous than others. Consequently, working out which award covers which worker matters.

The Employment Contracts Act abolished New Zealand’s system of industrial awards in 1991. Since then, businesses on this side of the Tasman have been spared complex demarcation disputes that still plague industrial relations in Australia.

But the Government’s Fair Pay Agreement Bill, which passed its first reading in Parliament last week, will mark the return of a straight-jacketed approach to setting wages and salaries. The only winners will be the unions, who will be paid by taxpayers to play centre-stage in wage bargaining – and the lawyers.

In Australia, the question about the van driver involved a long-running legal saga. The case was brought by the Transport Workers’ Union. It centred on whether Coles Group, the supermarket chain, had underpaid two online-shopping delivery drivers. Both were members of the TWU. Both had been employed following Coles' shift in work practices from a third-party delivery model using contractors to a more customer-focussed in-house regime.

The TWU argued the drivers were covered by the road transport award. Coles argued the drivers were retail workers and covered by the retail award. The distinction was significant because the two awards have different shift structures, penalty rates and break requirements.

The case was first heard by a full bench of Australia’s Fair Work Commission. On appeal, the Federal Court ruled delivery drivers for the supermarket’s online business were correctly employed under the retail award, rather than the transport award.

The court found the drivers were “the modern incarnation of the home delivery service provided by milkmen, butchers, bakers and grocers in years past.”

This aspect of the judgment might recall a golden age of personal service by bicycle deliveries from the local grocer. But the case will cause a shudder to those whose memories of New Zealand’s industrial relations extend back to the 1970s and 80s.

The Initiative’s research suggests Fair Pay Agreements will be bad for just about everyone other than unions and employment lawyers. With the Fair Pay Agreement Bill now before Parliament, both will be rubbing their hands with glee.

Gotcha, Albanese
Dr Oliver Hartwich | Executive Director |
Five hundred and twenty-five days. This is how long the Reserve Bank of Australia had kept its interest rate steady when Australian opposition leader Anthony Albanese was asked about it by a journalist on the campaign trail.

Albanese, who wants to become Prime Minister in the election on 21 May, did not know the Official Cash Rate. It stands at 0.1 percent – the lowest level in Australian history.

To make it worse, Albanese did not know Australia’s unemployment rate either.

“The national unemployment rate at the moment is, I think it is 5 point ... 4, sorry, I am not sure what it is,” Albanese said, which was close enough since it is precisely 4.0 percent.

For the Australian Labor Party Leader, it was a nightmarish start to his election campaign.

But it was also an interesting variation on an old ‘gotcha journalism’ theme. Ask any politician a question about something they ought to know but do not, just to show how unsuitable they are for the job.

The usual method is to ask about the price of milk, cheese or bread. It has happened to politicians since time immemorial. Failing to answer correctly immediately reveals that they are out of touch with ‘ordinary’ voters.

What is novel about the Albanese ambush was that it was a question about key economic facts. Because, let’s face it, most ordinary voters would not know the OCR or the unemployment rate, either.

Perhaps that is a good sign.

Instead of grilling would-be Prime Ministers on the price of groceries that they are unlikely to buy for themselves anyway, let’s test them on matters they would deal with in office.

For example, in Australia’s case, do not quiz candidates about the price of a dozen free-range eggs (about A$4.10). Ask how many nuclear submarines Australia will buy (eight) and at what price tag (at least $A70 billion).

Do not check what the cheapest Samsung S22 smartphone costs in Australia (A$1299). Ask why it is only A$1,076 in the United States.

Or ask why the average Australian needs to work 25 percent longer to buy that phone compared to the average American. And then ask what could close that gap.

And, to trip candidates up completely, make them explain the difference between multifactor productivity and total factor productivity (there is none).

At the end of that interview, most politicians would need a beer. They probably would not know the price of that, either.

On The Record

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