John Quiggin

Although the conversation here takes place under the banner of ‘creative capitalism’ there has been relatively little discussion of creativity in the ordinary sense of the term. Yet the relationship between creativity and capitalism has rarely been more complex and interesting than it is today.

The central technical innovation of the past twenty years or so has been the rise of the Internet, and particularly the various incarnations of the World Wide Web. Without the Internet and the Web it is unlikely that we would have seen any significant recovery from the productivity growth slowdown of the 1970s and 1980s.

Yet neither the Internet nor the Web was a product of the market economy, and even now the relationship between market incentives and the social contribution made by Internet-related activities is tenuous at best.

Both the Internet and the Web developed as non-commercial activities, outstripping or absorbing a variety of commercial competitors (Genie, Delphi, AOL and so on) before being opened up to commercial use in the mid-1990s. And even since large-scale commercial involvement began, most of the exciting innovation continues to come from noncommercial users (blogs and wikis, for example) or from non-commercial content producers (YouTube, Flickr and so on). By contrast, heavily funded commercial innovations such as push technology and portals have failed or declined into insignificance.

The dominant driver of the Internet economy is not profit-seeking innovation but individual and collective creativity. Creativity is, and always has been, driven by a wide range of motives, some altruistic and others, like the desire to display superior skill, rather less so. Trying to tie all of these motives to direct monetary rewards is futile and, if pushed too far, counterproductive (More on this from me and Dan Hunter here, with discussion here and here).

Of course, corporations still have a large role to play in the economy of the Internet. A company like Google, for example, provides services that cannot easily be replicated by users acting either individually or collectively. But Google depends crucially and directly on the content created by users and more generally on the goodwill of the Internet community.

If these assets were lost, Google would be vulnerable to displacement; Microsoft’s loss of its seemingly unassailable dominance of both personal computing and the Internet software market is an illustration. Google’s slogan ‘don’t be evil’ and its sensitivity to criticism, for example over its compliance with Chinese censorship laws, illustrates the point. Equally, so do the many products Google creates and gives away, with no obvious path to future profit.

So, more than in the past, it makes sense for corporations to cultivate diffuse goodwill, rather than focusing solely on profit, perhaps modified by the need to buy off powerful interests. In the context of an economy where creative collaboration is central, this can’t be done through a neat separation of targets and instruments, with a charitable PR-oriented effort bolted on to a profit-maximising corporation.

Extending all of this to the challenge of helping poor countries develop creates further challenges. Companies will need to do more than bring corporate expertise to bear on the problem. They will also need to mobilise contributions of skills and resources from outside the company. If such contributors are not to feel exploited and abused, the project can’t be directly tied to the goal of profit maximisation. All this may yet be a bridge too far.

Richard Posner recognises much of this but argues that corporate managers should instead adopt a hypocritical pose of general concern until they have secured a userbase large enough to be locked in, then exploit it to maximise profits. There are a several problems here. First, sincerity is not as easy to fake as all that, particularly in an organisation where you can’t let everyone in on the joke. Second, setting up a monopoly by stealth, then extracting the maximum rent is a trick that can be pulled off at most once. Finally, if the managers of a company are chosen to be capable of successfully conning the public in the interests of shareholders, why would anyone expect them to forgo the chance to enrich themselves at shareholders’ expense.

I’m planning a further post about the notion of ‘creative capitalism’, but before I get on to it, I thought it might be useful to clear up some of the confusion surrounding the alternative view, that managers have a ‘fiduciary obligation’ to act solely in the interests of shareholders, reflected in debate here, at Crooked Timber (including this great post by Dsquared) and at the Creative Capitalism blog.

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Bris Science next Monday, City Hall at 6:30 will be on a subject much debated here, “Wolf in a sheep’s labcoat: pseudoscience in the 20th century” by Mike McRae of CSIRO. I’m double-booked but I still hope to make it along.

The Centre for Policy Development is holding a debate between Janet Albrechtsen and Greens MP Lee Rhiannon on the subject of political donations (no donation required to attend). 13 August, 6pm, Customs House Sydney. RSVP here

According to all political commentators I’ve read, the Liberals have achieved a triumph in policy formulation on climate change, reverting to the policy they put at the last election, where climate change was a central issue. It’s a while ago now, but can anyone remember how that turned out for them?

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Since I’ve previously commented quite a few times about Starbucks, I thought I should note this news. It’s a pity for those who will lose their jobs in a softening labour market, but not really a surprise.

Update A letter in the Fin Review makes the point that Starbucks suffered in competition with Gloria Jeans (for non-Oz readers, a truly horrible food court coffee chain, closely associated with one of our less appealing churches), because GJ is a franchise operation, with most franchisees being small enough to avoid payroll tax, while Starbucks were company-owned and had to pay. If the coming tax review could get rid of payroll tax, it would be a huge boon.

The euphoric honeymoon period for the Rudd government may be behind us, but we still get regular reminders that we made the right choice as a nation last November. Today’s news includes two such reminders
* The end of the brutal policy of mandatory detention, introduced by the Hawke-Keating government and hardened repeatedly by the Howard government (notable participants who deserve continued obloquy include Philip Ruddock, Peter Reith and Amanda Vanstone)
* The intervention by Peter Garrett to protect remaining cassowary habitat near Mission Beach

The Opposition’s response on mandatory detention, as on almost every issue that has come up for debate since the election, is a reminder that they need a long spell out of government. On current performances, I’d say that they won’t be a credible alternative until everyone who held office under Howard has left the political scene.

As inflows to the Murray–Darling system continue at record lows, conflict over water is intensifying. The management of both Menindee Lakes in Western NSW and Lakes Alexandrina and Albert in SA has been subject to severe criticism. Currently two of the Menindee Lakes contain nearly 600 GL of water (under current rules, this keeps them under NSW control). South Australia is calling for a release of water to prevent severe damage to the lower Murray, including the SA lakes and the Coorong. But lobbyists for the NSW irrigation sector, like Jennifer Marohasy, are arguing that the barrages preventing sea water inflow to the SA lakes, (themselves a response to flow reductions caused by the initial development of irrigation upstream), should be removed.

There’s little value in assessing these competing claims in isolation. It’s becoming increasingly clear that the current leisurely schedule for achieving a sustainable allocation of water rights is untenable. The Australian government needs to act to bring allocations into line with sustainable levels, and accelerate the repurchase of water rights from irrigators.

As I mentioned a while back, Lovemore Matombo and Wellington Chibebe, the President and General Secretary of the Zimbabwe Congress of Trade Unions (ZCTU) are facing trial on 30 July on charges trumped up by the Mugabe regime. You can help the struggle to free them by making a statement at We are ZCTU and joining a letter writing campaign.

Check out the photomosaic of these two brave men, made up of 2000 individual photos.

It’s time, a bit late in the day, for Monday Message Board. Comment on any topic; civilised discussion and no coarse language please.

It’s time once again for weekend reflections, the longer version of Monday Message Board. Civilised discussion and no coarse language please.

After the contortions of the last few weeks, I think it’s pretty safe to draw the following conclusions
(i) The Liberal Party is all over the shop on climate change and is going to stay that way, at least as long as Brendan Nelson remains leader
(ii) Whatever legislative proposal the government comes up with, the Opposition will oppose it
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Having made the bold predictions, some time back, that neither the Nationals, nor the Liberals, would ever win another election in Queensland or nationally, I gave myself two bob each way by explaining that this was because a merger, or a completely new party, was a precondition for defeating Labor. Everything looked to be going swimmingly until last night, when the Liberals suddenly backed out of the merger they’d agreed with the Nationals. On the face of it, this didn’t look too good for my record as a political tipster (which had been improving a bit).

But the great thing about an each-way bet is that there is more than one way to win. Whatever happens now as regards the merger, the Libationals have made such a mess of things that it’s hard to see Labor losing here for another couple of terms, by which time the merger will presumably have happened. And what’s true in Queensland is almost certainly true nationally. Short of an econoic catastrophe, the next serious prospect for a Libational win is that provided by the lamentable NSW government, which is not due to face the voters until 2011, IIRC.

Update Thanks to a court order, the merger has gone ahead. Given these farcical events, my prediction looks like winning both ways. Not only have the Libs and Nats ceased to exist, but they still don’t look like a plausible alternative to Labor.

That’s the question being debated at the Creative Capitalism blog. I’ve made a small contribution on the idea, responding to the argument that the managers of companies have a fiduciary obligation to maximize profits. Joshua Gans has covered the same topic, and there’s lots more interesting stuff to read.

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This peace deal in Zimbabwe seems like good news, though it’s hard to be sure. I hope it is a way to bring the miserable Mugabe regime to an end without any further loss of life and general suffering. At the risk of contradicting views I expressed regarding the Sudan case, I’d welcome a deal where Mugabe lived out his remaining days in retirement, and his party handed over power to the democratically elected MDC.

The arrest in Serbia of Radovan Karadzic is great news for the world and for Serbia. For the many victims of the genocidal campaign undertaken by Karadzic’s regime in Bosnia, there’s the prospect of long-delayed justice. Of course, Karadzic is entitled to a fair trial, and a conviction is by no means certain, given the need to prove his personal responsibility, but at least the issues will be tried.

It’s excellent also as a signal that the new Serbian government is going to be part of the world, rather than persisting with the poisonous nationalism that has done so much damage (to ordinary Serbs as much as anyone).

Finally, for all those in governments around the world who even now are giving orders for torture and murder, it’s a reminder that no matter how strong their position might seem and how long they can evade justice, it will catch up with them in the end.

It’s time for MMB again. Civilised discussion and no coarse language please.

I haven’t had time for a really thorough reading of the government’s Green Paper on emissions trading, let alone a full-scale response. But I thought I’d put down a few points for discussion.

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It’s time, a little bit late for weekend reflections. Feel free to write at greater length than for a standard comment thread. As always, civilised discussion and no coarse language.

Over the fold my piece from yesterday’s Fin, a response to the argument that since Australia only contributes about 2 per cent of global CO2 emissions, there’s no real point in us doing anything. I’ve drawn on discussions here, so thanks to everyone who participated.

Although the article includes some allusions to the Green Paper, the deadlines involved meant that it was mostly written before the Green Paper was released, and it doesn’t deal with any of the details, on which more soon I hope.

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After a long period of deterioration, the shared server from which the blog is hosted has finally been repaired, fixing the cumulative depredations of spammers. At least for the moment, response seems to be rapid and free of 503 and similar errors. I’m looking into migration options to avoid a return to the problems that have plagued the blog intermittently for the last year or so, but this depends on getting a bit of free time. In the meantime, I’m just glad to be back on air.

That’s the claim made in today’s Oz, quoting the NT Council of Social Service president Barry Hansen. The NT gets very high levels of Commonwealth Grant funding on the basis of a needs-based formula which is heavily influenced by the large proportion of indigenous people, living in remote areas that are costly to service. According to Hansen, the funding is largely spent on providing services to the wealthy (mostly white) suburbs of Darwin.

Mr Hansen pointed to the latest Commonwealth Grants Commission State Finance Inquiry working paper that showed the commission had assessed the Northern Territory Government’s expected per capita expenditure on indigenous services to be close to $218 million in 2006-07. The working paper’s assessment showed that the Northern Territory Government, whose grants from the commonwealth are not tied to the spending areas for which it is allocated, only spent $110 million.

I haven’t studied the NT accounts in detail, and I’ve only visited a few times, but I must say this is consistent with my understanding.

As an illustration, it’s worth comparing the Parliament building for the NT (pop 217 000) with the building in which the Legislative Assembly for the ACT (pop 339 000) which received self-government about the same time . The NT assembly is an imposing building. I don’t have a cost figure, but obviously it would not have been cheap. The ACT assembly meets in a low-rise office building, at least 40 years old and refurbished 15 years ago. (pics to come) It’s hard to see how the NT could have afforded its building on the basis of the local tax base, assuming that any compensation for the high cost of remote services was spent where it should have been. And what’s true of the buildings is true more generally of the capitals. While the ACT, and particularly its city centre, has got noticeably shabbier since the end of direct Commonwealth control and funding, Darwin looks like a place that is getting plenty of public expenditure.

Of course, impressions can be wrong and bloggers like Ken Parish at Club Troppo are much better-informed on the NT than I am. So I’ll follow this story with interest.

It’s time once again for the Monday Message Board. Please post your thoughts on any topic. Civilised discussion and no coarse language, please.

Can anyone tell me where (in Brisbane, or delivered here) I can buy pate campagne? Feel free to provide recipes also, though most I’ve seen are look hard or too time-consuming for me.*

* Which reminds me of a variant on an old joke.
Q:What do economists make for dinner? A: Reservations.

It’s time once again for weekend reflections.Feel free to write at greater length than for a standard comment thread. As always, civilised discussion and no coarse language.

Nationalization, that is. In this piece on doomsday scenarios for Fannie Mae and Freddie Mac (H/T Calculated Risk) the cutely named and quasi-private mortgage packagers and guarantors, Katie Benner says

So what might it look like if the government had to lend a hand? Outright nationalization is an unlikely option given that neither the current administration nor the presidential candidates could afford to support such a move in an election year.

but goes on to imply that the likely alternatives could be far more costly, citing a Standard & Poors estimate of a trillion dollar cost to taxpayers, and possible loss of the US government’s AAA rating. Agency ratings aren’ t reliable indicators, but the US government has been in the category of issuers who are assumed to be exempt from scrutiny. A change in this status would be a huge problem for a big debtor like the US.

Either a bailout or a nationalization of Fannie and Freddie would make the Northern Rock fiasco in the UK pale into insignificance. The Northern Rock case shows that a policy towards financial enterprises in which both failure and nationalization are regarded as unthinkable cannot be sustained. The shareholders of these companies have been happy to accept the higher returns associated with an implicit government guarantee and they (the shareholders) should pay the price when the guarantee is needed.

After reading this piece on self-plagiarism in the Times Higher Ed Supplement, I couldn’t think of any better response than to reprint verbatim this piece from 2005 (now with a new improved 2008 publication date), including a self-link to a piece which is simultaneously self-referential and self-plagiarising.

It’s over the fold
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There have been quite a few important meetings lately including COAG, G8 and the Major Economies Meeting on Energy Security and Climate Change (MEM) in Japan, attended by Kevin Rudd. Anyone expecting substantial progress to come out of these particular meetings was surely disappointed. But to look on the bright side, if any of these meetings had been held even a year ago, the results would have represented a substantial breakthrough.

Starting with COAG, the obvious disappointment was the lack of any immediate response to the drastic problems facing the Murray-Darling system. While most of the policies are now pointing in the right direction, nothing will really happen until 2009. The decision not to increase the amount of water that could be traded out of a region from 4 per cent to 6 per cent (still a tight restriction) was symbolic of the process as a whole. That said, there is currently so little water in the system that no amount of reform is going to do much good in the short run. We have to hope for the best.

The Major Emitters Meeting produced fairly predictable statements by China and India that the developed countries had to do more. With the US still to make any firm commitment, we’re unlikely to see much advance on that before the Copenhagen meeting, with a new Administration, next year. Still, that was accompanied by an acceptance in principle of targets for reduced emissions. And at least in one respect, these countries are walking the walk. Fuel subsidies in Asia are being cut in response to increased costs associated with higher oil prices. That’s a pretty sharp contrast with proposals for new concessions coming from (among others), Clinton and McCain in the US and Nelson and Turnbull here.

Finally, although the G8 proposal for a 50 per cent in global emissions by 2050 was carefully hedged, it’s still good news. Although this wasn’t spelt out a 50 per cent in global emissions requires a much bigger cut in developed country emissions, so even a weak commitment now will make backsliding harder in Copenhagen.

Climate Code Red by David Spratt and Philip Sutton (more details here). This is a book that will doubtless be welcomed by those with a sceptical attitude towards the mainstream discussion represented by the IPCC, and makes many points that will be familiar from debates here – there’s more uncertainty in the IPCC models than is commonly recognised, important factors have been omitted, the intergovernmental process is subject to political constraints, emissions projections are problematic and so on. On a first reading, Spratt and Sutton make a pretty convincing case that the apparent scientific consensus position is well off the mark.

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Now that nearly everyone is agreed on the need for a market-based policy instrument to reduce CO2 emissions, the biggest unresolved question is whether to implement carbon taxes, tradeable emissions permits or some hybrid of the two.

I support tradeable permits, but I’ve never really spelt out my reasons for doing so. It’s important before doing this to observe that the differences between the two approaches are more limited than most of the discussion suggests. Both ensure the existence of a price for CO2 emissions and both can be set up to distribute the costs of emissions in a lot of different ways.

That said, tradeable permits have some significant advantages in my view.
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It’s time once again for the Monday Message Board. Please post your thoughts on any topic. Civilised discussion and no coarse language, please.