Economists have long known that business monopolies and the corrupt abuse of political power are inseparable twins. Therefore, it is not surprising that Australia ‘s wheat export monopoly now stands accused of illegal kickbacks to Saddam Hussein’s abominable regime. Neither is it surprising that the abuses were not uncovered by political and commercial supervisors, but by international competitors. US and Canadian wheat exporters were probably a little less unscrupulous or more circumspect in avoiding the corruptive influence of this dictatorship.
One major reason why economists have always opposed monopolies is that monopolies reap unchallenged economic profits, which are then transformed into political influence. This, in turn, perpetuates and strengthens the monopoly powers. Thus, the East India Company obtained a licence from Queen Elizabeth I, which enabled it to share its huge profits with the Crown.
Since then, we have learnt that such arrangements amount to a gross injustice and are economically inefficient and bear high political risks for those who create and nurture monopolies. They hinder open competition and innovation, and often produce political disasters.
The great writers who created modern economics, foremost Adam Smith, castigated government licensing and regulation, because in their day they observed the abuses of political power. The early socialists, too, fulminated against monopoly capitalism, because they saw how government licences led to lobbying and the diminution of the life opportunities of the poor. We now have powerful empirical evidence that government-imposed limitations of individual economic freedom go along with corruption.
In a dynamically evolving world, more government regulation creates business and union privileges, which in turn produce profits invested in lobbying and kickbacks. When regulatory density is reduced by economic reform, producers have to compete and perform, and fewer opportunities arise for politicians and bureaucrats to ask for facilitation payments, political donations and outright bribes.
Nothing seems to keep producers more honest than the eagle eyes of the competition and the need to perform in the competitive game. Non-economists often fail to see matters in this light. They believe in stricter legislation, commissions of inquiry, administrative and judicial supervision and the like.
It is no coincidence that the culture with the longest standing in political regulation of commerce and industry, China , developed an independent Censorate
(a Mandarin version of ICAC) as a separate arm of government.
In a recent public address, NSW Chief Justice Jim Spigelman came close to advocating the creation of a distinct “integrity branch” as a fourth arm of government, given the ever-present blight of corruption. However, the Romans had already come up with the sceptical question about this idea: “Quis custodiat ipsos custodes? – Who oversees the watchdogs?” Anti-corruption watchdogs all too often become more corrupt than those whom they are to censure.
Without wanting to dismiss the need for strong administrative and judiciary controls of corruption, such as the Volcker commission into the UN oil-for-food scandal and the current AWB inquiry, I would argue that such devices are only symptom cures. The real cure of the causes for the abuse of political power is always less government intervention in what free citizens do and more open, transparent competition.
Australia has made great strides in deregulation and therefore improved its international corruption ratings. But the rural socialists and others have fought tooth and nail for retaining exemptions, such as the single-desk monopoly for wheat exports.
They created a politicised, over-staffed monopoly agency that fell prey to the temptations of doing business in the corrupted, politicised atmosphere of Middle Eastern trade. They wasted much political capital in negotiating the Australian-US free trade agreement – on the misguided notion that this would advantage farmers.
Now, our good reputation is harmed, politicians who shielded the monopoly are under serious suspicion and future export opportunities are weakened. Indeed, one feels compelled to ask just why so much political effort has been put and continues to be put into upholding Australia ‘s single desk for wheat exports.
The lesson is to trade wheat competitively. Metal or wine exporters benefit from competing agents. Let us allow all farmers to sell whatever they see fit to produce, through whatever trading channels benefit them most.
Wolfgang Kasper is an emeritus professor of economics at the University of NSW and a senior fellow at The Centre for Independent Studies. He is the author of ‘Make Poverty History: Tackle Corruption’, CIS, 2006.