The ABC: from correcting market failure to causing it

Rupert has endured the humblest day of his life, the News of the World has published its last edition and the government in Australia is toying with the idea of an inquiry into the media.

The tender process for the contract to operate the Australia Network, currently held by the ABC, has been pulled and the final decision has been transferred from the Foreign Minister to the Minister for Communications. The rumour is that the decision had been three to one in favour of Sky News Australia being awarded the 10 year contract.

But due to "changed international circumstances" – what, because international circumstances never change? – there has been a change of heart. It's now a shoo-in that the contract will be awarded to the ABC.

The Friends of the ABC will no doubt be delighted, although they were absolutely aghast at the prospect of the Australia Network being taken over by those purveyors of hate-media, the Murdoch empire. The fact that News Corporation is only a minority shareholder in Sky News Australia is neither here nor there.

For the ABC to be awarded the contract will be completely consistent with the ABC Managing Director's view that the (independent) ABC should be an arm of government peddling 'soft diplomacy'. In this way, the ABC can help to "co-opt people rather than coerce them" and to use the media to put "our nation's culture, values and policies on show".

So have we reached the salad days the ABC has always dreamt of? A generous 10 year contract, capable of being executed at essentially marginal cost – those repeats of Mother and Son must go down a treat in Asia – and on-going, generous triennial funding from the taxpayers of Australia – how good does it get?

In my view, it's as good as it's likely to get. (Yes, I can hear the booing and hissing.) As new technologies emerge, the original case for a taxpayer funded national broadcaster becomes ever weaker. As eminent economist, Professor Stephen King, has noted,

the internet [gives us] access to news content from thousands of sources around the world, taking every possible perspective. Many of these sources are as good or better than the ABC. We do not need public broadcasters to get quality news.

But what about those survey results – an example released recently by Essential Media Communications – which tell us that people have much more trust in the ABC news and current affairs than other outlets? Surely, this makes the case for the ABC? The strange thing about these results is that the Australian population is much more inclined to rely on these other outlets for their news and current affairs than the ABC – just check out the ratings of the news services of the commercial television stations compared with the earnest nightly ABC news service.

Threatened by questions from nasty economists – they are OK when talking about support for a carbon tax, but not otherwise – the current Managing Director of the ABC has taken to using their language to explain that the ABC is correcting market failure. To strengthen the point, he even argues that "the areas of market failure are getting greater" (my emphasis). And the ABC is making a contribution to correcting these market failures by producing "quality Australian content, particularly Australian drama (Crownies?), and quality news and current affairs, because it is very hard to make investment and returns."

What Scott does not seem to understand is that the economic rationale for intervention based on market failure is actually much more nuanced. There is a distinct possibility that market failure is to be preferred over government failure, particularly given the scope for markets to correct compared with government errors, which tend to persist. And under-provision per se is not the issue, but the fact that the social benefits of provision potentially outweigh the private benefits. It is necessary to outline these social benefits and to quantify them before a case for taxpayer funding can be endorsed.

The fact is that spending some one billion dollars annually on the ABC involves deadweight costs of collecting the revenue, as well as foregoing spending on potentially more worthy purposes. How does one value an extra five thousand dollars spent on the ABC relative to replacing the hip of a pensioner in chronic pain? This trade-off is always difficult to make. But advocates of high and (possibly) increased spending on the ABC need to realise that there are no free lunches out there.