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.

This is where the argument gets trickier. References can be made to the provision of quality and pluralistic journalism; to fostering a sense of national identity; to promoting 'soft diplomacy' (noted above); to educating the public; and to assisting with emergency relief efforts. Underwriting innovation and training can be added to the mix. The trouble with this reasoning is that it is all very amorphous - there is no reason why private provided broadcasting (and online) services cannot make similar contributions, although there is a distinct possibility, given the generosity of taxpayer funding of the ABC, that many of these services are crowded out.

In truth, the areas of market failure are shrinking and the rationale for a large, taxpayer-funded public broadcasting organisation like the ABC is shrinking at the same rate. We now have pay-TV, with the Sky News channel predating ABC News 24 by many years. This raises the tricky issue of the justification for The Drum website on which I write. Getting outsiders to write opinionated drivel is one thing – a waste of some money but not much else – but to allow public policy commentary by the ABC's preeminent and supposedly impartial journalists – the ones that quiz our political leaders on an almost daily basis – is another thing altogether.

Now we can find out what Fran thinks about the NBN (she's in favour) or what Barrie thinks about Tony Abbott's recent performance (not good). So when these journalists interview our politicians, we can cross-reference their views on the topics being discussed. How does this square with any definition of impartial and unbiased journalism to which the taxpayer is forced to commit funds?

So here is the rub: the market failure case for funding the ABC is disappearing. In fact, the recent expansive nature of the ABC – all those television stations, radio stations and online offerings – is actually squeezing activity that would otherwise be undertaken by the private sector. From partly correcting market failure, the ABC is now causing it. We are now dealing with a case of unfair competition and wasted taxpayer funds. Were it not for the ABC, there would be much greater private provision of quality, serious and genuinely pluralistic journalism which appeals to the university-educated cohort of the population.

The ABC now needs to take a leaf out of the BBC's book and to wind back its areas of activities. In response to budgetary cuts and a freeze on licence fees, the BBC is shrinking. The BBC World Service is significantly refocusing its areas of interest and cutting its staff by 25 per cent, BBC Online is also narrowing its offerings and cutting its workforce and there are significant job cuts in the BBC itself. Some staff members are being relocated out of London to Salford.

Also following the BBC example, some serious analysis of political bias in the presentation of material by the ABC is in order. An internal report commissioned by the BBC in 2007 found evidence of pervasive liberal bias within the broadcaster, describing the eschewal of Euroscepticism and immigration as examples of topics that were perceived to be "off- limits in terms of a liberal-minded comfort zone." Indeed, writing in The New Statesman last year, the Director-General of the BBC conceded that the organisation had been guilty of "massive bias to the left".

In this new media age and in these straitened fiscal times, the case for the continuation of the ABC in its current form is very weak. The fact that many members of the public enjoy the output of the ABC and trust the veracity of its news and current affairs reportage are really neither here nor there. Many people would enjoy free wine; this does not constitute a case for taxpayer funding of wine.

The future involves a redrafted Charter, a narrower focus on areas which will always be under-provided by the private sector and significantly reduced taxpayer funding.