The irredeemable in pursuit of the insatiable

An information age for spin doctors and conmen

Commentators on the royal commission have been shocked, shocked that AMP sought amendments to Ernst and Young's reports. But what else would you expect? We might be taken aback by the frequency, regularity and flagrancy of AMP's entreaties. But who really believes that firms aren't heavily invested in getting what they want from those they hire to perform "independent" analysis? This applies to auditing, which should be a truly fundamental public good, its purpose being to ensure that the connections between the different parts of our immensely complex economy are based on financial reality.

The constraint that stops auditors spinning any old pack of lies - the way those advertising patent medicines did in the nineteenth century - is that auditors wanting to remain in business must conform to professional standards. But that leaves plenty of wiggle room, and so increasing effort and resources go into "stretching the envelope," to use a tellingly recent expression.

This is just one small example of how an information supply chain gets subtly perverted. Within governments, the same thing happens endlessly. We've set it up that way. All manner of "impact analyses," from regulatory to environmental, are performed or commissioned by the very agencies whose impact is under review. Auditors are chosen by the firms they audit the world over, and the Australian approach of having agencies complete "regulatory impact analyses" in defence of the regulations they are promoting is offered as typifying best practice within the OECD.

Even this is the tip of a very large iceberg. Far more shockingly than AMP's clumsy mishandling of the optics of "independence," the utterly corrupted markets for information in nineteenth-century patent medicine markets have been replaced by much subtler corruption that steadily worsens as traditional professional standards give way to the intensifying pursuit of revenue and other institutional imperatives. Driven by various factors, not least academics' and learned journals' competition to "publish or perish" and their resulting lack of interest in "null" results and replication, published results are full of bogus findings. As they say in the trade, "if you torture the data enough, it will confess."

Scholars recently found that only 11 per cent of pre-clinical cancer studies could be replicated. John Ioannidis, a leading scholar in the field, came to this devastating conclusion: "Overall, not only are most research findings false, but, furthermore, most of the true findings are not useful." Incredibly, the process by which research then feeds into the proving up of drugs for human use is likewise tangled in similar conflicts. Researchers' funding depends on the favour of drug companies and widespread suppression of "unsuccessful trials."

Once drugs are on the market, their marketing is further compromised by conflicts of interest. And so the dominant treatments for vexing and chronic conditions, from anxiety and depression to the short attention span of children, are marginally efficacious drugs while less easily privatised and possibly more efficacious social cures go largely unfunded and unexplored. This is worst in the United States, which tolerates more advertising and more aggressive drug marketing than other developed countries. One result is the opioid epidemic, which has now given the United States the extraordinary distinction of being the first country since records were kept ever to experience peacetime falls in life expectancy for large socially mainstream demographic groups.

Gary Banks's list suggested removing restrictions on the ownership of pharmacies, but made no mention of any of this.

Microeconomic reform for the information age

These issues concern the arteries of our information economy. Yet, compared with the set-piece reform talking points driven by business - the state of the budget, over-regulation, restrictive workplace practices and tax - and the obligatory warnings against backsliding on trade protection, they're largely absent in our reform conversation. They're nowhere to be found in the endless op-eds and "summits," where the tall poppies of the Lucky Country bemoan declining productivity growth, and canvass the favours that might be done them while they lament the pervasive lack of leadership.

If we're to rise to the challenge, we'll have to ditch all the barracking for "free markets" or "intervention." When markets work, they do so miraculously by harnessing the information distributed throughout society. Yet they also corrupt information flows wherever one side has better information than another - say, about the shoddy product they're selling. So solutions to these problems must be pragmatic hybrids of competition and collaboration - accessing and leveraging local knowledge while minimising conflicts of interest throughout the production chain.

Around the Western world "information policy" is mostly stuck in early prototype. Thus, governments issue crude edicts with little care for their effectiveness. In finance, for instance, mandated product disclosure statements for investments cost the economy billions annually, but go virtually unread. Meanwhile, as the scandals about financial "advice" surge from time to time, new regulation is developed. But it always resembles a PR makeover rather than serious policy action. Some corrupt limbs are jettisoned so the rotten body - the corrupt business model - can live on.

Both investment "advisers" and mortgage brokers are now subject to extensive and costly regulation, including the usual mandatory disclosure of commission payments. But it's all built around the existing model and its fundamental deception - that they're "advisers." Regulation now requires practitioners to provide formal written "advice" to their clients - generally adapted from master scripts spewed forth from software marketed to the industry as "sales technology." Salespeople still play their well-rehearsed role as their clients' fiduciaries (though most still lack even a university degree) but now as government-approved professionals.