What do Woolworths, Spotify, Facebook and Australian radio stations have in common?
And other things I've been thinking about.
I know, it’s been a while. I am remaining more than true to my promise to never send you more than one of these a week.
Anyway, Woolworths, Spotify, Facebook and radio stations. They’re platforms. And the power of platforms is almost unassailable.
Platforms use their power first against their providers, and often later against their users.
Our institutions aren’t well set up to deal with them. The Australian Competition & Consumer Commission isn’t called the Australian Competition & Consumer & Provider Commission. We prioritise getting good prices for consumers over getting good prices for suppliers.
This is probably because of how we are taught economics, or at least because of how my cohort was taught economics. That teaching is/was that what stuffs up the perfect outcomes that would have come from perfect competition is suppliers behaving as one, either in a monopoly or oligopoly or by conspiring.
Adam Smith was on to it.
People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.
But note that Smith’s concern was a conspiracy to raise prices, rather than a conspiracy to avoid paying suppliers. But, if you are a platform, such as Woolworths, Coles, Spotify or Facebook, using your position to screw suppliers makes just as much sense as using it to raise prices – in fact, it makes sense to screw suppliers first.
Monopsony can be as bad as monopoly.
I’ve linked to my friend Rebecca Giblin’s book Chokepoint Capitalism before.
She says what platforms can do very, very nicely by screwing suppliers, becoming so cheap they attract all the users, and building up their power to screw suppliers further as they become the dominant method of distribution.
I’ve written about how Wotif and other hotel booking sites do it, Facebook has unveiled plans to do it by not paying at all for the news links it carries (backed by the threat of carrying none) and Woolworths and Coles are under fire at Senate hearings for their behaviour towards farmers.
And now radio stations are under fire for doing it, as they should be.
There’s a bill before the Senate that aims to give some of their suppliers (record companies and musicians) a chance to get more properly paid for what they do.
Right now, legislation limits what radio stations can be made to pay the record companies and musicians, either via negotiation or through a decision of an arbitrator.
It can’t be any more than 1% of the station’s gross revenue, and for ABC stations, a mere one-half of one cent per Australian resident per year.
If you are a music station, that means you can’t ever be made to pay more than 1% of your gross revenue for every single piece of music you play added together – you can’t be made to pay more than 1% of your revenue for perhaps your most important input.
The limits were introduced in 1968 to curry favour with media proprietors.
But… and this is the history my column in the Conversation referred to… the limits also reflected reality. The record companies really, really need exposure on the radio.
They deny it.
In Senate hearings, Annabelle Herd, head of the record company collecting society taunted the radio industry, saying it couldn’t get by without the record companies:
Even if the radio networks stopped playing all Australian music, they would still have to pay to play UK music, Canadian music and music from pretty much every other country in the world.
She mightn’t have been aware of the history.
In 1970 that’s exactly what happened. In response to what it felt was an over-large demand from the Phonographic Performance Company, the commercial radio industry said no, and refused to play any of its music.
Instead, it played records from independent Australian labels who didn’t charge and got their records pressed in Singapore, and American music, lots of it.
While the industry couldn’t play music from the UK, Canada and a bunch of other countries that were signatories to the relevant copyright treaty, it could play music from the United States, which didn’t charge, and hadn’t signed the treaty.
Five months later, the record companies caved. The only thing the radio industry offered it was a guaranteed number of advertisements per week, which had been the radio industry’s point all along. The record companies needed radio play for exposure. Without it, people were unlikely to buy their discs.
I lived through the record ban of 1970. It was an exciting time for brinkmanship.
When it came to the crunch, people liked (and bought) whatever they heard on the radio. If they could no longer hear the Beatles, they bought the things they did hear.
Philip O’Brien wrote a magnificent account of that time for The Canberra Times.
The power imbalance isn’t fair, but it’s real, and when you look at the power of platforms, you see it all over the place.
What is it with this myth of the “independent Reserve Bank”? It isn’t, although Treasurer Jim Chalmers and the RBA Review he commissioned would like it to be.
As I wrote last November
As an instance of self-loathing, it’s hard to top.
Sure, a good many of us don’t trust politicians. But surely politicians ought to trust politicians. Surely politicians ought to realise that we put them there to make decisions – not usually the day-to-day decisions, but the ultimate big decisions. They are meant to be where the buck stops.
The government set up the Reserve Bank. The government appoints every member of its board. The government directly appoints its chief and deputy chief. And from time to time the government gives it running instructions.
But – most importantly – the government can overrule it.
The mechanism is built into the Reserve Bank Act.
In the event of a disagreement, the treasurer can
submit a recommendation to the governor-general, and the governor-general, acting with the advice of the Federal Executive Council, may, by order, determine the policy to be adopted by the bank.
Never put to the test, the power was inserted into what became the Reserve Bank Act because of a time, back in 1930, in the early years of the Great Depression, when the Bank refused to finance much-needed public works.
Since I wrote late last year, all manner of people with real-world experience of the bank have backed keeping the government’s ultimate power to overrule the bank.
Michale Read wrote in the Australian Financial Review:
The proposal appeared almost friendless after a Senate hearing on Thursday heard objections to the policy from former treasurer Peter Costello, former RBA governors Ian Macfarlane and Bernie Fraser, as well as academics and think tanks. It is also opposed by the Greens and several Liberal backbenchers.
Bernie Fraser saw the veto as a valuable “safety valve”. He said:
“Simply dumping section 11 would do nothing to enhance the bank’s independence. Rather, the likelihood is that, sooner or later, the vacuum would be filled with alternative processes aimed at clipping the bank’s independence.”
I prepared this primer in March, ahead of what looked as it if might have been a negative quarter of GDP growth in December quarter.
The idea that two consecutive quarters of negative growth (two consecutive quarters in which GDP contracts) makes an “official” or “technical” recession appears to date back to a 1974 New York Times article, written by a US business cycle expert Julius Shiskin.
He said two quarters of shrinking economic activity was one of the criteria you could use to decide whether or not an economy was in recession.
His pronouncement was subsequently latched on to by journalists all over the world, who made it the definition because it was simple.
But it has led to nonsensical conclusions. Like subatomic particles that appear and disappear all the time, Australian “recessions” have appeared and disappeared surprisingly often.
Three decades ago, after the release of the September 1990 national accounts on November 29, Treasurer Paul Keating declared they showed Australia in recession.
Keating famously added, “the most important thing is this is the recession that Australia had to have”.
Those words live on, but the so-called “recession” didn’t. It vanished soon after. The ABS revises the national accounts each time new information comes in.
Its revisions moved Australia’s early 1990s recession to the middle of 1991.
A “recession” even briefly appeared after revisions to the 2000 national accounts, under Prime Minister John Howard and Treasurer Peter Costello. Then it disappeared, after further revisions.
So what best indicates whether we are really in a recession?
Saul Eslake says a good definition is when the unemployment rate rises by 1.5 percentage points or more in 12 months or less. He says that rule of thumb correctly identifies every episode that common sense would regard as a recession in the past 60 years – without giving any false positives.
I focused on real household disposable income per capita. In my view, and in Chris Richardson’s view, it’s the best measure for the purpose in the national accounts.
Unfortunately, the Bureau of Statistics doesn’t display it with the national accounts. But it’s easy enough to calculate from the spreadsheets.
It’s the income accruing to households, adjusted for the prices paid by households, and net of taxes paid and net interest payments, most of which are mortgage payments.
The adjusted for the prices paid by households bit is important, because the gross domestic product itself is adjusted for a different set of prices, ones we don’t experience.
When iron ore sales prices and sales are high, the extra iron ore income gets adjusted down quite a lot (because the iron ore price has gone up quite a lot) even if the prices paid by households haven’t much changed At these times, especially during the early 2000s, GDP growth way underplayed how much better things were getting for households.
In the past two years, when the prices paid by households climbed a lot and the price of Australia’s biggest export has climbed less, GDP growth has underplayed how bad things were for households.
Here are the relevant graphs, updated from the piece John Hawkins and I published in The Conversation.
In the December quarter, GDP growth was tiny, but not negative.
But, what with all the population growth, GDP growth per capita was clearly negative for the third successive quarter – a “per capita recession”!
And real household disposable income per capita (as calculated by me) bounced back somewhat in the December quarter after being negative for most of the past two years.
The bounce is probably because the tax take eased off in the December quarter after being pushed very high in the September quarter when the Low Income Tax Offset vanished.
Adelaide’s top 300 singles 1961 to 1970
Back to the 1970 record ban:
With neither party willing to concede, after months of uncertainty reported in the press, the Ban officially took effect from midnight 15 May 1970, though Go-Set suggested several protesting Sydney radio stations had already commenced removing the major labels’ releases in mid-April. Some stations marked the Ban as the end of an era, with 5AD in Adelaide playing the top 300 records of the 1960s from 300 to 1 and back again the week before restrictions began.
Here’s that 5AD Top 300 chart, 1961-1970, courtesy of the National Film and Sound Archive, and the Australian Radio Network. 5AD is now Adelaide’s Mix 102.3 (or arguably Cruise 1323) .
The number 1, 2, 3 and 4 singles had been by the Beatles. After May 16, the Beatles weren’t played, and radio remained as popular as ever.
Keep reading The Conversation (I edit the pieces on economics) and for that matter keep reading Inside Story, John Menadue’s Blog, and Post, a free 7am weekday email from The Saturday Paper.
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There’s an awful lot happening at the moment. The budget awaits.