It’s hard to imagine that too many economists in Australia will receive Christmas cards from book publishers this year. A long campaign of lobbying, culminating with the recent Harper review into competition policy, has resulted in the Commonwealth government deciding to remove restrictions on the parallel importation of books.

To most economists this is a long-overdue reform that will increase efficiency. A group of ten prominent Australian economists today signed an open letter calling on the federal parliament to follow through on lifting the restrictions.

To Australian book publishers, and some noteworthy authors, it is an act of public vandalism, threatening the future viability of their industry.

As an economist who loves reading books, I’ve always taken a keen interest in the debate over parallel import restrictions. And I’ve always thought that there was a fairly straightforward solution – which I am going to describe and argue for in this article.

Why Australian book publishing needs support

It is easy to make the argument that books by Australian authors make a big contribution to our lives. By having an Australian outlook or content, they don’t just provide entertainment or learning, they do it in a way that has a particular interest and relevance to us.

But just because something is good doesn’t mean it needs government support. An economist starts from the position that if a product is good, plenty of people will buy it, which gives an appropriate return to its supplier. Only if the market is failing to deliver a return to the supplier that reflects the full benefit to society from the product, do economists believe that the government might need to intervene.

In the case of Australian books, I believe that such an argument does exist. Here I give two reasons why the market may not get it right – and why government support may therefore be needed.

First, the knowledge about Australian public affairs that is contained in books, and the expertise that authors develop by writing those books, allows for a more informed and productive public discourse on government policy making. This is not a benefit that anyone pays for when they buy a book – but it is a benefit to Australian society all the same.

In my own area of economics, recent books by Ross Garnaut and John Edwards on the coming decade in the Australian economy, and historical perspectives by Ian McLean and George Megalogenis, have all been important source materials for debate on what policy makers should be doing.

Second, much of our thinking about Australian identity and values is formed through the perspectives and stories that are expressed in books – whether it be novels or history or biography.

There is no single book that does this. Rather, it is the putting together of the whole of what is being written about and by Australians that enables us to do this thinking. This is a collective benefit from having an Australian book industry – and as such will always be undervalued in the market.

Why parallel import restrictions should be removed

Parallel import restrictions provide the original publisher of a book with the exclusive right to bring that book into Australia for commercial purposes. This allows publishers to treat Australia as a separate market from the rest of the world, and increases their market power compared to book buyers in this country.

The result is that (due to the smaller scale of market and our high average income level) publishers charge higher prices for books in Australia than in most other countries. This addition to book prices in Australia is a cost borne by book buyers. Publishers argue it is a necessary cost to ensure there is a strong local publishing industry.

But there is a problem with this argument. The parallel import restrictions mean that we pay more for every book we buy, not just Australian titles. Suppose that 20% of the volume of book sales in Australia is by Australian authors.

This implies that (roughly speaking) for every A$200 extra we pay in prices for books that goes to Australian authors and their publishers, we are also providing A$800 extra to international authors.

In other words, parallel import restrictions are poorly targeted, and hence an expensive way for Australian consumers to support the local publishing industry.

A better policy

If our objective is to give extra funding to Australian authors and their publishers, why not do this via subsidies or direct payments to them? With such a policy it would be possible to provide the same level of support to the Australian book industry as it receives from parallel import restrictions, but without supporting international authors and their publishers.

Of course, subsidies and payments to the book industry already happen through bodies such as the Australian Council. What I am suggesting is that there should be an increase in the extent of this funding of the book industry to compensate for the removal of parallel import restrictions.

It should be possible to work out the current value that the Australian book industry derives from the import restrictions, and when the restrictions are removed, to increase the amount of funding to the industry by that amount.

That would leave the Australian book industry just as well off as before the removal of parallel import restrictions, and Australian book buyers would be better off as a result of lower prices.

Heading in the wrong direction

The Commonwealth government has announced that it will implement the Harper committee recommendation to remove parallel import restrictions for books. Unfortunately, at the same time, it is removing funding to the Australian book industry.

Instead of increasing funding to compensate for the removal of parallel import restrictions, this week another round of cuts (including the abolition of the Book Council of Australia) was announced.

There can be no doubt of the outcome from this policy mix. Removing import restrictions together with decreasing government funding will unambiguously reduce the size of the Australian book industry; and with that we will lose the many associated benefits to Australian society.