Investment

'Corporate Investment and Stock Market Listing: A Puzzle?' by John Asker, Joan Farre-Mensa and Alexander Ljungqvist reports

sizeable and surprising differences in investment behavior between stock market listed and privately held firms in the U.S. using a rich new data source on private firms. Listed firms invest substantially less and are less responsive to changes in investment opportunities compared to matched private firms, even during the recent financial crisis. Ex ante differences between public and private firms such as lifecycle differences at most explain a third of the difference in investment behavior. The remainder appears most consistent with a propensity for public firms to suffer greater agency costs. In particular, evidence showing that investment behavior diverges most strongly in industries in which stock prices are particularly sensitive to current earnings news suggests public firms may suffer from managerial myopia. 

The authors comment that

 This paper compares the investment behavior of stock market listed (or ‘public’) firms to that of comparable privately held firms, using a novel panel dataset of private U.S. firms covering more than 400,000 firm-years over the period 2001-2011. Almost everything we know about investment at the micro level is based on evidence from public firms, which number only a few thousand, yet private firms form a substantial part of the U.S. economy. We estimate that in 2010, private U.S. firms accounted for 52.8% of aggregate non-residential fixed investment, 68.7% of private-sector employment, 58.7% of sales, and 48.9% of aggregate pre-tax profits. Nearly all of the 5.7 million firms in the U.S. are private (only 0.06% are listed), and many are small, but even among the larger ones, private firms predominate: among those with 500+ employees, for example, private firms accounted for 86.4% in 2010. 

Our empirical tests unearth two new patterns. First, private firms invest substantially more than public ones, holding firm size and industry constant. The average investment rate among private firms is nearly twice as high as among public firms, at 6.8% versus 3.7% of total assets per year. Second, private firms’ investment decisions are more than four times more responsive to changes in investment opportunities than are those of public firms, based on standard investment regressions in the tradition of tests of the Q theory of investment (see Hayashi (1982) or, more recently, Gomes (2001), Cummins, Hassett, and Oliner (2006), Bloom, Bond, and van Reenen (2007), and Bakke and Whited (2010)). This is true even during the recent financial crisis. 

We find similar patterns when we exploit within-firm variation in listing status a sample of firms that go public without raising new capital and so change only their ownership structure: IPO firms are significantly more sensitive to investment opportunities in the five years before they go public than after. Indeed, once they have gone public, their investment sensitivity becomes indistinguishable from that of observably similar, already-public firms. We also find similar results when we instrument a firm’s listing status with plausibly exogenous variation in the supply of VC funding across U.S. states and time. 

What would cause public and private firms to invest so differently? One possibility is that the striking difference in investment sensitivities is simply an artifact of our sampling, measurement, or methodological choices. However, extensive robustness tests show that our samples are representative, that our results are robust to various alternative matching approaches, and that the difference in investment behavior does not appear to be driven by how we measure investment opportunities. 

This suggests that we need to look to more fundamental economic differences between public and private firms for an explanation. Lifecycle differences between public and private firms play only a limited role in explaining our results, accounting for less than a third of the difference in investment sensitivities. After ruling out other systematic differences between public and private firms (such as investment in intangibles, tax treatment, and accounting choices), we are left with differences in ownership and agency problems as the leading candidate explanation. 

The corporate finance literature has long argued that stock market listed firms are prone to agency problems. While listing a firm on a stock market provides access to a deep pool of low cost capital, this can also have two detrimental effects. First, ownership and control must be at least partially separated, as shares are sold to outside investors who are not involved in managing the firm. This can lead to agency problems if managers’ interests diverge from those of their investors (Berle and Means (1932), Jensen and Meckling (1976)). Second, liquidity makes it easy for shareholders to sell their stock at the first sign of trouble rather than actively monitoring management – a practice sometimes called the ‘Wall Street walk.’ This can weaken incentives for effective corporate governance (Bhide (1993)). 

Private firms, in contrast, are often owner-managed and even when not, are both illiquid and typically have highly concentrated ownership, which encourages their owners to monitor management more closely. Indeed, analysis of the Federal Reserve’s 2003 Survey of Small Business Finances (SSBF) shows that 94.1% of the larger private firms in that survey have fewer than ten shareholders (most have fewer than three), and 83.2% are managed by the controlling shareholder. According to another survey, keeping it that way is the main motivation for staying private in the U.S. (Brau and Fawcett (2006)). As a result, agency problems are likely to be greater among public firms than among private ones. 

There are three strands of the agency literature that argue public firm’s investment decisions might be distorted due to agency problems. First, Baumol (1959), Jensen (1986), and Stulz (1990) argue that managers have a preference for scale which they satisfy by ‘empire building.’ Empire builders invest regardless of the state of their investment opportunities. This could explain the lower investment sensitivity we observe among public firms. 

Second, Bertrand and Mullainathan (2003) argue the opposite: managers may have a preference for the ‘quiet life.’ When poorly monitored, managers may avoid the costly effort involved in making investment decisions, leading to lower investment levels and, presumably, lower investment sensitivities. 

Third, models of ‘managerial myopia’ or ‘short-termism’ argue that a focus on short-term profits may distort investment decisions from the first-best when public-firm managers derive utility from both the firm’s current stock price and its long-term value.4 If investors have incomplete information about how much the firm should invest to maximize its long-term value, managers may see underinvestment as a way to create the impression that the firm’s profitability is greater than it really is, hoping to thereby boost today’s share price (Stein (1989)). This would lead managers to use a higher hurdle rate when evaluating investment projects than would be used absent myopic distortions, resulting in lower investment levels and lower sensitivity to changes in investment opportunities. Importantly, this would occur even if investors can perfectly observe actual investment (Grenadier and Wang (2005)). The fact that we find lower investment levels among public firms seems inconsistent with empire building. On the other hand, both the quiet life argument and short-termism predict underinvestment, thus fitting the empirical facts we document. To shed further light on what drives the observed investment difference between public and private firms, we explore how it varies with a parameter that plays a central role in short-termism models: the sensitivity of share prices to earnings news. As we explain in Section 4, under short-termism a public-firm manager has no incentive to underinvest if current earnings news has no impact on the firm’s share price, in which case we expect no difference in investment behavior. But the more sensitive share prices are to earnings news, the greater the incentive to distort investment and hence the greater the difference in public and private firms’ investment sensitivities. 

To test these predictions, we follow the accounting literature and measure the sensitivity of share prices to earnings news using ‘earnings response coefficients’ or ERC (Ball and Brown (1968)). For industries whose share prices are unresponsive to earnings news (ERC = 0), we find no significant difference in investment sensitivities between public and private firms. As ERC increases, public firms’ investment sensitivity falls significantly while that of private firms remains unchanged. In other words, the difference in investment sensitivities between public and private firms increases in ERC, and this increase is driven by a change in public-firm behavior. In addition, we show that investment sensitivity is especially low among public firms with high levels of transient (i.e., short-term focused) institutional ownership and a propensity to “meet or beat” analysts’ earnings forecasts. These cross-sectional patterns are consistent with the notion that short-termist pressures induce public firms to invest myopically. 

Our paper makes two contributions. First, we document economically important differences in the investment behavior of private and public firms. Because few private firms have an obligation to disclose their financials, relatively little is known about how private firms invest. A potential caveat is that our analysis focuses on public and private firms that are similar in size, so we essentially compare large private firms to smaller public firms. To what extent do our results extend to larger public firms? We show that the low investment sensitivity among smaller public firms is typical of the investment behavior of all but the largest decile of public firms, which are substantially more sensitive to investment opportunities than the public firms in the other nine deciles. 

Second, our analysis suggests that agency problems in public firms, and in particular short-termism, are a plausible driver of the differences in investment behavior that we document. This finding adds to existing survey evidence of widespread short-termism in the U.S. Poterba and Summers (1995) find that public-firm managers prefer investment projects with shorter time horizons, in the belief that stock market investors fail to properly value long-term projects. Ten years on, Graham, Harvey, and Rajgopal (2005, p. 3) report the startling survey finding that “the majority of managers would avoid initiating a positive NPV project if it meant falling short of the current quarter’s consensus earnings [forecast].” This is not to say that effective corporate governance cannot reduce public-firm managers’ focus on short-term objectives. Tirole (2001) argues that large shareholders have an incentive to actively monitor managers and fire them if necessary, while Edmans’ (2009) model shows that the presence of large shareholders can reduce managerial myopia. But it is an empirical question whether these mechanisms are sufficiently effective on average. Our evidence suggests that, at least on the dimension of investment, this may not be the case. 

The paper proceeds as follows. Section 1 reviews related literature. Section 2 introduces a rich new database of private U.S. firms created by Sageworks Inc. Section 3 establishes our main empirical results, that public firms invest less and are less responsive to changes in investment opportunities than private firms. Section 4 investigates possible explanations for these findings. Section 5 examines the extent to which our results might be driven by the endogeneity of a firm’s listing status. Section 6 concludes.

A South Australian 'Privacy Tort'?

The South Australian Law Reform Institute has released an issues paper [PDF] and questionnaire [PDF] regarding the 'privacy tort'.

The Institute's inquiry is independent of the current Australian Law Reform Commission consultation highlighted elsewhere in this blog.

The Too much information: A statutory cause of action for invasion of privacy paper states that

This review was initiated by the Institute itself, after noting:

• that it is not clear whether there is a tort of invasion of privacy at common law; 

• that the remedies available to those whose personal privacy is invaded are limited; 

• that modern technology makes it increasingly easy to invade personal privacy, to publish material or information so gained and to reach a wider audience than ever before, with often devastating and sometimes irreversible consequences; 

• that a statutory cause of action for invasion of privacy has been identified by comprehensive Australian and international reviews as a potentially valuable civil remedy for, and deterrent against, serious invasions of privacy; and 

• that there appear to be constitutional and political obstacles to establishing a national statutory cause of action for invasion of privacy.

The aim of the review is to investigate whether there is scope for South Australia to legislate its own statutory cause of action for invasion of privacy. After canvassing the views of South Australia’s legal profession, media, interest groups and the public at large, the Institute will report its findings and recommendations to the Attorney-General of South Australia.

The Institute comments that

1. Questions of what is privacy and what should be done by the State to protect it are live and complex in the 21st century. The pace of technological development and the changing ways in which we use technology to interact with each other necessitates a discussion about the way the law protects personal privacy. 

2. This paper discusses whether our privacy would be better protected if South Australia had a statutory cause of action for invasion of privacy. It outlines the history of attempted reform in South Australia and the range of approaches recently recommended by other law reform bodies in Australia. It sets out broadly the arguments for and against statutory reform, considers the characteristics of a statutory cause of action and poses questions for discussion. 

3. The Institute recognises that there is already a substantial amount of work on this topic and does not attempt to repeat it. In particular, the Institute refers to and relies on the following sources and encourages those seeking further information to go to these sources:

• ALRC Discussion Paper 

• ALRC Final Report 

• ALRC Issues Paper 

• NSWLRC Consultation Paper 

• NSWLRC Final Report 

• VLRC Information Paper 

• VLRC Final Report 

• Commonwealth Issues Paper

4. Forty years ago, the South Australian Law Reform Committee recommended that a general right of privacy be created by this State.  Bills attempting to create a cause of action were introduced into the South Australian Parliament in 1974 and again in 1991. Each was defeated after fierce and lengthy debate. A summary of the history of those Bills and the debate surrounding them is set out in Appendix 1 to this paper. 

5. In as many years, three law reform bodies in Australia have recommended the introduction of a statutory cause of action for invasion of privacy, given that there is doubt about whether one exists or will develop at common law: the Australian Law Reform Commission (ALRC) in 2008, the New South Wales Law Reform Commission (NSWLRC) in 2009 and the Victorian Law Reform Commission (VLRC) in 2010.  In New Zealand, where there is a limited common law tort of invasion of privacy, a review of privacy laws led to a recommendation by the New Zealand Law Commission in 20106 that there be no statutory enactments and that the tort be left to develop at common law. In September 2011, as part of its response to the 2008 ALRC Final Report, the Commonwealth Government released an Issues Paper inviting submissions on the ALRC recommendations for a Commonwealth cause of action for serious invasion of privacy. 

8. In June 2013, having reviewed submissions to the Commonwealth Issues Paper and concluded that they showed little consensus on how a legal right to sue for breach of privacy should be created, or if it should be created at all, the Commonwealth Attorney- General asked the ALRC to conduct another inquiry, this time into ‘the protection of privacy in the digital era’. A copy of those terms of reference is in Appendix 3 to this paper. 

9. On 8 October 2013, shortly before publication of this paper, the ALRC released its Issues Paper on ‘Serious Invasions of Privacy in the Digital Era’ as part of its response to the Commonwealth reference. 

10. At the core of the privacy debate is the tension between a right to privacy on the one hand and a right to freedom of expression on the other. Key international human rights instruments, to which Australia is a party, recognise a right to privacy along with other rights such as freedom of expression. These human rights stand equally, although often in competition. There is a strong argument that a democratic society should not shirk from giving effect to one human right simply because it is difficult to reconcile it with another. 

11. In Australia, concerns about freedom of expression have so far defeated attempts to introduce direct protection of privacy by a statutory cause of action. The development of a common law right to privacy in Australia has also gained little ground.   

12. This is in part because privacy is a concept that is difficult to define. It means different things to different people, and the distinction between ‘public’ and ‘private’ changes over time. Privacy is perhaps best described as involving the right of an individual to personal autonomy.  This autonomy not only encompasses privacy of personal information and communications, but also physical and territorial space. Privacy law in Australia, and in particular the Privacy Act 1988 (Cth), has largely focused on information privacy. This protection is principally limited to the collection, storage, use and disclosure of certain personal information by Governments and corporations. 

13. A useful American description of the kinds of conduct that should make a person liable to another for breaching their privacy,11 and which has informed the recent debate in Australia, including the recommendations by Australian law reform bodies, is this:

(a) ...intentionally intrud[ing], physically or otherwise, upon the solitude or seclusion of another or his private affairs or concerns ... if the intrusion would be highly offensive to a reasonable person; 

(b) ... appropriat[ing] to [one’s] own use or benefit the name or likeness of another ...; 

(c) ... giv[ing] publicity to a matter concerning the private life of another ... if the matter publicized is of a kind that (a) would be highly offensive to a reasonable person, and (b) is not of legitimate concern to the public; 

(d) ... giv[ing] publicity to a matter concerning another that places the other before the public in a false light ..., if (a) the false light in which the other was placed would be highly offensive to a reasonable person, and (b) the actor had knowledge of or acted in reckless disregard as to the falsity of the publicised matter and the false light in which the other would be placed. 

14. This paper asks whether there is a gap in our laws to be filled by a statutory cause of action for invasion of privacy and, if so, what that cause of action might look like. 

15. Although these questions were considered in earlier South Australian reform debates, the impetus for reform in 2013 is very different. We are now more vulnerable to invasions of privacy than ever before because of the ease with which individuals can now find, access, disseminate or broadcast information and material. In the digital age, new ways to pierce a person’s ‘sphere of inviolability’ are being discovered and developed at an unprecedented pace. 

16. Privacy is protected, directly and indirectly, by various State and Commonwealth civil and criminal laws, industry codes of conduct and administrative instructions. The recent recommendations of the ALRC, the NSWLRC and the VLRC for the enactment of a statutory cause of action for invasion of privacy formed part of a wider review of privacy protection more generally afforded by these laws, codes and instructions. The Institute does not at this stage intend to replicate these reviews but rather to draw from them in its inquiry into whether a general right to personal privacy should be protected in South Australia by a statutory cause of action.

Hegemony

The short 'Intellectual Diversity in the Legal Academy' by Nicholas Quinn Rosenkranz in (2014) 37(1) Harvard Journal of Law and Public Policy laments that

Elite law faculties are overwhelmingly liberal. Jim Lindgren has proven the point empirically. I will just add my impressions from Georgetown Law School to reinforce the point. We are a faculty of 120, and, to my knowledge, the number of professors who are openly conservative, or libertarian, or Republican or, in any sense, to the right of the American center, is three — three out of 120. There are more conservatives on the nine-member United States Supreme Court than there are on this 120-member faculty. Moreover, the ideological median of the other 117 seems to lie not just left of center, but closer to the left edge of the Democratic Party. Many are further left than that.

Oh dear.

Rosenkranz continues -

But at least there are three. And the good news is that this number has tripled in the last decade. The bad news, though, is that, at Georgetown, the consensus seems to be that three is plenty — and perhaps even one or two too many. 

These numbers are stark, but they are not unusual; this ratio actually seems fairly typical of most elite law schools. This lop- sidedness would be a shame in any academic department. But it is a particularly ironic sort of shame at a law school. After all, it is a fundamental axiom of American law that the best way to get to truth is through the clash of zealous advocates on both sides. All of these law professors have, in theory, dedicated their lives to the study of this axiomatically adversarial system. And yet, at most of these schools, on most of the important issues of the day, one side of the debate is dramatically underrepresented, or not represented at all. 

One result, unfortunately, is a certain lack of rigor. To be blunt, a kind of intellectual laziness can set in when everyone agrees. Faculty workshops fail to challenge basic premises. Scholarship becomes unreflective and imprecise. 

Worse yet, this intellectual homogeneity impairs analysis of law in progress — law as it unfolds out in the world. Analyzing and predicting actual American law would seem to be an important aspect of the job. After all, the country would like to be able to turn to these elite faculties for wisdom and insight about contemporary legal controversies. But because elite American faculties are so far to the left of the American judiciary, these faculties can be startlingly poor at analyzing the actual practice of American law.

Bathsheba and contemporary peeping

People have been peering at each other for a very long time. I've been thinking of Bathsheba and of Susanna (Daniel 13:16)  - and of Rembrandt's Susanna and the Elders, another form of peeping - after encountering the ABC report that a sadly "obsessed" Tasmanian man has "admitted secretly filming" his younger wife through a hole he drilled in the wall of their bathroom.

The report indicates that Stephen John Earl pleaded guilty in Magistrates Court in Hobart "to one count of observing, or recording, in breach of privacy".

Earl was reportedly caught by his wife watching her undress in their bathroom and was seen peering from a water tank outside the bathroom window. "She had confronted him and discussed her right to privacy." She subsequently found a hole, hidden behind a picture that allowed him to watch her in the bathroom.

Earl admitted he had videotaped his wife. In court he indicated that " the marriage failed spectacularly after she found the spy hole".

The ABC states that

Chief Magistrate Michael Hill said he had never come across a case like it. 

He did not record a conviction on the condition Earl was of good behaviour for two years.

Section 13A of the Police Offences Act 1935 (Tas) deals with "Observation or recording in breach of privacy" as follows

 (1) A person who observes or visually records another person, in circumstances where a reasonable person would expect to be afforded privacy –

(a) without the other person's consent; and 

(b) when the other person – (i) is in a private place; or (ii) is engaging in a private act and the observation or visual recording is made for the purpose of observing or visually recording a private act

– is guilty of an offence.

Penalty: Fine not exceeding 50 penalty units or imprisonment for a term not exceeding 12 months, or both. 

(2) A person who observes or visually records another person's genital or anal region, in circumstances where a reasonable person would expect to be afforded privacy in relation to that region –

(a) without the other person's consent; and 

(b) when the observation or visual recording is made for the purpose of observing or visually recording the other person's genital or anal region

– is guilty of an offence.

Penalty: Fine not exceeding 50 penalty units or imprisonment for a term not exceeding 12 months, or both.

Section 14A ("Peering into dwelling-houses, etc" under "Offences relating to trespass to lands")  - a restatement of the traditional 'peeping & prying' offence - provides that

(1) A person shall not without lawful excuse (proof whereof shall lie on him) –

(a) peep or peer into the window or door of a dwelling-house; or 

(b) lurk, loiter, or secrete himself on any land within the curtilage of a dwelling-house. 

(2) A person who contravenes a provision of subsection (1) is guilty of an offence and is liable on summary conviction to a penalty not exceeding 5 penalty units or to imprisonment for a term not exceeding 6 months.

In the Old Testament the virtue of the surveilled women is affirmed by God and several of the peepers come to an unpleasant end. The impious youth who improperly glanced at Lady Godiva was supposedly punished with exemplary blindness, as I noted in a paper last year for the Newcastle Law Society about the proposed Australian privacy tort. In the Tasmanian incident the real punishment of Mr Earl, apart from the ending of his marriage, is presumably the glances of his neighbours and associates after reading the ABC report and other coverage in the mass media. Shaming can be particularly painful.

Directions

IP Australia has established a Register of Directions that records directions made by the

• Registrar of Trade Marks, 
• Registrar of Designs, 
• Registrar of Plant Breeders Rights, and 
•  Commissioner of Patents. 

A direction has been issued under r.21.22(3) of the Trade Marks Regulations 1995, r.22.1(1) of the Patents Regulations 1991, and r. 11.01(6) of the Designs Regulations 2004.

The direction prescribes the means by which fees can be paid to IP Australia.

Food

The London Independent, having a bad day by the look of its headlines, reports breathlessly 'Italian man accused of adopting black cats to eat them: Animal welfare activists claim the man ate ‘at least 15 cats in two years’'.

50-year-old Francesco F, was the subject of a complaint from the Italian animal welfare association, which alleged that he adopted and then ate at least 15 cats over two years.

 Activists with the organisation in the northern province of Brianza first became suspicious because the man would ask specifically to adopt a three-year-old cat with black fur and “a bit of flesh on it”. ... 

“After several reports from different catteries we began to suspect that he was involved in some sort of Satanist group,” ... When confronted, he reportedly seemed confused and asked if killing and eating cats was against the law.

Mr F supposedly “admitted to killing black cats and eating them in the company of friends”. He has been charged with animal abuse, and if convicted faces up to 12 months in jail.

In Australia there is no general prohibition on the consumption of cat, dog, ferret, mouse, parrot, budgie or other pet. There are restrictions on the sale of the meat and statutory frameworks regarding cruelty. Typically an organisation or individual processing meat intended for sale and human consumption must comply with state/territory meat production legislation, including be registration requirements and adherence to a formal Code/Standard or Regulation. The Codes exclude domestic as distinct from 'consumable' or 'abattoir' animals (which encompass sheep, cattle, pigs, goats, buffalo, deers and rabbit), game (e.g. crocodile) and poultry (duck, turkey, pigeon, pheasant, fowl).

I'm reminded of the Goncourt Brothers on the Siege of Paris (camel, kangaroo, sewer rat etc) and Francis Trevelyan Buckland (1826-1880) (dormice on toast, giraffe, wombat and other delicacies not found at your local supermarket). The Goncourts noted

On today's bill of fare in the restaurants we have authentic buffalo, antelope, and kangaroo. ... 

You talk only about what is eaten, can be eaten, or can be found to eat. Conversation does not go beyond that. 

"You know, a fresh egg costs twenty-five sous!" 

"I hear there is an individual who is buying up all the candles in Paris, and out of them, by adding a little color, he makes that grease which is so expensive." 

"Oh, keep away from cocoa butter; it stinks up the house for at least three days." 

"I saw some dog cutlets; they're really very appetizing: they look just like mutton chops." 

"Now tell me, who has eaten kangaroo?" ….

Horseflesh has entered on the sly into the diet of Paris. The day before yesterday Pelagic bought a piece of fillet which looked suspicious, and so I did not eat it. Yesterday, at Peter's, they brought me a roast beef of a blackish red of which my artist's eyes made me suspicious. The waiter merely assured me quite peacefully that this horse is beef. 

and

A shoulder of mutton is brought along.

"Oh !" says Hebrard, "we shall be eating the shepherd at our next dinner." 

In fact, it is a very nice shoulder of dog. "Dog, you say it's dog," cried Saint-Victor, in the tearful voice of an angry child , "this isn't dog, is it, waiter?" 

"But it's the third time you have had dog here." 

"No, it isn't true, M. Brebant is an honest man; he would have warned us . .. . but dog is an impure meat . . ." he said, with a ludicrous horror. 

"Give me horse, but not dog."

"Dog or sheep," mumbles Nefftzer, with his mouth full, "I've never eaten such a good roast . . . but if Brebant gave us rat . . . I know . . It's very good . . . tastes like a mixture of pork and pheasant!"

and

I had the curiosity to call on Roos, the English butcher of the Boulevard Haussmann. I saw all sorts of strange relics. On the wall, hanging in a place of honour, is the trunk of young Pollux, the elephant from the Jardin d'Acclimatation ; and in the midst of nameless meats, and of unusual horns, a boy is offering camel kidneys.

The master butcher is holding forth, surrounded by a circle of women: "It's forty francs the pound for the fillet, and for the trunk . . . yes, forty francs . . . You find that dear ? . . . Well, really, I don't see what I am going to get out of it. ... I reckoned on 3,000 pounds, and I've only got 2,300. . . . The feet you want to know how much the feet are ? They are twenty francs. Other parts go from eight to forty francs. . . . Yes, I can recommend those sausages ; elephant's blood, you know, is most nourishing ... his heart weighs twenty-five pounds. . . . Yes, there's some onion in the sausage. . . ."

In the Australian Capital Territory you can't purchase elephant sausage. The processing and selling cat or dog meat is prohibited under the Food Act 2001 (ACT), with killing of dogs or cats for dinner potentially covered under the Animal Welfare Act 1992 (ACT). The latter encompasses cruelty to "a live member of a vertebrate species", including an amphibian; a bird; a fish; a mammal (other than a human being); a reptile; a live cephalopod; or a live crustacean intended for human consumption.

In New South Wales processing and sale of dog and cat meat is prohibited under Food Act 2003 (NSW), with killing potentially an offence under the Prevention of Cruelty to Animals Act 1979 (NSW). Victoria addresses the killing of cats or dogs for food under the Animal Welfare Act 2002 (Vic), with a prohibition on processing and sale as part of the Food Act 2008 (Vic). Western Australia deals with cruelty under the Animal Welfare Act 2002 (WA); processing and sale cat or dog meat is prohibited under Food Act 2008 (WA).

Tasmania prohibits processing and selling cat or dog meat under the Meat Hygiene Act 1985 (Tas), with the Animal Welfare Act 1993 (Tas) dealing with the killing of cats or dogs for such a purpose. Queensland covers processing and sale under the Food Production (Safety) Act 2000 (Qld), with the cruelty offence under the Animal Care and Protection Act 2001 (Qld) In the Northern Territory the processing and selling of cat or dog meat for human is prohibited under Food Act 2004 (NT), cruelty being covered under the Animal Welfare Act 2007 (NT).

South Australia exceptionally has a specific provision - Summary Offences Act 1953 (SA) s 10 - regarding consumption of cat and dog meat, in addition to prohibition on killing, processing and sale for the purpose of consumption. That section doesn't cover the eating of hamsters, iguanas, ferrets, lemurs and other fun pets.

Privacy law students will recall Lenah Game Meats, which reflects the legality of processing and sale of possum meat for human consumption.

Metadata

'Secret without Reason and Costly without Accomplishment: Questioning the National Security Agency’s Metadata Program' [PDF] by John Mueller and Mark G. Stewart comments that

When Edward Snowden’s revelations emerged in June 2013 about the extent to which the National Security Agency was secretly gathering communications data as part of the country’s massive 9/11-induced effort to catch terrorists, the administration of Barack Obama set in motion a program to pursue him to the ends of the earth in order to have him prosecuted to the full extent of the law for illegally exposing state secrets.

However, the President also said that the discussions about the programs these revelations triggered have actually been a good thing: “I welcome this debate. And I think it’s healthy for our democracy. I think it’s a sign of maturity because probably five years ago, six years ago, we might not have been having this debate.” There may be something a bit patronizing in the implication that the programs have been secret because we weren’t yet mature enough to debate them when they were put into place. Setting that aside, however, a debate is surely to be welcomed—indeed, much overdue. It should be conducted not only about the National Security Agency’s amazingly extensive data-gathering programs to amass information on telephone and e-mail conversations—programs that have, according to the President, included “modest encroachments” on privacy—but also more generally about the phenomenal expansion of intelligence and policing efforts in the wake of 9/11.

As Dana Priest and William Arkin have documented in their the remarkable book, Top Secret America, by 2009 there were something like 1,074 federal government organizations and almost 2,000 private companies devoted to counterterrorism, homeland security, and intelligence spread over more than 17,000 locations within the country. At least 263 of these were created or reorganized after 9/11. Collectively this apparatus launched far more covert operations in the aftermath of 9/11 than it had during the entire 45 years of the Cold War.

A comparison might be useful. Since 9/11, 53 cases have come to light of Islamist extremist terrorism, whether based in the United States or abroad, in which the United States itself has been, or apparently has been, targeted. The total number of real terrorists, would-be terrorists, and putative terrorists populating this set of cases, excluding FBI and police undercover operatives, is less than 100. Thus, the United States has created or reorganized three entire counterterrorism organizations for every terrorist arrest or apprehension it has made of people plotting to do damage within the country.

Although much of discussion in this article can be extrapolated more widely, it focuses primarily—and for starters—on one of the two surveillance programs revealed by Snowden. These two programs have often been mixed in, or confused, with each other.

One of them, Prism, somewhat more commonly known from its section in the law as 702, permits NSA to gather electronic communication information on e-mail and phone conversations after approval by a judge if the target is both outside the United States and not an American citizen and if there is an appropriate and documented foreign intelligence purpose for the collection.

The other, known as 215, authorizes the gathering in bulk of business and communication records within the United States. It has been used in particular to amass telephone billing records—numbers called, numbers received, and conversation length—for every telephone in the U.S. In principle, the 215 data are only supposed to be collected if there are “reasonable grounds to believe” the records are “relevant” to a terrorist investigation of a “known or unknown” terrorist organization or operative. Creatively expanding the word “relevant” to the breaking point, it has been taken in practice to mean that NSA can gather billing records for every telephone conversation in the country: if there might be a known or unknown needle in the haystack, the entire haystack becomes “relevant.” As many, including Senator Patrick Leahy, have pointed out, this broad approach could also be applied to banking, credit card, medical, financial, and library records, all of which could be held as reasonably to be somehow “relevant” to the decidedly wide-ranged quest to catch terrorists.

The information gathered by either program can be held for five years.

This article primarily deals with the 215 program, the more controversial of the two, the one that involves the massive gathering of telephone billing records, or “metadata,” within the United States.

In the debate that has burgeoned since Snowden’s revelations, a number of questions have been raised about the civil liberties and privacy implications of NSA’s massive surveillance efforts. This article focuses on three additional questions. None of these is terribly legalistic, but they are questions that ought to be given more thorough examination.

The first two—why was the program secret and how much does it cost?—seem never to come up even though they are crucial if we are going to have an adult conversation on the issue. The third—what has the program accomplished?—has attracted some attention, but it clearly needs much more, and this article examines it in the broader context of the obsessive, and massively expensive, efforts by police and intelligence since 9/11 to deal with the threat that is envisioned to be presented by terrorism, a quest that has involved following literally millions of leads that go nowhere.

Although those opposed to the program are deeply concerned about privacy issues, they have also argued that the program fails to be “an effective counterterrorism tool,” in the words of Senator Patrick Leahy. In December 2013, two judges came to opposite conclusions about the 215 metadata program, and it is clear the program’s effectiveness figured importantly in their decisions. Judge Richard J. Leon, in finding the program was likely unconstitutional, noted that the government “does not cite a single instance” in which analysis of bulk metadata collection “actually stopped an imminent attack,” failed to present “any indication of a concrete danger,” and provided “no proof that the program prevented terrorist attacks.” Eleven days later, Judge William Pauley, in approving the program, stressed in his first sentence that the world is “dangerous and interconnected” and went on to insist that the effectiveness of the data collection program “cannot seriously be disputed, ” noting that the “the Government has acknowledged several successes in Congressional testimony and in declarations.” Meanwhile, a special Presidential group set up to review the NSA programs, while dwelling mostly on legal issues, also noted, in recommending the termination of 215, that information provided by the program “was not essential to preventing attacks and could readily have been obtained in a timely manner” otherwise, and that “there has been no instance in which NSA could say with confidence that the outcome would have been different” without the program.

In all this, the key question, as the Presidential review group points out, is not whether a surveillance program “makes us incrementally safer, but whether the additional safety is worth the sacrifice in terms of individual privacy, personal liberty, and public trust.”

The analysis in this article suggests that any benefit of the 215 metadata program is considerably outweighed by its cost even assuming that the unknown, and perhaps unknowable, cost figure is quite small. If the issue is security versus privacy, in this case privacy wins.