Looking forward: a post-war policy for Australian industry

PREFACE

The nations look forward not only to an early end to armed strife, but to a deeper peace in which all peoples will be free to enjoy the fruits of their labour in security.  Such a peace can be won and made to endure only through great and unremitting effort in all the broad fields of national and international endeavour.

In Australia, industry requires a fresh spirit, a finer vision, a greater objective.  To fall back into the attitude of the pre-war years, to fail to resolve the antagonisms plainly manifest during the war, would spell disaster, a certain loss of much for which the sacrifice of the war has been made, a betrayal of the fighting men.  We should prepare now not for new and bitter sectional struggles, but to bridge the gulf of division in an intelligent reconciliation of conflicting claims.

Employers of labour occupy, in a deep sense, positions of leadership in the life of the community;  therefore, the responsibility for achieving a happier and more effective future for Australian industry and all associated with it is primarily theirs.  This statement is designed as a preliminary step toward the fulfilment of that responsibility.  It represents an earnest and sincere desire to find common ground on which the state, the investing public, management and labour can build in furtherance of their common interest in stable employment, individual security, and greater production.  It is supported by a considerable and influential section of individual employers.  In presenting the document to the public, we appeal to all men of goodwill, particularly to the leaders of labour, for a fair and considered appraisement of the views it contains.

The proposals are wholly confined to internal and domestic matters.  The many vexed problems of post-war international trade and economic policy in relation to Australia constitute a separate, though closely related, issue.  In omitting discussion of these problems, the signatories of the document are not unaware of the dominant influence which international measures will exert on the future economy of this country and the standards of life of its people.  It is thought, however, that external trade policy must, of necessity, be the subject of a separate statement.

A further word in explanation of the nature of this document is necessary.  It is not, and is not meant to be, a detailed examination of the economic and industrial problems involved in transferring our economy from a war to a peace basis, It is concerned largely with the broad shape of the more permanent economic structure to succeed the period of transition, and is, in part, an attempt to outline certain fundamental principles which the signatories consider should form the framework of that structure.  A number of practical proposals are advanced as possible solutions of some of our most significant problems.* These proposals have been formulated in the light of the principles we have accepted as necessary to an economic society which will be, at once, democratic and efficient.  The practical proposals are neither complete in detail nor exhaustive in scope.  Many domestic economic and industrial problems of great importance are not touched upon, and on those for which we have attempted solutions a great deal more work needs to be done in the development and elaboration of details.

Briefly, the history of this document is as follows:  In October, 1943, we decided to ascertain the views of employers in Victoria on some of the more contentious and significant aspects of post-war economic and industrial policy.  For this purpose a questionnaire was drawn up and circulated to some thousands of employers.  In this work we were assisted by the Chambers of Manufactures and Commerce, and the Employers' Federation.

Using the results of the questionnaire as a foundation, it was decided to go forward with the drafting of a post-war policy with the object of securing its acceptance by as many employers as possible, and of publishing the policy as an expression of the views of an important section of industry on post-war reconstruction.

A special committee was appointed to conduct the necessary research and to draft the document.  Subsequently we accepted the completed document.  The statement is now presented in a sincere desire to assist in the improvement of the future working of the Australian industrial and economic system.

NOTE

Throughout the document the t word "industry" covers manufacturing, wholesale and retail trade, and all employed therein, various services under the control of private employers, and, to a less extent, the important part taken by financial institutions in industrial activity.  Detailed questions of financial and monetary policy and execution are, however, not examined.

From this definition it will be clear that no attempt has been made to discuss the problems of rural production.  An industrial policy for Australia which takes no account of our great primary industries cannot pretend to be, in any sense, sufficient.  While the guiding principles laid down in certain sections of this policy have an important general application to primary industry and would, it is believed, receive support from a large body of rural opinion, the specific problems of greatest moment to the primary producer are not considered.

It is our belief that the primary producer must be provided in the future with a greater degree of long-term security of income than has been the case in the past.  Sound measures of reconstruction and development designed to achieve this and other desirable ends would receive the ready support of this organisation.  There can be no lasting prosperity for any section of industry without the prosperity of all.

SECTION I -- OBJECTIVES OF INDUSTRIAL RECONSTRUCTION

1. A statement of fundamental aims, in clear and unmistakable terms, provides a sound and obvious starting point for an investigation concerned with the reconstruction of industry after the war.  Insofar as the objectives of post-war economic policy can be commonly agreed upon, the area of difference and controversy is automatically narrowed to the possible methods whereby these objectives might be attained.

2. A statement of objectives also provides, to some extent, a set of standards by means of which it is possible to gauge the relative desirability and efficacy of alternative practical proposals.  For instance, it is feasible that one specific post-war objective could be achieved, but by policies which run counter to the achievement of other objectives which may be equally important.  The question then arises whether alternative policies, which are also in harmony with the other desirable ends of our economic life, might be devised to satisfy the purpose in view.

3. It is believed that a wide, almost universal, measure of agreement can be reached on the purposes which the Australian economic system should fulfil after the war.  Naturally all these goals will not be possible of achievement at once, and, particularly in the transition period from war to peace, pressing short-run problems of adjustment will necessarily take precedence over the longer-range ends of industrial policy.  It is clear, too, that in the transition period, methods of control will have to be applied, and forms of government machinery used, which may be wholly unnecessary and undesirable after some approach to a normal peace-time economy has been made.

   
   

   POST-WAR FUNCTIONS OF THE ECONOMIC SYSTEM

4. The following statement of the functions which our post-war industrial and economic system should eventually perform is one, which while not necessarily complete, should command the support of people of intelligence and goodwill, no matter what their vocation or to what section of the community they belong.

   • First:  It should ensure work for all willing workers at wages sufficient to provide at least a decent minimum of food, clothing and shelter.
   • Second:  It should afford protection against unavoidable economic misfortune for every responsible citizen.
   • Third:  It should furnish a progressive and steady increase in the standards of living of the entire community.
   • Fourth:  It should provide healthful conditions of work and allow for reasonable leisure.
   • Fifth:  It should foster a spirit of pride in work and performance, and in craftsmanship among all sections of industry and trade.
   • Sixth:  It should be based on principles that encourage warm human relationships and a spirit of genuine partnership between all sections engaged in industry and trade.
   • Seventh:  It should provide full opportunities for self-betterment to each individual, whether employer, manager, or employee, and ample scope for the development of individual personality.
   • Eighth:  It should make for a reasonable variety of choices in the goods and services available to the consumer.
   • Ninth:  It should avoid the excessive concentration of economic power and ownership in a few hands, and provide for the broader diffusion of such power and ownership through the community.
   • Tenth:  It should be organised in such a manner as to encourage the strengthening of home and family life.
   • Eleventh:  It should permit of the adequate and suitable education of all members of the community.
   • Twelfth:  It should be so constructed as to provide the greatest possible degree of national security against external aggression, potential or actual.

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SECTION II -- PRIVATE ENTERPRISE

DEFECTS OF THE ECONOMIC SYSTEM PRE-1939

1. Judged in the light of these objectives it is clear that the ordering of our economic affairs before the war was, in some respects, seriously defective.  While it is true that over a long sweep of years the standards of living of all people of all sections were notably increased, this improvement was marred by the occurrence of economic crises which brought unemployment, poverty, distress and fear of the future to large numbers of individuals and families.  Even worse than the physical destitution caused by unemployment was the inevitable loss of personal self-respect, and of a status in society which accompanied it -- the moral disaster of not being wanted.  The benefits of the increased application of the fruits of science and technology, while great and widespread, were, to some extent, offset by the narrowing effects of mass-production on the individual worker and by the decline of skill in craftsmanship and pride in work.  Nor were those benefits spread over the community in a manner which, in retrospect, can be regarded as wholly equitable and just.  And due to various causes, by no means entirely attributable to the managers of industry, the relations between employers and employees failed to improve, and mutual confidence and goodwill were supplanted too often and too widely by suspicion, discontent and distrust.

   
   

   ACHIEVEMENTS

2. All these defects and others imply that considerable adjustment and modification, of the economic and industrial structure of Australia will be necessary if it is to meet successfully the demands of the post-war years, and if it is to satisfy the basic objectives set out above.  But, while recognising and acknowledging that there were serious defects in the pre-war system, it would be manifestly wrong and unsound to disregard the vast benefits which it brought to the great mass of the people.  Standards of life and labour did improve.  An increasing variety and range of goods was made available for consumption at prices which brought them within the reach of great numbers of people.  Hours of labour were progressively reduced, and standards of factory amenity and accommodation advanced.  Real wages rose.  Productive industry was able to sustain a broadening range and an increasing magnitude of social services and social facilities of all kinds.  Figures taken out by competent statisticians prove indisputably that the real income per person in Australia up to the war had risen considerably, if unsteadily, over a long period of years. ⁽¹⁾  Therefore, the methods through which this great improvement was realised cannot by any means be wholly bad.  There were, in the pre-war economy, numerous features which worked to the good of the community at large.  The aim must be to bring the praiseworthy features into relief and repress or eliminate those less desirable.

   
   

   PRIVATE ENTERPRISE -- ITS FUNDAMENTAL ELEMENTS

3. In devising measures of reconstruction aimed at improving the working of the industrial system, it would be unsound and illogical to ignore the spectacular gains which were achieved under the pre-war economy.

   That this economy can be improved there can be no question.  That this economy must be improved there is also no question.  It was an economy which, while government enterprise and regulation occupied no insignificant part, was based on the conduct of industry under the system we know as "private enterprise".

   It will be as well to endeavour to define succinctly the fundamental elements of which this system is composed.

   • First, private enterprise involves the right of the individual, whether employer or employee, to devote his labour, whether of hand or brain, to work of his own choosing, broadly free from dictation or direction by a higher authority, This embraces both the right of the individual to choose his own occupation, to resign and to change his job as and when he sees fit, and of the man with savings of his own to employ or invest his savings in any business of his choosing.
   • Second, private enterprise involves the right of the individual to receive rewards and privileges in some equitable relationship to the enterprise and ability which he exhibits and thus to the service which he renders the community.  This principle applies both to employer and employee and implies "a differing degree of reward as between individuals, in proportion to their dissimilar and unequal capacities, and to their degree of willingness to work and adventure.  It has been truly said that if the common man is to benefit to the greatest extent in terms of material betterment, every encouragement and incentive should be provided for the uncommon individual
   • Third, private enterprise involves the right of the individual to spend his income on the commodities and services of his own choosing.  This freedom of choice expresses itself through the mechanism of costs and prices, which in turn affords a guide to the producer or trader of the demand he should attempt to meet.  It is profit, the difference between costs and prices, which gives to the business man an indication of the commodities on which the community wishes to spend its income.  The fact that effective demand may differ widely and unfairly among different individuals and sections provides no argument against a free price system as the best determinant of the goods to be produced.  The remedy is rather to bring effective demand as between individuals more into conformity with the requirements of economic need and moral justice.
   • Fourth, private enterprise as above defined necessarily involves the element of competition.  Freedom to select an occupation or a business calling implies the opposite of suppression of competition;  rewards proportioned to effort and ability imply the right of the well-managed business, medium and small, as well as large, to expect to make a reasonable profit;  a free price market implies a competitive price market.  Where competition is absent or strictly controlled, by virtue either of the domination of monopoly or of regulation exerted by associations of firms or individuals, then the principles of free private enterprise cannot be regarded as operative in their fullest sense.
   
   

   IMPROVEMENT OF PRIVATE ENTERPRISE

4. In stating these four principles as embodying the essential elements of private enterprise, it is appreciated fully that they were by no means perfectly realised in the pre-war economy.  A man unemployed through no fault or choice of his own cannot be regarded as possessing the freedom to choose his own occupation.  Nor is a marked inequality of original opportunity entirely compatible with the principles here expressed.

   If the system of private enterprise is to realise its fullest potentialities, then there must be greater opportunity for all members of the nation to indulge in enterprise.  The scope for self-improvement through opportunity and business adventure should be widened so that the community will reap the maximum benefit from the native talent and character of its people.

   The essence of private enterprise lies in the incentive it provides for individual achievement through the rewards offered in return for great effort and risk.  These incentives should be made available on a broader basis and to a wider section of the community than was the case in the pre-war economy.  If private enterprise can hold out to the individual greater opportunities for personal self-expression than any alternative method of conducting the nation's economics -- and we believe it can -- then there need be no fear or doubt of its ultimate future.  For in the provision of such opportunities lies real social progress and true social justice.

   In defining the above as the essential elements of private enterprise, it is not intended to maintain that the principles involved should be allowed to operate without limit, or free of control and regulation of any kind.  That would be under all conditions impracticable, and particularly impracticable in the period of transition which will commence with the cessation of hostilities.  In practical policy no general principle should be pressed too far.  But it is meant to maintain that those who regard the system of private enterprise as indispensable in the provision of a better material and social life for the community, should be constantly watchful and on guard against economic policies which would result in the serious infringement of the principles above stated.  These principles are of the essence of a truly democratic economic system.  They have determined the broad shape and content of the policy outlined in this document.

   
   

   PRIVATE ENTERPRISE -- RESPONSIBILITIES POST-WAR

5. It has already been suggested, directly and by implication, that considerable changes in the structure and organisation of industry will be necessary after the war.  These changes constitute the subject matter of this report.  They involve the future relationships between government and industry;  the problems of central planning and control;  the reward, status, and organisation of labour;  the relations between employers and employees;  and the structure of private enterprise itself.

   So far as private enterprise is concerned it is imperative that the broad motive of service to the community should assume a greatly increased importance among the responsible directors and managers of industry.  The motive of service is definitely not inconsistent with the motive of profit.  On the contrary, in the pursuit of fair and just profit, which has been and will be for as far ahead as we can see, the common motive inspiring the efforts of all sections of industry, whether employers, employees, or managers, will be found the source of maximum economic service to the community.  But this motive of individual gain will need to be modified by a fuller recognition, than was generally apparent before the war, of the obligations of private organisations to their employees and the general consuming public.  Industrial history has shown that those enterprises giving a high place to the ideal of service have, in the long run, been the most successful, and have achieved a greater degree of permanence than organisations which have confined themselves to narrower aims.

   The employers of labour and the leaders of industry should assume the responsibilities they owe for the material and social uplift of the whole community by virtue of the privileged station which they occupy.  All power, whether industrial or political, carries with it corresponding duties and obligations.  Irresponsible power is as much to be condemned in the field of industry as in that of politics.  It is, however, not to be doubted that these wider, social responsibilities of industry were receiving practical acknowledgment by an increasing number of employers in the years preceding the war.

   But, whilst there is a special responsibility to be carried by employers as the leaders of industry, there must, in due proportion, be a reciprocal recognition of responsibility by the leaders of labour and by all those employed in industry.  Trade unions, as well as employers, should actively recognise the duty of squaring their policies with the overriding needs of the nation.  On the part of employees, from the highest paid skilled manager and worker to the unskilled labourer, there should be an acceptance of properly constituted authority, a regard for discipline, and a sense of personal responsibility in the performance of their work.  No sound economic system can be built unless confidence exists between the different sections of industry, and this confidence, in the last analysis, depends on the mutual acceptance of the responsibilities above-mentioned.  Only on this basis of mutual confidence and personal responsibility will it be possible to achieve the great objectives of full employment, security, and a rising level of material existence for all members of the nation.

   
   

   ENTERPRISE -- ENCOURAGEMENT AND INCENTIVE

6. The vast strides in material progress made under private enterprise in the democratic nations of the United States and Britain, as well as Australia, prove conclusively that the system has evoked unique qualities of resource, imagination, and driving power in pioneering new technical, scientific and commercial developments.  It is a system which, in the opinion of the signatories of this document, it would be disastrous to abandon, and wrong unnecessarily to restrain.  We are convinced that any sound ordering of our economic affairs designed to achieve the objectives stated in the opening of this document must give the utmost encouragement to the great possibilities of progress inherent in private enterprise.  To quote from the noted British journal, "The Economist":

   "The profit motive, the willingness of men to take risks is, of course, indispensable in a democratic economy;  it provides the most powerful of all stimulants to industrial and commercial effort and economic progress. ... It may even be said that our capacity to solve the industrial, commercial and social problems of the post-war world will depend upon the renascence of individual enterprise and courage."

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SECTION III -- FULL EMPLOYMENT ⁽²⁾

1. The supreme task of post-war economic policy will be the prevention of large-scale unemployment, and so far as possible, the maintenance in useful work of every willing worker.  Upon this objective there is no room for, nor should there be, any difference of opinion.  The failure to achieve it in the past provided the chief source- of condemnation of the economic system as it then operated.  Failure to achieve it after the war would almost certainly lead to political and social consequences of a disastrous character.

   It is safe to say that the great bulk of the people place full employment and the individual security it brings higher than almost any other political objective.  It is, therefore, imperative for Australian governments, in common with other governments, to do everything^ possible and necessary for the attainment of a permanent state of full employment.

2. Stress must be placed on the words "a permanent state".  The policies which will be necessary to achieve "a permanent state" of full employment should not be confused with those pertaining to the demobilisation of men and women from the services and their re-absorption, along with the workers engaged in the production of munitions and war supplies, in normal peace-time occupations.  Demobilisation and the re-establishment of the nation's economic life on a peace footing are essentially temporary problems of transition.  These problems will present great difficulty and will call for a measure of central direction and control by the state.  But difficult though they will be, the task of re-employing the bulk of the nation's manpower in peace-time jobs in the first two or three years after the war will be much simpler than the long-range and continuous work of ensuring that full employment is maintained.

   It has been suggested by high authorities that there may be a shortage of manpower relative to the demand in the period immediately following the war.  This may or may not be the case, although private enterprise with proper encouragement can be expected to absorb very rapidly a large proportion of demobilised personnel.  The successful demobilisation of the forces and the workers engaged on war work will not, however, mean that periods of large-scale unemployment similar to those experienced under the pre-war economy have been forestalled.  Unless we are to have a repetition of the large-scale unemployment which occurred from time to time before the war, different policies will have to be followed, and the structure of industry modified.  This distinction between the temporary problems of demobilisation and the long-range problem of avoiding unemployment also carries the implication that the measures to be applied in the transition stage bear no necessary relationship to those policies designed to achieve a permanent state of full employment.

   
   

   MEANING OF FULL EMPLOYMENT

3. It is necessary to make clear the meaning given to the term "full employment" in this context.  It should not be taken to imply a situation in which all workers in the community are engaged continuously and without interruption in productive employment.  Full employment, in that sense, would be an impossible aim.  There will always be a number of people in the process of changing their occupations, and, therefore, unemployed for short periods.  Every change of job cannot be accomplished between-night and morning.  Also, there will be a reserve of young people about to commence their careers and waiting to enter into productive work.  Seasonal occupations will give rise to other groups of unemployed from time to time, although there is reason for hope that these could be reduced substantially by appropriate measures.  Requiring special attention will be groups of workers whose industries, through scientific inventions, changes in fashion or demand and for other reasons, are declining.

   The term "full employment," as used here, is therefore not inconsistent with conditions which permit of movement and flexibility among individuals or groups of the working population which alter in composition and magnitude from time to time.  But this small reserve of temporarily unemployed is a vastly different thing from the large-scale unemployment which periodically characterised the economic system before the war, due to the phenomenon commonly known as the trade cycle.  It is at the prevention of unemployment in this sense that a policy of full employment must be primarily aimed.

   
   

   CAUSES OF LARGE-SCALE UNEMPLOYMENT

4. There are grounds for the belief that the goal of full employment as defined above is capable of achievement.  On the other hand, the fact that full employment has been attained during the war should not lead us to underestimate the great difficulties surrounding this problem in time of peace.  A note of realism has been introduced into current discussions of the question by Professor L.F. Giblin.  He states: --

   "Of course, we have to remember that you got it in war-time at a cost.  You got it because a great many people are willing to serve in the fighting forces, regardless of pay.  They have an end in view, which is not to be measured in money.  It also has meant very high taxation and tremendous effort in raising loans.  It has also meant very great restraints on the freedom of all the population -- on freedom to spend because goods are unavailable;  and also on freedom in the personal conduct of citizens -- a great many restraints on freedom;  and with it all, in spite of the taxation and the loans, a very precarious financial position, an unstable financial position, which has to be kept straight by continual restraints and controls."

   The problem in peace is to maintain full employment without the great restrictions on personal freedom and conduct which have necessarily accompanied full employment in war.  A hopeful sign is that there exists today a remarkable degree of unanimity among the highest authorities, on the causes of mass unemployment and on the main outlines of the cure.  Briefly, the diagnosis runs as follows:

   The various amounts of money received by individual members of the community from wages, salaries, rents, dividends, or any other form of income, can be aggregated each year into a whole which represents the total money income of the nation.  Each year the community spends portion of this total money income on the purchase of goods and services which are "consumed," such as food, clothes, radio sets, entertainment and travel.  The remainder of the community's total money income, or, in other words, that part not spent on the purchase of goods and services for consumption, is "saved".  These savings, for example, bank deposits, and insurance payments, contribute to employment when invested either in private industry for the replacement or expansion of plant and buildings used in the production of other goods and services, or in government loans used for war or for other purposes.  Investment of this nature in turn stimulates and maintains spending on consumption goods, as it provides a stream of incomes to the people employed as a result.

   Within the limits set by the manpower and material resources available, the size of the total income of the community and the level of employment, are directly dependent upon both the volume and regularity of the amount invested as outlined above and upon the amount spent by the community on consumption.  It follows that a decline in investment accompanied by reduced spending on consumption goods will be reflected in a decline in the national income and in the level of employment.  If, therefore, the volume both of investment and spending can be kept at a high level and made regular from year to year, the major cause of large-scale unemployment will have been removed.  Within limits, the support of either investment or of spending provides alternative means of maintaining employment.  For important reasons we strongly advocate that, when necessary, it is investment rather than spending which should be specially supported and encouraged by the state.  A policy to achieve full employment based mainly on the artificial subsidising of purchasing power would almost certainly lead to either inflation or to the necessity for adopting rigorous financial and economic controls to preserve monetary stability.

   We believe that the proper means of progressively expanding the capacity of the community to consume the goods and services flowing from its productive operations is for industry to ensure that the return to labour increases with growing production and efficiency.

   It is necessary to repeat that this general theory, while over-simplified here for the sake of brevity, is now subscribed to by competent economic authority throughout the world.  It is accepted in this document as the basis on which a practical policy must be devised, if a state of full employment is to be secured and maintained.

   
   

   STATE OR PRIVATE INVESTMENT?

5. The acceptance of this theory leads naturally to the need of measures to prevent wide fluctuations in the total volume of the community's capital investment' from year to year.  To the extent of its power the state must accept this task as a prime responsibility.  In Australia this responsibility rests on the Commonwealth Government in collaboration with the various State Governments and local and semi-government authorities.

   Upon the need for the state to undertake the task of keeping total investment high and stable there should be very general agreement among all sections of intelligent opinion.  But at this point an acute and vital divergence of viewpoint arises.  It is assumed by one school of thought that the policy of sustaining total investment by the state involves a very considerable degree of government planning and direction of private business, rigid and numerous government controls, a marked development of state ownership in industry, vast schemes of national works, heavy taxation of business, and the determination by the state not only of the total volume of investment, but also of the destination of that investment, through a system of rationing and licensing of capital.

   These questions are considered at greater length in Section V, in which the future relationship of the state to private industry is discussed.  But it is necessary to state here the fundamental disagreement of this document with this point of view.  There is no necessary relationship between the various lines of policy just mentioned and an economic policy designed to secure full employment for the Australian people.  The essential need is for the control of the total quantity of investment.

   To maintain investment at a level sufficient to give employment to the great proportion of workers, the state has two alternatives:

   1. To encourage investment by private business, using state investment, apart from indispensable national works and services, as a balancing factor;  or
   2. to limit and discourage investment by private industry and extend vastly the sphere of state investment.

   For many reasons we believe that the state should pursue the former policy.  We believe that state policy after the war should be to establish conditions which will provide the utmost encouragement to private enterprise to expand its capital equipment, develop new markets and tastes in consumption, and explore new fields of business endeavour.  Such a policy will, we hold, lead to the improvement of the material welfare of the nation at a more rapid rate and provide sounder foundations for social security than a policy whose effect would be to limit and discourage - private enterprise concurrent with a vast development of the economic activities of the state.  It is clearly an unsound and contradictory policy to maintain a system of private enterprise over a large area of economic activity, and, at the same time, curtail its freedom of initiative, dampen its spirit of adventure, and remove its incentives to progress.  If in the post-war years in Australia private enterprise occupies a position of any importance in the economic activities of the community, then it is only logical and right to provide the conditions under which it can operate with the greatest effectiveness.  To quote "The Economist":

   "The task of state guidance and planning is to bring back in a new form the conditions in which individual enterprise and initiative can work."

   This question of encouraging private enterprise is so crucial in a policy of full employment which will achieve at the same time a rapidly rising standard of life for all, that it is discussed more fully in Section V of this report.

   The Co-ordination of Investment

6. The state has to hand the following major weapons of control through which it can influence the volume of total investment:

   1. Credit policy.
   2. Budgetary policy.
   3. Public Works policy.

   All of these are important and probably all would have to be applied simultaneously in order to prevent a state of full employment from degenerating into inflation, or to check an impending depression and thus stabilise economic activity at a high level.  This will need action oil a national basis and will require a high degree of co-operation between the principal government authorities concerned, which are the Commonwealth and State Treasuries, the Australian Loan Council, the National Works Council and the Commonwealth Bank.

   But the success of the state's efforts will be seriously prejudiced if this co-operation is not continuous and sufficiently flexible to meet rapidly the changes in economic circumstances which, from time to time, are inevitable.

   We believe that a special permanent Commonwealth authority -- called perhaps the Economic Advisory Council -- should be established consisting of nominees of the Commonwealth and State Treasuries, and the Commonwealth Bank, the Co-ordinator General of Works, and of members drawn from private industry and finance and selected for their special experience and knowledge as in the case of appointments to the Commonwealth Bank Board.  The Council should have attached to it expert advisers, including an economist of high standing.  It should be responsible for devising in broad outline the general economic and investment plans necessary for a continued high level of employment for the consideration of the various governments concerned.  It should advise on the co-ordination of total public and private investment to meet the requirements of full employment.  It should be required to make public reports at regular intervals on the total economic situation, including activity and prospects in private business, and on the position of private investment as affecting economic stability and the level of employment.  It would be necessary for the Council to keep itself constantly informed of current economic movements such as trends in the volume of private investments and savings, holdings of stock, overseas markets and prices, employment prospects in private industry, and projected public works programmes, both short and long-range, of Commonwealth and State Governments and local authorities.  For this purpose, it should have at its disposal a small central economic and statistical secretariat.

   In the period immediately following the war governments will have to exercise, as a matter of course, a broad supervision of investment for purposes of post-war rehabilitation.  The proposed Economic Advisory Council could well be the chosen instrument for advising the Commonwealth Government on investment policy during the difficult transition period from war to peace, While in the ultimate post-war period this body would have no direct authority over the volume or use to be made of funds invested in private industry, it would be in a position to exert considerable influence of an indirect nature on the investment plans of private business.  It should be made clear that under conditions of reasonable economic normality we are opposed to direct supervision by a state authority of the uses to which private capital investment is put.  Sufficient regulation of total investment, both public and private, can be achieved through the credit and budgetary policies of the state, and so long as the state prepares in advance and grades its public works to enable the volume of public investment to be adjusted dexterously to fluctuations in private investment.

   
   

   RESPONSIBILITIES OF PRIVATE BUSINESS

7. Private business organisations and their representative bodies have vital responsibilities in contributing toward the goal of full employment.  It will be impossible for the state to carry out its part of the task effectively without the full collaboration of, and the pursuit of wise policies by, private business.  Industry, voluntarily organised, should' be in a position to provide governments, through the Economic Advisory Council, with the information they require from time to time in the pursuit of the policy of full employment.  This includes information about plans for capital expansion, holdings of stocks, the demand for products, employment prospects, and so on.  The larger industrial units should attempt to base their investment policies on long-range plans of capital development and should be ready to adjust those plans in accordance with the broad employment policy laid down by the state, and with the advice and recommendations of the Economic Advisory Council.  Industry, through its own associations, can apply controls of its own to assist in the objective of full employment.

   Industrial organisations might well consider establishing employment equalisation funds, to be built up during prosperous years and to be drawn upon as soon as there are signs of impending business and trade depression.  Probably some time lag is inevitable before the full effect of the larger ameliorative measures of the state can be realised, and these funds could be used by industry as a buffer to cushion the first shock of a threatened decline in economic activity.

   To maintain a permanently high level of employment it is imperative that there should be full and sincere co-operation between industry on the one hand and the state on the other.  An important recommendation which, if carried into practice, should greatly aid industry to fulfil its responsibilities in this and other connections, is made in Section IX.

   
   

   CONTROL OF CREDIT

8. For control of credit to be fully effective in assisting to maintain full employment, it would be necessary for the Commonwealth Bank to establish, in broad terms, the credit and lending policy with which the trading banks should be expected to conform.  The Commonwealth Bank, as the nation's central bank, should pursue a credit policy which at all times would make possible a level of investment adequate to maintain full employment.

   
   

   GOVERNMENT BUDGETS

9. The budgetary policies followed by governments should be designed to assist the aim of full employment.  In the past the tendency has been for government budgets to be drawn up without sufficient regard for their effects on general business activity.  In times of depression when general revenue falls, and in pursuance of a rigid policy of avoiding budgetary deficits, taxation has often been imposed at higher rates than in times of prosperity.  In a boom period with a high level of incomes and business profits, governments have been able to meet their current expenditures out of lower rates of taxation.  The effect of these policies has been to aggravate fluctuations in business activity.  There is an unanswerable case for reducing the burden of taxation under conditions of economic stress in order to stimulate spending and investment.

   As a consequence of the modification of orthodox budgetary practice suggested above, it is desirable that a greater measure of elasticity in the finances of the Commonwealth and State Governments should be introduced.  Budgets should be so constructed that, when necessary, governments are enabled in any particular year to spend more than they receive from ordinary revenue and public loans in the interest of maintaining employment.  Conversely, in times of great economic prosperity, governments should accumulate surpluses to cover deficits incurred under the policy just advanced.  The balancing of government budgets should be a long-term rather than an annual objective, but should be so administered as to guard against the danger of inflation.  Government financing of this type will demand the exercise of the strictest care.  So far as possible ample safeguards, including regular funding loans and stringent sinking fund provisions, should be instituted against political abuse or misuse.

   
   

   PUBLIC WORKS

10. The present- National Works Council provides an admirable instrument for co-ordinating public works programmes for recommendation to the Australian Loan Council.

    In performing this function it should pay particular attention to the geographical location of public expenditure in accordance with the needs of employment in different areas and of rural and decentralised development.  The plans of capital construction of the state should be worked out well in advance, in some order of priority, so that they can be applied rapidly as the level of economic activity demands.  In Australia these plans cover not merely national works undertaken by the Commonwealth Government, but also public works carried out by State Governments and local municipalities.  The Economic Advisory Council we have recommended would provide the machinery through which these plans could be adjusted to the needs of the total economic and employment situation.

11. In addition to the above measures an adequate system of social insurance would help admirably to maintain the effective spending power of the community, and thus the demand for the products of industry in times of economic difficulty.

    
    

    THE FINANCIAL DANGER OF STATE INVESTMENT

12. Mention was made above of important economic disadvantages attached to an indiscriminate expansion of state investment with a corresponding limitation of the scope of private investment.  As state financing of investment on a large scale is closely connected with the stability of the whole monetary system, the risk of serious harm to the finances of the nation through political irresponsibility would be correspondingly increased.  This danger is admittedly somewhat reduced if public investment is made indirectly through public corporations on the model of the State Electricity Commission instead of directly by a government department under the control of a minister.

    
    

    INTERNATIONAL ASPECTS

13. In this discussion of a policy for full employment, no attempt has been made to consider the international aspect of the problem.  It will clearly not be possible for a nation so largely dependent on overseas trade as Australia to achieve complete success in solving unemployment unless policies deliberately designed to promote employment and increase purchasing power are followed in the major industrial nations of the world.  If the problem of employment is to be successfully resolved through the elimination of the trade cycle, it will be necessary to achieve a considerable measure of co-ordination of economic and social policy on the international plane through appropriate economic and financial institutions.  There are promising signs that such institutions are gradually taking shape and emerging out of the stress of the war.  These developments, having as their ultimate objective the stabilisation and expansion of trade between the nations, are of cardinal importance to countries such as Australia, whose economic and employment prospects are so vitally affected by the income received from their exports.  This document does not discuss international economic policy and mention has only been made of it here to avoid the danger of too great reliance being placed on full employment measures which are primarily national in character.  Full employment, with rising standards of living, is conditional upon the expansion of world markets and trade.

    
    

    SUMMARY STATEMENT OF FULL EMPLOYMENT POLICY

14. To recapitulate briefly the argument of this section:

    1. Full employment is a major post-war economic and political objective.
    2. The temporary measures designed to provide a job after the war for all members of the forces demobilised, and for those now engaged in the provision of war supplies, should not be confused with the long-range policies necessary for the achievement of permanent full employment.
    3. The prevention of the large-scale unemployment arising from the trade cycle presents the chief problem of a full employment policy.
    4. Large-scale unemployment occurs periodically through irregularity in the volume of spending and of the investment which the community makes in the extension and maintenance of its capital equipment.
    5. In order to even out this irregularity the state must regulate the total volume of investment with the object of keeping it both steady and large enough to keep the nation's physical resources fully employed.  The Commonwealth and State Governments should be in a position to do this through their financial, budgetary, and public works policies, and through the direction of credit policy by the Commonwealth Bank.
    6. Within narrow limits the state can also assist in maintaining full employment through policies which have the effect of subsidising spending power and therefore consumption.  Plans of social insurance work to this end.
    7. In regulating the volume of capital investment, the state, apart from national projects which must be considered indispensable, should give priority to investment by private institutions, and should provide the conditions which will give the maximum encouragement to such investment.  Public works programmes should be primarily designed to offset fluctuations in private investment.

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SECTION IV -- THE STATE AND INDUSTRY

1. The future relationship of the state to industry is the most hotly disputed and, on the long view, the most important of all post-war questions.  It raises political, economic, and philosophic issues which go to the roots of the form and structure of post-war society.  Although not entirely disregarding the political and philosophic implications of the problem, this document is chiefly concerned with the economic.

   
   

   PRE-WAR SITUATION

2. It must not be overlooked that, for many years in Australia, the state has performed functions of major economic and industrial importance.  The state established machinery whereby minimum wages and marginal rates for skill are determined and given legislative force;  it regulated hours of work and factory conditions;  it provided selected industries with special protection and encouragement through tariffs, subsidies and other devices;  from time to time it appointed expert commissions to examine the economics of distressed industries;  it regulated the conditions in which private organisations conducted their business dealings;  and it either owned or directly controlled an extensive field comprising communications and transport, and essential commodities and services, such as coal, electricity, and water supplies. ⁽³⁾  During the depression of 1929-33, governments of all advanced countries were forced to enter the field of industry with legislative provisions designed to stabilise business and to promote economic recovery.

   There can be few people, whatever their political views, who would disagree that, in general, the continuation of such functions as these will be necessary to the health and stability of the economic machine after the war.

   
   

   EFFECTS OF THE WAR

3. But today the relations of the state and industry have assumed a new form.  The demands of a total war economy have made it essential for the state to take a vastly increased and more positive part in the control and direction of economic affairs.  The aim of a war economy -- in addition to the release of manpower for the armed forces -- is to secure the maximum possible output of munitions and war supplies, regardless, if necessary, of costs and efficiency, combined with the minimum output of goods for every-day consumption compatible with the health and morale of the community.  In terms of human effort and sacrifice of common privilege, it is an economy which makes practically unlimited demands on the people.

   In the crisis of the last four and a half years, widespread state control has been indispensable because of the need for diverting production into those channels most vital to the total prosecution of the war.  The controls which loom most largely in this connection are as follows: --

   1. Control of capital issues or new investment;
   2. Control of manpower;
   3. Control of materials, including control over the kinds and quantities of goods produced and imported;
   4. Control of prices;
   5. Control of consumption and rationing.

   The severity of these controls has been in proportion to the degree to which the resources of the nation have been devoted to the production of munitions and war supplies and to which the supplies of goods and services for civilian consumption have been limited to those necessary to sustain health and morale.  Thus the fewer the goods available for civilian consumption, the more necessary it becomes to ration the limited supply and to impose strict control of prices and heavy taxation to prevent spending power from forcing prices up in a dangerous inflationary movement.

   An obvious method of achieving an all-out war effort has been through a system of priorities in which the various fields of production and effort are placed in an order of preference determined by their relative importance.

   
   

   DEMANDS OF PEACE

4. The argument is often heard that if controls have been successful for purposes of total war they should therefore be equally successful in times of peace.  From such a view the signatories of this document sharply dissent.  The deduction is baseless because the analogy is false.  A war economy is the absolute antithesis of a peace economy.  A peace economy should aim at plenty and leisure -- that is, at the greatest possible output of the goods and services of all kinds which minister to the physical and cultural well-being of the population.  So long as the overriding needs for full employment and social security are satisfied, such an aim is best achieved under a system which leads to the maximum efficiency in the production and distribution of goods and services.  Maximum efficiency in this sense means production at the lowest real cost in terms of human effort and labour.  This efficiency is most effectively promoted under a system founded in competitive free enterprise which holds out to all its participants -- employers, employees or managers -- incentives to give of their best.

   The extent to which it will be necessary to continue war-time controls, more or less permanently, depends, to a very considerable degree, on whether the state assumes the responsibility for planning the production of the nation in accordance with a set of goals or objectives determined by its own experts;  in other words, on whether the state decides those things most "essential" to the peace-time life of the population, and the production of these "essentials" is given a first call on the national resources of labour, capital, and materials.  This would mean that the principle of priorities would be applied to the post-war economy just as it is at the present time to the use of our resources for war.  It seems apparent that this principle has already been accepted by the present Commonwealth Government;  various avenues of production to have priority over those considered less essential have been tentatively named by the Minister for Reconstruction and high public servants engaged on post-war reconstruction.  These, include, inter-alia, houses, hospitals, schools, clothing, food, furniture, electrical goods, household amenities, important works of national development.

   If a system of priorities is accepted as a desirable part of the peace structure of industry, controls over capital, manpower, materials, prices and consumption must automatically follow.  The severity and area of the controls will depend on the lengths to which the system is carried.  It is clearly impossible to have a conduct of industry in which production, and therefore consumption, are planned by the state, without the various controls just mentioned. ⁽⁴⁾

5. The desirability of the continuation of the present major wartime economic controls therefore hinges on whether it is desirable that the state should take upon itself the responsibility of deciding what the people shall consume.  In the past this decision has been left to the people themselves;  the index of their desires has been the free price system which in turn has afforded a guide to the producer of the present and prospective demand for his particular products.

   
   

   PLANNED ECONOMY LEADS TO TOTALITARIANISM

   We believe that a planned economy of the nature just indicated, in which the people's choice of the goods on which to spend their incomes is surrendered to the state, is undemocratic, and should not be contemplated as a working basis for our society.  If the people are accorded the right to exercise their freedom of choice in the selection of their parliamentary representatives, how much more must they be conceded the right to apply their own discretion in the expenditure of their personal incomes.  The individual is in a far better position and far more able to decide for himself in this matter than public officials serving the state.  His right to do so is one of the chief manifestations of true freedom.

   Against this view the argument has been advanced that the wide differences in the incomes of different groups under the pre-war economy meant that effective demand expressed through the price mechanism provided a socially undesirable basis for the use of the nation's resources.  Insofar as this contention is valid, the, answer must surely lie, not in the abandonment of the free price system, and therefore of the freedom of choice of the consumer, but in bringing about a closer equation between individual rewards and economic and social justice.

   A planned economy, based on a system of priorities, would of necessity involve a continuation of the rigid controls over manpower, materials and consumption which have been essential during the war.  It must be said emphatically that such a system is entirely incompatible with a vigorous and healthy private enterprise, although not necessarily with the continuation of private ownership of capital resources and the routine administration of these resources in private hands. ⁽⁵⁾  A planned economy in the above sense might be capable of achieving a permanent state of full employment, but it would be full employment at the price of progress and of the standards of living of the people.  Moreover, it would amount, in effect, to a system of totalitarian economics, in which the freedom of the worker to choose his own occupation, of the investor to invest his capital, and of the consumer to spend his income according to his own tastes, would be severely and progressively restricted.

6. For the purposes of planning for total war it has been necessary for the individual to hand over to the state, extraordinary powers over his person, property and freedom.  Power has been centralised in the executive of the government.  A similar centralisation of power would attach to a planned economy in times of peace.  Such a centralisation of authority is in diametric opposition to the historic principles, of a democratic society.  Democracy has been won through the process of decentralising power, through placing limits and restrictions on the authority of the central government, and through spreading power broadly through the community.  This process represents the mechanics of liberty.  A planned society would involve a reversion to some form of dictatorial government.  The people might still have the right to select their parliamentary representatives, but that right would be illusive and unreal so long as the real centre of authority resided in the executive and not in the legislature, as would necessarily be the case in a planned economy.

   We wholly oppose, therefore, a conduct of industry which would involve the necessity of adopting, largely in their present form, the war-time controls now operative.

   
   

   POST-WAR FUNCTIONS OF STATE

7. But acceptance of this view must not be taken to imply lack of recognition of the vital functions which the state will be called upon to perform in the post-war economy.  It is, on the contrary, abundantly clear that the state must take a greater and more direct part in the organisation and guidance of the economic system than was the case before the war.  Its functions should extend particularly to the achievement of the goal of full employment, as defined in Section III, through its power to influence the total volume of the community's investment in capital goods, and to the assurance of a decent standard of physical well-being for all its responsible citizens through social security and related measures.  To achieve both these goals there is an imperative obligation on the democratic state to act, and act decisively.  This alone implies a position very different from that which the state occupied in the pre-war economy where the level of employment and the physical conditions of numbers of people were, to an extent, left to the winds of chance.

   In the future the state must at all times be ready to intervene whenever the common welfare is threatened by sectional or vested interests, whether of labour or capital, or otherwise.  Policies of private business organisations, associations of producers, or trade unions, which have the effect of restricting the-output of goods from which the community would obviously benefit, or of reducing efficiency and suppressing enterprise, must be the active and continuous concern of the state.  It should be made clear that the broad control envisaged in this connection is entirely distinct in character and in purpose from the present system of war-time control, which, of necessity, has a restrictive and negative effect on the individual.

   In general terms, the economic responsibilities of the state should be regarded as fourfold: --

   • First, to assist in preventing the periodic recurrence pf large-scale unemployment;
   • Second, to secure to all responsible citizens (through social legislation) at least a decent and reasonable minimum of economic security and material well-being;
   • Third, to impose a framework of law which will give the utmost encouragement to the enterprise, resourcefulness and efficiency of individuals and groups, and which will lead to the greatest possible output of the goods and services which the community needs;
   • Fourth, to conserve, in the long-range interests of the community, those natural resources fundamental to the life and future prosperity of the nation.

   In this conception of the future activities of the state, the state and private enterprise are regarded as partners in the common purpose of improving the material conditions of the community.  The tendency, prevalent in discussions of post-war economic policy, to emphasise or imply a fundamental divergence of interest between the state and industry is wholly disastrous and misleading.  From plans of state action designed to secure full employment and social security, private enterprise stands vastly to gain.  Conversely, in its objective of providing better living standards and security for all, the state will be greatly aided by a vigorous, healthy, and enlightened private enterprise.  It is within the province and power of the state to provide the essential conditions of health and vigour.

8. It is entirely in the interests of the community that the state should, within reason, undertake important national works to further the public welfare and to conserve and to increase the efficiency of the nation's resources.  There are, however, strict limitations to the extent to which a programme of public works involving an extra-rapid rate' of development is economically desirable, and in a democracy, politically practicable.  Except perhaps in times of under-employment, most state developmental projects need to be rigorously examined from the standpoint of their probable economic returns.  Apart from those with clear social advantages, public works can be justified only insofar as they result in a higher real national income, that is in higher standards of consumption by the people, than would have been the case had the resources devoted to them been used for other purposes.  The aim of all capital construction is the increase of consumption.  To take an extreme case, it would serve little purpose to build roads in the heart of Australia if a sufficient number of people were not prepared to use them, and particularly at the expense of opportunities of economic investment in private industry.  While the parallel with post-war conditions is by no means exact, the difficulties of the Commonwealth Development and Migration Commission of 1926 to 1929 in finding projects of development which would yield a net economic benefit within a reasonable time constitute a warning not lightly to be disregarded.  Out of £34,000,000 made available for developmental schemes for the purpose of settling migrants in Australia, the Commission was able to recommend an expenditure of only £5,000,000.

   There have been indications that the present Commonwealth Government intends to initiate a huge programme of national works after the war as part of its plans of post-war reconstruction.  A policy of the magnitude which has been indicated would have much in common with war-time' economic policy in that it would require a reduction of the proportion of the national income which would otherwise be devoted to ordinary consumption, or in other words, to the immediate improvement of the standards of living of the people.  This would be unavoidable, as labour and materials which would normally be used for the production of articles for everyday consumption, or for the construction of plant and equipment to produce those articles would need to be diverted for use in national works.  The required reduction in consumption would need to be enforced through heavy taxation and by direct physical controls such as the rationing of consumer goods.  During the war there has been clear justification for a policy of dampening down consumption.  In peace the justification would be very much open to question.  As is emphasised in other parts of this document there are limits to the extent to which taxation can be levied if incentives to hard efficient work are to be provided.  From a political standpoint the policy would appear impracticable.  People will submit to reduced standards of consumption when their existence is at stake.  It is most improbable that they would voluntarily support, for any length of time, a similar policy under conditions of peace.

   In the transition period there is, however, no question that the state should give special attention to restoring the efficiency of the nation's capital assets, both public and private, which has been seriously impaired by the demands of the war.  This may mean the application on a limited scale, and for a limited time, of the principle of priorities.  For instance^ an immense flow of manpower, capital, and materials will need to be directed into the field of housing where an acute shortage in supply exists.  But it is necessary to avoid pushing the housing, or any other specific programme so hard as to cause an out-of-balance condition in the general economic structure.  It has been indicated that the post-war housing programme is so vast that it may be necessary to concentrate for some years on the provision of low-cost housing for the lower income groups, and that, for, say, three or four years those on higher incomes or those desiring to erect homes in conformity with their standards of life may have to be refused the right to build.  The adoption of such a policy would constitute a grave infringement of social justice.  It should be possible to give concentration to the erection of low-cost houses and to slum clearance and, at the same time, preserve the right of other members of the community to build homes for themselves and their families.  The recognition of this right would place only a relatively small limitation on the rate at which the low-cost housing programme could proceed;  but it is a necessary limit if justice is to be done to all sections of the community.

   As soon as the acute features of the post-war housing problem have been successfully surmounted, the state should modify its control over home construction, so as to allow full scope for private contractors to meet the normal demand for houses.

   Apart from the field of housing, which is taken here to include the construction of schools and hospitals, it cannot be agreed that the application of priorities to all of the other various spheres of production listed by the Minister for Reconstruction in this regard, should be necessary.  Provided urgent attention is given to the creation of conditions under which private enterprise will be encouraged to act with efficiency and expedition, then the needs of the community for such articles as clothing, furniture, and household equipment will be met rapidly and effectively.  This, of course, presupposes an early return to a price system sufficiently free to register the real demands of the people.

   
   

   TRANSITION FROM WAR TO PEACE

9. What has been said above concerning the undesirability of applying the machinery of war-time controls to the conduct of industry in peace does not mean that the major controls can be dispensed with immediately after peace has been won, The need for a considerable measure of control and direction by the state in the task of transferring the economy from a war to a peace footing is beyond argument.  The alternative would be industrial, economic and financial chaos.  The process would, however, be delayed rather than expedited, if controls were allowed to remain for a longer period than is absolutely necessary.

   The chief danger in the immediate post-war period will arise from the severe shortage of goods available for consumption relative to the spending power which has been accumulating during the war in the form of bank deposits, increased holdings of notes, war savings certificates and government bonds.  The potential demand will greatly exceed the goods and services available to satisfy it.  Until the supply of consumption goods has been brought into some reasonable relationship with the demand, control of consumption through rationing and control of prices will have to continue.  The alternative to the use of these measures would be a rapid upward surge in prices which would bring economic disaster to all sections of the community.

   The length of the period during which it will be necessary to retain the controls will depend almost entirely on the rapidity with which the shortage in supply of goods can be made up.  This in turn depends on three main factors -- the availability, of trained personnel, of raw materials, and the rate at which industry can be re-equipped for purposes of peace production.  In the case of a great number of industries, and with proper direction and encouragement by the state, this rate may be much quicker than some expect.  The experience of the period following the First World War provides ample proof of the remarkable recuperative powers of industry where the demand exists.

   The other major problem in the transition stage will be that of re-directing the nation's manpower to the employments of peace.  This will be vast and complex.  In the early stages it will probably be desirable to retain the war-time manpower controls and machinery somewhat in their present form.  For demobilisation to proceed smoothly the state may have to exercise the power which it possesses in war of deciding what a man shall do.  But this power should be used sparingly and with discrimination.  At the earliest possible moment the right of the individual to choose his own occupation should be restored.  In the demobilisation period the state will also have to adopt nation-wide plans of re-training to refit many of those in the forces for peace-time pursuits.

10. What the community should be entitled to envisage throughout the transition period is a progressive tapering off in the extent and severity of the controls.  The controls should be continuously under review and should be modified or removed as soon as possible.  For this purpose the representatives of the government should act in the closest collaboration with the properly constituted representatives of industry.  In fact, in the future, it is desirable that at all points where the concerns of the state and industry touch -- and they will be many -- it should be routine procedure for the representatives of the respective parties to work in full co-operation.  That final decision must rest with the state does not absolve it from the responsibility of full and prior consultation with industry's representatives before action is taken.  The community's interest demands that this procedure should be universally and faithfully observed.  Such a method would also be invaluable, if not indispensable, in the carrying out by the state of the full employment policy outlined in Section III.

    
    

    VALUE OF WAR-TIME EXPERIENCE

11. It has been argued that the present system of war-time controls should not be contemplated as a permanent foundation for the management of the nation's economics.  However, it does not follow that the machinery built up during the war for the direction of economic affairs should be completely abandoned.  We have acquired valuable experience which can be applied to improve the conduct of industrial activities in the peace ahead.

    For instance, we suffered before the war from the absence of a closely knit and co-ordinated system of employment offices and labour exchanges to guide those in search of work to the available avenues of employment most suited to their particular skills, and to assist employers in their requirements of labour.  The present manpower machinery, on a greatly modified scale, might serve as a means for providing this service.  The mobility of labour, that is its power and willingness to move from one job to another, will be one of the chief factors in the maintenance of full employment after the war, and this would be enhanced through an adequate network of employment exchanges.  The function of direction exercised by the manpower offices during the war should be modified under conditions of peace to become a function mainly of general guidance.

    
    

    EVOLUTIONARY DEVELOPMENT BEST

12. The principles governing the relations between industry and the state in the control of the economic system will for many years to come be experimental and subject to change and adjustment as experience dictates^ The problem will be one of gaining the advantages of ordered progress whilst retaining freedom to act and encouraging the enterprise and self-reliance of the individual.  It is a problem to be solved not in terms of political "isms," but through observance of hard economic experience and fact, and with due regard to the traditions and methods of British democracy.

13. Where state direction is necessary it should be simple in operation and involve only a minimum of time to those who have to comply with it.  The detailed and minute interference in the day-to-day operations of industry which has arisen during the war would be intolerable under conditions of peace.  A grave loss of efficiency in industry, which must reflect itself in the nation's living standards, results from controls inexpertly administered or clumsy in operation.  Overlapping regulations involving a duplication of authority or unnecessary form-filling must be eliminated.  The devising of efficient, techniques of control is a task for the appropriate public' servants and representatives of business working in collaboration.

14. Government enterprises of a revenue-producing character should be subject to the same checks on wasteful methods and inefficient management as apply to private organisations.  They should, in general, be so administered as to cover costs, including interest on their capital, and should make public, at frequent intervals, full and accurate information concerning their activities in a form easily understood.  Where they are subsidised from public revenue to make good deficits resulting from their operations, the subsidy should be open and not concealed.

15. The increased responsibilities of the state in the direction, of economic affairs, envisaged in this document, require that the administrative arm of government be overhauled and strengthened.  As well as those of high academic standing, the economic service of the state demands the employment of men of proved practical attainments, if the best results are to be obtained.  The conditions of work, recruitment, promotion, etc., of many branches of the civil service need to be reviewed from a fresh angle.  A leader in the British Labour Party, Mr. Herbert Morrison, stated this need of a trained and experienced economic civil service in the following words:

    "The state should be represented by officers specially trained to understand and work with industry and to know that their duty is to watch the interests of the community as a whole."

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SECTION V -- THE ENCOURAGEMENT OP ENTERPRISE

1. The achievement of the major post-war economic objectives, and particularly the maintenance of full employment under conditions making for a rising standard of welfare, will call for the highest degree of enterprise on the part of the Australian people.  Unless this enterprise is forthcoming, no amount of planning and control will succeed in solving the critical industrial and social problems which will confront the nation after the war.  Whilst we recognise fully the need for government planning for specific purposes, it cannot be too often or too strongly affirmed that the life-blood of production and trade will still be the initiative, resourcefulness and courage of individuals and groups.

   It has already been stated that one of the three great functions of government economic policy should be to establish the conditions under which these qualities will be fully elicited.  It should be a cardinal aim of Australian governments to remove all legislative, financial, and business hindrances to true industrial enterprise.

   
   

   FREEDOM AND ENTERPRISE

2. Freedom is the fundamental condition of economic enterprise -- freedom to make decisions, freedom to act, freedom to experiment, to adventure, and to incur the risks involved in the undertaking of projects, great and small.  This implies the reduction to the indispensable minimum of government regulations and restraints which restrict the free exercise of the individual's initiative and imagination.

   The function of state control in relation to enterprise has been powerfully defined in "The Economist": --

   "What is needed outside the spheres of public ownership and direct control, is not more control, however enlivening, but more freedom of genuine enterprise.  In the interests of the community, the state must impose minimum conditions and beyond those conditions, it must encourage, indeed demand, the greatest freedom.  To set private responsibility and public control side by side throughout the whole structure of industry is to make the worst, not the best, of both worlds.  Responsibility would, in fact, be blurred at every point. ... Enterprise is the crux. ..."

   In accordance with the doctrine here stated it is urged that expert review be made of the vast and complicated system of economic and social regulations which has grown up during the war, as a vital preparatory step in reconstruction. ⁽⁶⁾

3. There is a further aspect of the relation of freedom to enterprise.  This concerns the idea, widely prevalent, that the extension of government ownership and administration in the fields of production and distribution would increase efficiency and advance the economic well-being of the community at a more rapid rate than would be the case under private endeavour.  In this connection, it has been proposed that large Government munition plants should be operated by the Federal Government after the war in the production of articles for civilian consumption.  This view must, of necessity, be based on the assumption that the interests of the community would be better served through the continuation of these establishments under Government ownership than if they were transferred to the control of private groups.

   In the light of experience of state enterprise in Australia the assumption is untenable.  State enterprise has too often proved to be unenterprising.  The freedom of the individual in a government organisation to act on his own initiative must, by the very nature of the organisation, be greatly curtailed.  He is restricted by public opinion;  he is restricted by the traditional habits, customs and necessary routine of civil service administration;  he is constantly exposed to political pressures and influences.  This is not intended as a reflection on civil service methods;  it is merely a statement of the handicaps inseparable from a form of control of necessity so large, so impersonal, and so open to political interference as a state directed industry.  It is impossible to believe, for instance, that a state agency or a central planning board would ever be prepared, or would it be able, to disregard public opinion to the extent which was necessary in the pioneering of the railway, the motor-car, electricity, the aeroplane, and numerous industrial products which to-day are virtual necessities of every-day life.  The freedom of action and manoeuvre necessary to progress can only be fully present in private organisations not directly subject to the dictates of political pressure and popular belief.

   
   

   REWARDS AND ENTERPRISE

4. There is a direct and intimate relationship between effort and enterprise on the one hand and prospective reward on the other.  Excluding times of war when great national and social purposes may predominate, it is an undeniable fact that the large majority of men work, strive and venture, primarily -- but not solely -- in the hope of benefiting themselves and their dependents.  This applies to the efforts put forth by the wage and salary earner, to the activities of the business employer in devising schemes of improvement and expansion, and to the risks incurred by the investor in the placement of his savings.

   In some quarters the moral justification of the desire for personal profit is questioned.  But, is it not laudable and morally commendable for a man to strive and make sacrifices to increase his income and to put by savings in order to protect his family and to give his children the best possible start in life?  And is not thrift -- the urge to provide for the future of those dear to us -- one of the nation's greatest virtues and most estimable qualities?  Further, from the standpoint of moral justice, and allowing for due recognition of family responsibilities, is it not right that rewards and privileges should be distributed in reasonable proportion to the quality and vigour of the work of the individual, that is, in proportion to his contribution to society itself?  Is it morally sound to penalise those of greater ability or character to provide unearned advantages for the lazy or less gifted?

   A policy founded in some equalitarian concept of society, and directed toward the levelling up of rewards, would appear to have as little moral as it has economic sanction.  Lord Keynes, the eminent British economist, has stated his belief that "there is social and psychological justification for significant inequalities of income and wealth."

   In any case, and quite apart from its moral aspect, the objective of personal gain will be, for as far ahead as we can see, a governing factor of economic life and development.  This desire for personal gain constitutes the true profit motive -- a motive which is almost universal among the peoples of western civilization, no matter to what economic section or class they may belong.

   
   

   THE ROLE OF PROFIT

5. The profit motive in this broad sense should be distinguished from its more restricted and more popular application to the profits of the business enterprise.  In recent years profit in this form has been the subject of a great volume of violent criticism and scathing reproach.  These attacks have been combined with the propagation of the idea that the private business organisation in its pursuit of profit is anti-social and opposed to the real interests of the great mass of the community.  This idea, which is now held by large numbers of people, is based on a complete misconception of the function of business profit in economic affairs.  Except in isolated instances profit to a business enterprise will result only if it provides a service of the type demanded by the public.

   Business profit is the surplus represented by the difference between costs and prices.  Part of this surplus is applied to the payment of interest on the capital risked in the business, and part to increasing its financial stability, and to improving the security of, and amenities and facilities available to, its employees.  In addition, a very considerable proportion of the profit surplus is, when the level of taxation permits, used for the purposes of plant improvements and additions, and for technical and scientific research.  From these activities the community stands to gain through greater efficiency, lower costs and prices, and new and improved products.  Without an adequate surplus to be used for the purposes just mentioned, it can readily be seen that enterprise would be stifled and the progress of industry halted.

   From the facts just stated it should be clear that any private business enterprise, if it is to maintain itself in a state of efficiency and provide the shareholders with a reasonable return on their investments, has no alternative but to make profit.

   This argument is not to be construed as a justification of excessive profits earned at the expense of consumers and employees and used to pay unwarrantably high returns to the holders of capital.  On the contrary, a major aim of state policy should be to control unjust profit and to prevent the development of an unhealthy "inequality of incomes and-ownership of wealth.

   
   

   TAXATION AND ENTERPRISE

6. Individual incentive provided through prospective personal gain is an overriding factor in economic development.  Through government taxation this incentive can be reduced to a point where enterprise is discouraged and where the individual no longer thinks it "worth his while to put forth the efforts and to take the risks necessary to material advancement, As the editors of the eminent American journal "Fortune" stated in a special survey of the post-war economy of the United States -- "No policy is potentially more dangerous for economic life and development, than taxation."

   If it be accepted that Government budgetary policy should aim not just at balancing budgets, but at influencing the employment and development of the national resources as a whole -- along the lines outlined in Section III -- a new approach to the principles of taxation is imperative.  In particular, these principles need to be revised from the standpoint of their effects on enterprise.  This statement is not to be regarded as a plea for special leniency toward the rich;  it is a plea for a taxation policy in Australia which will admit of continued economic progress instead of stagnation.

   It is imperative that, at the first appropriate moment, our taxation structure should be simplified and overhauled, especially in the light of the requirements of full employment, individual incentive, and standards of living.

   
   

   TAXATION OF PROFITS

7. In common with the individual, industry at present is labouring under a severe burden of taxation.  First, there are two taxes which might be described as "cost of production taxes" rather than taxes specifically directed at profits.  These are the Federal Pay-Roll Tax, applicable to all employers whose pay-rolls exceed £20 per week, and the Federal and State Land Tax (Federal only in N.S.W.) applicable to business undertakings which own land.  In the case of Federal Land Tax, no tax is payable by business organisations owning land to the value of £5,000 or under.

   Four more taxes, which are direct taxes on profits, are comprised under the general heading of Federal Income Tax.  These are: --

   1. Ordinary Company Tax of 6/- in the £ on the taxable income of all companies other than life assurance companies.
   2. Undistributed Profits Tax on both public and private companies;  in the case of the former at the rate of 2/- in the £ on that portion of the taxable income not distributed as dividends, and in the case of the latter, on the undistributed portion of the distributable income, in the hands of the company, at the rates of tax which would have been payable by the shareholders had a distribution been made.
   3. Super Tax, applicable to all companies other than private companies, co-operative companies, wholly mutual life assurance companies, and certain companies whose profits arise from commissions, fees, or charges for services rendered, and taking 1/- for every £ by which the taxable income exceeds £5,000 per annum.  (This tax is not payable where the company pays War-Time Company Tax.)
   4. War-Time Company Tax, applicable, with minor exceptions, to companies other than private companies, co-operative companies, wholly mutual life assurance companies, certain companies whose profits arise from commissions, fees, or charges for services rendered, and companies whose taxable profits do not exceed £1,000 per annum.  This tax applies where the rate of taxable profit to the capital employed in Australia exceeds 5 per cent., taking 6 per cent, of the first 1 per cent, above that statutory minimum and advancing steeply on each succeeding 1 per cent, of taxable profits until it reaches the maximum of 78 per cent, on all taxable profits exceeding 17 per cent, of the capital employed as defined.

   Although the impact of Federal Income Tax on companies varies greatly as between different organisations, the overall effect has been to increase direct taxation of profits -- apart from additional tax on dividends in shareholders' hands -- from around 4/6 in the £ at the beginning of the war to about 12/- in the £.  In individual cases the total tax payable is considerably higher than 12/- in the £. ⁽⁷⁾

   Taxation of profits is in a different category from taxation on personal incomes, including, of course, incomes earned by individuals as shareholders in a business.  Taxes of the present magnitude on profits amount to taxes on the machinery of production, for an industrial enterprise is, in essence, a piece of productive machinery.  The material prosperity of all sections of the community demands that the industrial machine be kept in good running order and in a condition fit to meet the future demands on it.  The real issue here relates, of course, to the taxation that ought to be levied on the amount of profits which, in one way or another, remain in a business and are used to maintain or to increase its efficiency, and to extend its operations.

   The heavy burden of company taxation, together with the application of rigid price control, is severely limiting the ability of industry to make effective provision for post-war rehabilitation and development.  Urgent consideration should be given to effecting some relief of these burdens, not in the interests of the dividends received by shareholders, but to enable industry to look forward confidently to the future, and to make its full contribution >to post-war employment.  Without attempting detailed proposals in this regard, two broad principles are here enunciated, which warrant serious examination by the appropriate authorities.

   First, ample allowances should be permitted for depreciation and obsolescence which, as a result of the overriding urgency of war demands, are taking place at an abnormal rate.  Second, profits or reserves "ploughed back" into the business for post-war expansion, conversion, and scientific research, should be charged special "compassionate" rates of tax.  It may be objected that, as Federal revenue must be maintained to meet the costs of war, this proposal is impracticable.  The concessions urged would, however, be small relative to the total of budget expenditure, and the gap might be bridged by a- much more scrupulous and less wasteful use of public money than at present obtains.  If necessary, the possibility of further increasing indirect taxation on semi-luxury goods might also be seriously explored.  Action along these lines should enable the present taxation burdens on industry to be substantially reduced, and thus help to prevent the efficiency of the nation's productive equipment from being seriously weakened. ⁽⁸⁾

   
   

   TAXATION OF PERSONAL INCOME

8. Current rates of taxation on individual incomes will need to be reduced considerably as soon as possible after the war if men and women are to be permitted again to enjoy the fruits of their work and ability.  It would be disastrous to maintain a level of taxation which would result inevitably in the restriction of enterprise and the destruction of the spirit of adventure throughout the entire range of economic activity.  Nor would the public benefit from the retention in peace of a great army of civil servants in unproductive occupations, which could only be sustained through heavy taxes on the incomes of those engaged in the production and exchange of tangible articles arid services.

   We believe that private enterprise, operating within the new framework outlined in this and other sections, offers the best and most efficient mechanism for meeting the great bulk of Australia's material needs after the war.  Therefore, we maintain that the state should not continue to spend at a rate approaching one-half of the national income, as at present.  Progressive reduction in state expenditure to perhaps between one-quarter and one-third of the national income should admit of substantial reduction in taxation on individual incomes.

   The demand for a proper measure of economic security for all will require higher rates of taxation after the war than ruled before.  Precisely how much higher is an open question, which will have to be determined in the light of the effect of taxation on individual initiative and the requirements of a full employment policy and of necessary social services.

   
   

   THE SMALL BUSINESS

9. A policy concerned with the encouragement of individual enterprise must give full consideration to the future of the smaller business unit.  In numerous ways -- in the range of industrial activity covered, in the great total employment provided, in high efficiency and sturdy independence -- small business organisations form a vital and significant part of our industrial and commercial system.  Just as there are classes of production which demand large-scale -- not necessarily monopolistic -- organisation, so there is an extensive field which is best left to the individual trader or small company.

   So long as it provides something which satisfies a need of the community, the smaller business unit needs positive encouragement and assistance to foster its development and enhance its stability.  Apart from the severe difficulties which war and rationalisation have brought to many of these businesses, usually their chronic problem is finance.  Lacking a well-established market and the accumulated financial strength possessed by the large organisation, small business is often hamstrung by its inability to attract and retain adequate financial assistance.

   Many of the financial obstacles which confront the smaller business unit might be overcome by special action on the part of the trading banks.  Whilst we appreciate the responsibility of these institutions to safeguard the moneys entrusted to them, the trading banks might well consider new ways and means by which small business could be encouraged and supported.  If, by reason of the nature of their accepted banking business, individual banks do not feel able to carry out such a policy, a pooling of resources through the institution of a separate organisation for the specific purpose of assisting small business ventures might provide a valuable alternative, Such an organisation, as a result of its own research, should be in a position to offer advice on the problems of small business undertakings and on the prospects of their development, The real issue is that someone must encourage and assist small business if Australia is to reap the full benefits of individual genius and courage.  The trading banks seem to possess the requisite resources and experience for this purpose.

   
   

   THE PART OF MONEY

10. In a modern community money is the normal means through which the use of the nation's resources is initiated and determined.  It is also the normal reward for economic enterprise and effort.  The continuance of these functions of money after the war is basic to the preservation of a free democratic society.

    In war-time it is fully recognised that a system of government priority permits is necessary to limit the capacity of money (i.e., capital) to direct the employment of labour and material.  Similarly, on the side of consumption, a system of ration coupons and various other permits to restrict the ways in which the individual may spend and enjoy the fruits of his work and enterprise is unavoidable.  It is clear that the first of these systems of state control seriously confines the scope and reduces the vigour and spontaneity of individual enterprise.  It is equally clear that the second system of controls, relating to consumption, has grave effects on incentive, as it tends to remove the capacity of the individual to decide for himself the manner in which he can apply his rewards.  In fact, it is conceivable that he could be so restricted in the spending of his money that it ceases to be a reward at all:  It will be essential to restore to money, as the reward for economic effort and enterprise, its unique power of enabling the individual-to enjoy that reward as he wishes.

    
    

    DANGERS OF MONETARY INSTABILITY

11. In addition to state controls which interfere with the functions of money, there is another important factor that may seriously damage or even destroy the relationship between money, enterprise and rewards.  This factor is instability in the value of money itself.

    Severe or sudden fluctuations in the value of money have disastrous effects on business enterprise.  Not only does the value of capital, reserves and savings constantly alter, but, it becomes impossible to estimate with any degree of certainty the likely reward for venturing capital in new undertakings.  Reasonable stability in the value of money is, therefore, an essential condition of economic enterprise and of the enjoyment of its rewards.  This applies, of course, to all rewards which take the form of money income, whether they be salaries, wages, dividends or those falling within other classifications.

    The experience of history has been that serious and prolonged instability in the value of money is most likely to arise from political expediency in the realms of national finance.  Usually this instability has taken the form of an uncontrollable price inflation consequent upon the government of the day being unwilling to face the facts of the financial situation confronting it.  Government financial policies involving either an unsound inflation of credit or a severe deflation of prices would be equally calamitous to business activity.

    Weakness on the part of any government which might lead to these abuses of our monetary system could have the gravest social consequences.  Confidence in commercial and industrial expansion would be shattered and the monetary rewards, which the individual expects to result from his enterprise and work, destroyed.

    The signatories to this document believe, therefore, that, in the best interests of the Australian nation, its monetary and banking system should not become subservient to the government of the day.  Control of the volume of currency and credit should remain with the nation's Central Bank -- the Commonwealth Bank.  In vital matters of monetary policy this institution should continue to enjoy a measure of autonomy from all save the will of the people as expressed by Act of Federal Parliament.

    
    

    THE TRADING BANKS

12. This section would be incomplete without reference, however brief, to the financing of economic enterprise.  Much of this financing has in the past been carried out by the trading banks operating on a competitive basis and free from direct interference by the state in their conduct of this business.  If the trading banks, through nationalisation or by any other method, were to become a department or mere agencies of the Government, private industrial organisations would be placed entirely at the mercy of the state.  This conclusion is inescapable because individuals would be unable to obtain elsewhere the particular forms of financial assistance, vital to industrial activity, at present afforded by the trading banks.  We believe, therefore, that trading banks of the~ existing types should continue to act as the distributors of credit to industry in conformity with the broad terms of the credit policy established by the Central Bank.

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SECTION VI -- MONOPOLY AND COMPETITION

1. In recent years political and public criticism of industrial monopolies has been increasingly voiced.  Drastic steps to deal with the issue they present, including the all too simple solution of nationalisation, have been proposed.  In the interests of the public itself, it is necessary that any action taken should be based on a just appreciation of the problem and not on popular prejudice and misunderstanding.  Broadly, it can be said that in Australia monopolies and monopolistic practices have not assumed the proportions reached in the older industrial countries.

   
   

   DEFINITION

2. Contrary to general belief, the question of monopoly is not concerned wholly, or even mainly, with the large-scale unit controlling the whole, or substantially, the whole, market for its particular products.  A lucid explanation of the problem is given in the post-war report of The National Association of Manufacturers of the United States, published in 1943:  "Every practice which by restricting or stifling competition imposes a burden of unnecessarily high prices on the consumer, tends to undermine the economic system and works to the detriment of society as a whole.  The prevention of such practices is what may properly be thought of as the post-war monopoly problem." The report continues:  "In thus defining the monopoly problem it will be noted that, by implication, a distinction is made between monopolies as such and monopolistic practices.  Technically one has a monopoly whenever he is in a position to control the price of what he has to sell.  The mere existence of this power to control the price, however, is not the only consideration.  The significant question is whether the power is used to the detriment of the general public.  There may be monopolistic practices in a given field, even when none of the individual producers involved is a monopoly.  For example, a group of producers, none of whom is in a monopolistic position, may agree to hold up prices, or divide the market in such a way that competition will be eliminated, or join together in a price war against any newcomer in the field, in order that, once he is eliminated, they may again lift the price to above a fair competitive level.  All these would be examples of monopolistic practice, regardless of the number of producers involved, and though no single producer controlled as much as 5 per cent, of the total output."

   An important distinction is here made between monopolies as such, represented in the powerful large-scale enterprise, and monopolistic practices not necessarily associated with the large producer.

   
   

   THE LARGE-SCALE UNIT

3. In general, the highest efficiency and the most rapid material progress are best promoted through a healthy business competition.

   Monopoly is the direct opposite of competition;  free from adequate restraint it constitutes a potential danger to the public interest.  In broad terms, it should be the policy of the state to curb the growth of monopoly and to maintain a healthy vigorous competition over the widest possible area of industry.

   In certain spheres of production, however, and especially in the provision of what may be termed basic industrial products, the large-scale monopolistic unit has obvious advantages.  This applies particularly in Australia, where the total market is limited, and to industries where the economies of large-scale mass production, as against those possible to the small competitive unit, are manifest.  The expansion of expensive capital equipment in these fields in an endeavour to compete for the requirements of a limited market would lead inevitably to over-capitalisation and economic waste with detrimental effects on the community as a whole.  In these industries the large-scale unit with the resources to command the services of expert technical and commercial specialists, and to carry out costly research and developmental projects, will better serve the public than would a number of smaller units in close competition.  Economies in planning production, in the bulk purchase of supplies and raw materials, and in specialisation and standardisation, make possible the provision of low-cost high-quality products affecting- significantly a wide area of the community's economic life.  In many instances the large-scale unit has been able to provide working conditions and a degree of security for its employees far in advance of those possible to the smaller organisation.  Nor should it be overlooked that the great majority of concerns catering for the full, or nearly full, market requirements for their particular products, are exposed to the spur of indirect competitive pressure in the form of substitutes, and possible substitutes, inherent in a rapidly advancing technology.  For example, steel for certain uses may be replaceable by other metals, plastics, and wood products.  A further important consideration is that many large Australian organisations supplying the major part of the home market are, under conditions of peace, to some extent limited in the prices they can charge by the potential competition of overseas suppliers.

4. It cannot be denied, however, that organisations of this nature, by virtue of their powerful economic and financial station, carry with them certain attendant dangers.  In the same way as the large state-owned and controlled enterprise, they make for a concentration of economic authority and-power which is, in essence, undemocratic and open to abuse.  These organisations may be in a position to exploit the public and the remainder of the business community, if they so desire, through excessive prices, by restricting production or cornering raw materials, and by suppressing new scientific inventions which threaten their profitability.  Moreover, the absence of direct competition means that there is no standard by which to appraise their efficiency except perhaps the some-.what imperfect test provided by overseas costs.  Efficiency is relative, not absolute.  The only realistic and satisfactory test of efficiency of production is by "reference to the quality and costs of similar articles produced under conditions of direct competition.

5. In general, historical fact supports the view that the larger industrial organisations in Australia have served the community well.  Great and risky technical advances made in-recent years, for instance, in the production of steel, metals, paper, chemicals, glass and in other industries, have proved to be of incalculable benefit to the nation during the present war.  Indeed, without the courageous work, long vision, and high sense of national responsibility shown over the last twenty or thirty years by those in control in these industries, it is possible that Australia would have been unable to withstand successfully the assaults of the Japanese in 1942.  These are important considerations.

   Nevertheless, where a large single unit commands a controlling position in any section, or possibly the whole, of a specific industry, the natural safeguards of the public welfare provided by a direct vigorous competition tend to be absent.  In such cases, therefore, -there are strong grounds for the institution of special methods of supervision and control in order to preserve and protect the common interest.

   It is desirable that, in the future, special steps be taken to remove any anxiety on the part of the public that the activities of monopolistic organisations are not in the best interests of the community at large.  In the presentation of their accounts these organisations might be required to comply with special legislation designed to ensure that their financial statements are sufficiently complete and informative to enable the public to reach balanced and accurate judgments on their affairs.  The full publication of the accounts of subsidiary companies' and organisations should be made compulsory.  It might be desirable to compel organisations above a certain capitalisation to show periodically the spread of profits as a percentage of total turnover.  Information along these lines would help to reinforce confidence in their operations, and to prevent misunderstanding on the part both of their own employees and the consuming public.  In any legislation of the kind just indicated, the meaning of the term "monopoly" or "monopolistic organisation" would need to be very carefully considered with a view to precise definition.

   
   

   RESTRICTIVE PRACTICES

6. Economic policy after the war should be directed to the attainment of the highest possible output of the goods and services the community needs, produced at maximum efficiency, that is, at the lowest real cost of production.  The full authority of the state should be exerted to prevent and control monopolistic and restrictive practices which run counter to this high objective.

   It is not unusual for groups of producers or traders to join together in associations, and for these associations to fix minimum prices for the observance of their members, to allocate maximum quotas of production, and to place restrictions on entry into the trade or industry concerned.  While these practices which aim, in fact, at curbing or suppressing competition, may be, and at times are, contrary to the public interest," they are not necessarily so.  In industries where productive capacity is greatly in excess of the available or prospective demand, arrangements of this kind can eliminate wasteful cut-throat competition and price-cutting, which could conceivably drive a whole industry into bankruptcy, thus affecting seriously the interests of the consuming public.  However, the potentialities for harm to the general welfare in arrangements between combinations of producers and traders of the kind indicated, mean that such arrangements should be subject to a measure of public scrutiny and control.

7. There are two alternative forms of supervision by which these matters might be resolved.  First, there is the bureaucratic method by which a government department, clothed with far-reaching powers, exercises a purely arbitrary and autocratic control.  Second, there is the form of control exercised under a statute which lays down in broad outline the, principles governing what may or may not be done and then brings to book an offender before a properly constituted legal tribunal.

   In the first case the decision is made by men who, however well intentioned they may be, have no experience in sifting evidence.  Their decision may be made without a full knowledge of the facts, and from it there is no appeal provided it is within the powers conferred or delegated by the legislation.  If injustice were done there would exist no statutory right to have the injustice corrected.

   The whole process runs counter to our British conception of justice and it is capable of leading to the gravest corruption in public life.  As a permanent peace-time method of dealing with many of the problems of trade and business, we believe it to be wholly vicious and bad.

   The present legal position for dealing on a Commonwealth basis with monopolistic trade practices, which may be detrimental to the public interest, is unsatisfactory and calls for amendment of the Constitution and the framing of adequate legislation.  It is recommended that legislation be enacted to define in specific and detailed terms the principles upon which any charge against a monopoly, or combine or trade association can be laid.  These principles should cover questions of exorbitant prices and excess profits as well as trade practices prejudicial to the common interest.  The legislation should also specify the principles upon which the determination of penalties for offences should be based.

   While the exact nature of the machinery necessary for dealing with these problems can be decided only in the light of experience, and after more detailed consideration than the scope of this statement allows, generally we are of the opinion that such regulation as is necessary should be controlled through a properly constituted Court.  It is, however, essential that the machinery set up should be adequate to frustrate arrangements such as fixation of minimum prices, allocation of production and market quotas and the like, where such practices are restrictive and detrimental to the public interest.

   
   

   EXCESSIVE PRICES AND PROFIT

   More particularly, the legislation just referred to should provide that all charges of excessive prices and profits or unfair price discrimination whether on the part of state instrumentalities or of privately owned concerns, should be made before a judicial body.

   For reasons already made clear, the wartime method of control over the whole field of prices should cease as soon as practicable after the war, and the field should be progressively narrowed until the present system of control becomes unnecessary.  However, we believe that the legislation we have ^proposed should provide for periodical investigations of costs and prices by an appropriate Court of Enquiry clothed with adequate powers of direction.

   It is clear that the framing of the details of the Act suggested would need the most careful consideration.  Reference should be made to existing legislation pertaining to monopoly and monopolistic practices, such as that contained in the Australian Industries Preservation Act, the New South Wales Monopolies Act 1923, and the Queensland Prevention of Profiteering Act 1936.  It is sufficient here, however, to draw attention to the need for special action by the state if monopolistic tendencies are to be controlled, and if individual enterprise is to be allowed that freedom and scope necessary to the highest national efficiency in industry and commerce, and to the steady advancement of the standard of life of the people.

   
   

   TRADE ASSOCIATIONS

8. The recommendations on economic policy made above will affect considerably the future of the trade association.  In the past, trade associations, although varying greatly in their constitution and functions, have, in general, engaged in the practices of price-fixing, the allocation of production and trade quotas, and the stipulation of conditions of entry into a trade or industry.  We have stated our view that adequate machinery should be instituted by the state to supervise, and where necessary to prevent, activities of this nature.  It needs to be stressed, however, that the fixation of prices by a trade association, even with the confirmation of a government body, is, in general, an unsatisfactory substitute for prices determined under the free play of competition.  The determination of fair or just prices for particular articles is impossible without reference to the costs of production of similar articles produced under competitive conditions.  In the last analysis, the only way of deciding whether a given price is fair to the consumer is to see whether other businesses can produce the article more cheaply.

   The considerations just advanced do not mean that trade associations have not a significant part to play in post-war industrial organisation.  A wide range of problems in industry calls for co-operative handling if the best results are to be attained.  Merely in the exchange of experience and viewpoints on the technical, commercial, and labour questions common to the industry there is much valuable work to be done.  The standardisation and specification of products;  scientific and market research -- including the development of export markets -- requiring resources too great for the individual business and designed to benefit the whole industry;  the handling of the special relations of the industry to other industries, and to the state;  the regulation of the standards of business practices within the industry -- are all matters calling for the attention of trade associations or similar bodies.

9. The arguments in favour of state action to regulate restrictive practices of employers and combinations of employers apply with equal force to activities of a like nature on the side of labour.  As with trade associations, trade unions have a wide range of useful functions to perform in furthering industrial progress;  but the - activities which operate against maximum efficiency and output, in which they engage, should be regulated by the state.  Their position is more fully dealt with in Section VII.

   
   

   PATENT RIGHTS

10. Patent rights are a form of monopoly granted, for a limited period, to inventors in exchange for disclosing inventions to the public.  The system of patent rights through the incentive it provides for scientific discovery and application has contributed notably to economic advancement and the betterment of living standards.  The development and use of patentable inventions should be encouraged.

    Insofar as existing patent legislation may be inadequate to prevent:

    1. "attempts to retard the industrial and commercial use of inventions;  or
    2. the use of patent rights by combinations of traders or manufacturers to establish monopolies;  or
    3. the use of patent rights to establish unfair trade practices;

    it should be suitably amended.

    If the provisions of the Patents Act covering the compulsory issue of licences are inadequate to ensure the availability of patented articles to the public within a reasonable time, and at a reasonable price, then they should be strengthened in order to protect the public interest.

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SECTION VII -- THE ORGANISATION OF LABOUR

1. A number of proposals have been advanced by which the activities of employers can be recast to promote more effectively the objectives of increased production, greater security, and improved standards of life and labour.  Implicit in these proposals is the principle that where the practices of associations or organisations representative of employers clearly conflict with the welfare of the community, then, in the absence of voluntary action to correct the position, it is incumbent on the state to step in to protect the higher interest.  We believe that this same test must be applied also to the organisation of labour, and to the policies and practices followed by its representative bodies.

   
   

   THE TRADE UNIONS

2. Trade unionism has established itself as a great and powerful institution in the industrial life of Australia.  A deep responsibility therefore rests upon the unions to apply their great powers to the improvement of the economic and industrial mechanism.  As has been strongly urged in the case of organisations representative of employers, the unions also should place the motive of service to the whole on at least an equal plane with the narrower objective of short-term profit for their members.  With the co-operation of the trade unions and employers in solving the post-war problems of industry, and in the guidance of the public in a true appreciation of economic fact, there are few heights to which Australia could not aspire in the rapid betterment of the material well-being of all its people.

3. As a collective spokesman for the worker, the trade union constitutes an agency with which employers can conveniently communicate and negotiate.  Indeed, without the trade unions it is impossible to see how an ordered system of industrial regulation would be possible.  They have been instrumental in obtaining for many workers an overall standard of life higher than would have been the case had they not existed.  In unity, the worker has achieved a strength which he could never have acquired individually.

   To meet the demands of war the trade union movement has sacrificed many cherished principles, including its opposition to the employment of women in certain fields of industry, to the dilution of labour, and to the introduction of the principle of industrial conscription.  The right to exercise again some of its traditional principles must, no doubt, be restored when hostilities cease, but no more than any other great industrial institution should the trade union movement expect, or wish, to return without modification to its pre-war position.  The economic policies followed before the war may have in certain cases little application to the post-war world, where a different set of conditions and of demands will obtain.

4. Many trade union practices were evolved to meet the conditions of an economic society marked by great fluctuations in employment, by the constant overhanging threat of insecurity for the poorer sections, by excessive disparities in income and in the possession of capital resources, and by overlong hours and unhealthy conditions of toil.  But, particularly in the twenty years dividing the two great wars, a progressive amelioration of many of these conditions has taken place.  With the major industrial nations now determined to eradicate mass unemployment and insecurity, and the universal recognition of the necessity for adjusting conditions of work and leisure in the interests of physical health, the need for many of these practices should rapidly disappear.  No less than organisations of employers, the trade unions must be prepared to make far-reaching changes in their outlook on industrial problems.

   
   

   RESTRICTIVE PRACTICES OF THE UNIONS

5. As in the case of employers, we believe that after the war the more flagrant practices of a restrictive character enforced by unions on their members should be subject to the overriding jurisdiction of the state.  These practices concern particularly those of a "go slow" nature, such as the setting of maximum production times and of conditions for observance in the performance of specified jobs.  It is frequently the case for unions to stipulate for different classes of work, rates of output which must not be exceeded by their members.  Often the rates set are much below the capacity of an average worker and very considerably below the capacity of a fast worker.  Such practices as these must react inevitably against the interests of trade unionists themselves, as well as against those of other workers and the remainder of the community.  The rigid craft and trade demarcations, which the unions enforce, also have serious restrictive effects, as well as making much more difficult the prosecution of a policy of full employment which will demand a high mobility of labour.

   Legislation of a similar character to that indicated in Section VI to regulate monopolistic activities of employers should be passed to control the more serious restrictive practices of the trade unions.  It would possibly be better to achieve this end through suitable amendments to the existing industrial acts, and by giving the various industrial courts, Commonwealth or State, powers to act in the connection necessary, rather than to place control of labour practices under a new authority.  That, however, would be a question of machinery to be determined after expert investigation.  Unions believing they have a case to use practices which are prima facie harmful to the public interest should be compelled to make good their case before the authority responsible for policing the legislation.

   
   

   COMPULSORY UNIONISM

6. The claim for compulsory unionism should be abandoned.  It should no more be tolerated by the state than attempts of associations of employers to enforce compulsory membership on all firms and companies in their field.

   Freedom of association is not a freedom lightly to be violated by a society which prides itself on its advanced democracy.  Trade unions, like all other associations, should be prepared to rely for their membership on the service they can bring to their members and to the community.  Compulsory unionism would give the unions greatly increased power for a brief space, but would ultimately undermine the foundations of the union movement itself through the loss of respect of its own individual members.  In this, and other respects, the democratic character of the unions should be preserved and strengthened.

   
   

   EDUCATIONAL ROLE OF THE UNIONS

7. In the sphere of economic and industrial education the trade unions are in a position to exert a profound influence on the future of Australia.  They can help to shape the knowledge and attitude not merely of their members, but of the general public, in a deeper and clearer appreciation of stern economic and industrial realities.  Every Australian should be brought to realise that it is only through hard work efficiently applied to the end of greater production that a better standard of life will be possible.  This is the sole foundation upon which improved social services and social facilities can be built and, in the long run, increased wages paid.  To-day the community is being subjected to a flood of propaganda which neglects entirely this simple fact, as well as other elementary principles of sound economics.  A great deal of this is economic miseducation, not education.  Far from assisting to improve the position of those whom it professes to serve, its ultimate effect would be to cause a lower level of life all round than would otherwise be possible.  If the trade unions, as well as organisations of employers, would turn their educational activities more to the analysis and propagation of economic and industrial truth, a great advance in the outlook of the community would be possible.

   
   

   ARBITRATION COURT

8. For the settlement of disputes between employer and employee and the determination of minimum wage rates, hours and conditions of employment, Australia has for over a generation pinned her faith to the system of industrial arbitration and regulation.  In this system both the Commonwealth and States have participated.

   In their awards and determinations the State industrial tribunals have followed very closely the provisions of orders and awards of the Commonwealth industrial authority.  Under State laws it is mandatory, upon the N.S.W. Industrial Commission, and the Victorian Wages Boards, to incorporate in their determinations the wage rates contained in Federal orders and awards to the extent to which they are applicable.

9. The arbitration system has certain grave drawbacks, the most serious being its tendency to create a spirit of division and opposition between the, two main partners in industry.  The practice has grown up of fighting out their differences through the industrial courts;  all too seldom have strong efforts been made to settle these differences through voluntary agreement.  The ideal of co-operation in industrial matters has thus tended to be relegated to the background.

   But, on balance, the advantages of the system of industrial arbitration have far outweighed its defects.  In the absence of some kind of control in industry such as has been practised, industrial justice and peace and social conditions generally would almost certainly have been seriously prejudiced.

   
   

   SUGGESTED REFORM

10. The success of industrial regulation in Australia should not, however, blind us to the serious defects that are discernible in the present operation of its machinery.  The Commonwealth Court of Conciliation and Arbitration, because of the restricted industrial power that the Constitution allows to the Commonwealth Parliament, is limited both as to the powers and jurisdiction that are bestowed upon it.  Thus it is without power to make a common rule for an industry, or part of an industry, and its jurisdiction is limited to the hearing and determination of such disputes as are held to extend beyond the limits of any one State.  These limitations have proved of no small significance in their nature and in their practical effects.  The time is more than ripe for the operation of a more fully equipped national tribunal and the provision of a national basic wage.  Therefore, the requisite steps should be taken, by amendment of the Constitution or by the enactment of surrendering legislation by the States, to enable the Commonwealth Parliament to clothe its industrial instrumentality with power to make a common rule in an industry, or in part of an industry, and to confer jurisdiction on it to hear and determine purely intra-State disputes where desirable.

    
    

    EQUAL PAY FOR WOMEN

11. Whether women should be paid the same remuneration as men where they perform equal work has become a major industrial and social issue in the democratic nations.  In Australia before the war the broad practice of the Commonwealth Arbitration Court was to prescribe a basic rate for adult female unskilled workers approximately 54 per cent, of the male basic rate.  With the war, and the enlistment of women in industry to augment the nation's labour force and to replace men entering- one or other of the armed services, this general practice has been modified through the institution of the Women's Employment Board.  The Women's Employment Board was established to deal with the determination of rates for women engaged on jobs previously performed solely by men.  In general, the practice of the Board is to fix rewards at 66.6 per cent, of the male rate for a probationary period' of 8 to 12 weeks, and then to increase the rate to 90 per cent, of the male rate.  Possibly this system, or some similar system, has been imperative during the war to cope with the special problems caused by the entry of large numbers of women into industry and the substitution of women for men on men's work.  It is noteworthy, however, that the determinations of the Board cover probably leas than 10 per cent, of the total number of women employed in industry.

12. Nothing is more vital to the future of Australia than the need for maintaining in its full integrity the institution of the family.  The Australian home requires to be specially encouraged and strengthened to counteract the disintegrating influences of modern social trends.  If family life is to be sustained on the firmest and healthiest foundations, the wage rates for males must be determined at the highest figure that the country can bear, without jeopardising its competitive position in the world economy.  To award women workers the full male rates, or to allow them any substantial increase in their rate in relation to the wages of men, must have serious repercussions on the wage that industry will be able to afford for men.  A generally higher wage for men than for women finds its justification in the elemental fact that the man must always be the natural breadwinner of the family.

13. Apart from its social aspects, the problem of equal pay for women needs to be considered in its relationship to the economic traditions and practices of the country concerned.  In Australia it seems clear that any attempt under conditions of peace to grant equal pay for women where they perform equal work would require fundamental changes in our traditional principles of wage fixation, and possibly in our established social services.  At present the Commonwealth basic wage is determined partly by reference to the "needs" of an average, though undefined, family unit.  The adoption of equal pay for women would appear to require the abandonment of this system and the substitution of a minimum wage for all single men and women related roughly to their estimated "needs," combined with the institution of a comprehensive and adequate system of wife and child endowment.  The basic wage system in Australia has, on the whole, proved itself an efficient instrument for securing social justice and economic effectiveness in the determination of wage rates, and it would be, in our opinion, wrong to abandon a proven method for one untried and untested.

    
    

    "PAYMENT BY RESULTS"

14. If the best results are to be achieved, incentives to efficient energetic work should be widened to apply directly, so far as possible, to every participant in the industrial process.  As with the employer, the enterprise and energy of the individual employee should reap its merited reward.  In Australia systems by which rewards are related directly to the quantity and quality of the work performed by the individual obtain in rare instances only, chiefly because of the strong opposition to such systems by the trade union movement.  Under the economic conditions likely to rule after the war, Australia will need to make special efforts to maintain its industry at the highest efficiency if she is to hold her place in the world economy, and if the- domestic demands for a better standard of life are to be met.  The considerable army, navy and air-force establishments that it will bb necessary to maintain after the war as part of the permanent defence of Australia, will also throw increased burdens on those directly engaged in the production and distribution of goods and services.  It is difficult to see how the required level of efficiency to meet these conditions will be possible unless we are prepared to relate incentives more closely to the work performed, as has been done in such countries as Great Britain, the United States and Soviet Russia.

    
    

    OPPOSITION OF THE UNIONS

15. The opposition of the unions to efficiency payments of this kind arises on two counts -- first, because it is believed that such systems would be used to "sweat" the employee to earn greater profits for the employer.  The second objection derives from the general fear of the unions that increased efficiency resulting in greater, output may lead to unemployment.

    It is necessary to meet these objections which, it must be conceded, have to some extent in the past been well founded.  In many instances systems of efficiency payments presuppose the setting of production rates for specified jobs.  To safeguard the employee it is suggested that standard production times and/or rates when set, and accepted by employer and employee, remain unaltered unless the method of production is changed.  There must be no "sweating" in industry;  and every precaution must be taken to ensure that such systems are not abused.  The aim is twofold -- to increase the efficiency of industry and through such increase to augment the monetary reward of the employee.  With a conscious policy directed towards the maintenance of full employment, backed by an adequate social insurance scheme, the second objection of the unions to "payment by results" should disappear.  We believe that employers and unions should discuss together the application of these systems to industry with the object of enhancing the well-being of the worker.

    It should be made clear that these "efficiency payments" should in no way upset the existing system of basic minimum rates of wages and of "marginal rates" for special qualifications, experience, and responsibility.  They should be in the nature of payments over and above the minimum rates.

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SECTION VIII -- INDUSTRIAL RELATIONS

1. The success of any proposals for the reform and improvement of industry will be governed by the measure of collaboration that can be achieved between the different sections concerned in its working.  An efficient economic system which will provide a higher standard of material comfort and of contentment for all members of the community will be impossible unless these sections are animated by a spirit of mutual confidence and goodwill.  This applies particularly to individual employers and their representative organisations, to the workers and their representative unions, and to government officials engaged in economic administration.  There is need for a deep and widespread recognition of the underlying community of interest which all sections have in policies leading to improvements in efficiency, the enlargement of the national income, and a just distribution of the products of industry.

2. The relationship between employers and employed have a critical importance in this regard.  Over a broad field of industry there is increasing and disturbing evidence of a general absence, of fellow-feeling and co-operation between employers and employees.  Trust and confidence are, in numerous instances, being replaced by growing suspicion and antagonism.  Many employees no longer feel any sense of loyalty to, or pride and close personal connection in, the organisations by which they are employed.  This development is destroying the friendly goodwill which should exist between employer and employee;  it is weakening discipline and industrial morale and tone, and seriously reducing efficiency.  More important, however, are the harmful effects on character involved in the lack of a sense of mutual responsibility by employer and employee toward one another.  Unless this trend is arrested and reversed, then all schemes of economic, social and political reconstruction will be undermined by the fatal disease of class warfare.

   
   

   INDUSTRY -- A PARTNERSHIP

3. Australian democracy is confronted with few more serious or pressing problems than that of bringing about a reasonable measure of trust and confidence between employers, management and employees.  A new spirit throughout industry is urgent.  But it is plain that this new spirit will not be achieved without considerable modification of the traditional ideas and practices which have governed hitherto the relations between employers and employees.  We must search for a broader and stronger foundation on which to build industrial relations now and after the war.

   Little advancement will be possible unless both employers and employees, and especially the leaders of industry and labour, give practical recognition to the truth that industry, in all its aspects, is fundamentally a partnership;  that, as partners, both sections stand to benefit from hard work and efficient practices which lead to increased production.  The crux of the problem before us was stated some years ago in the following words by a leading Englishman, Viscount Cecil:

   "Under modern conditions industrial success can only be achieved if all concerned put their whole energy, mental and physical, intellectual and muscular, into the common undertaking.  They must work as partners, not as rivals."

   It is on this basic conception of industry as a partnership between employers and employees that the proposals in this document for the improvement of industrial relations have been formulated.

   
   

   SOURCES OF INDUSTRIAL DISCONTENT

4. It is necessary to note that the dissatisfaction of the employee section of industry may be due to either one or both of two causes.  First, it may arise from discontent with the rewards, conditions and treatment which employees receive in the organisation in which they work.  This is a common, but under today's conditions not the major, cause of ill-will between employer and employee.  The major cause is the absence of confidence of great numbers of employees in the system under which industry has been conducted to provide them with security of employment and income, and with protection for themselves and their families against economic misfortune.

   It is impossible to see how industrial relations can be constituted on a satisfactory basis unless the great body of workers has a reasonable assurance that the mass unemployment of the decades preceding the war will not recur.  Over and above such an assurance it will be necessary for employees to know that, in return for honest service, they and their dependents will be provided under all contingencies with the means to sustain themselves in a decent minimum of physical well-being.  It is probably true that the greatest demand which has grown out of the present world conflict is the demand for security.  It is an entirely legitimate demand and it requires a concrete and practical answer.

   We believe that a great advance will be made towards the elimination of large-scale unemployment if the practical implications of the measures outlined in Section III of this report are studied and applied.  But it is still necessary to make provision for loss of income due to temporary unemployment, sickness, physical disability, accident or old age and for insufficiency of income due to large families.  We are of the opinion that the best method of achieving this end is through a comprehensive scheme of national insurance to cover all contingencies and with an adequate scale of benefits.  The method of financing such a scheme is of the utmost social significance.  In order to preserve the element of personal responsibility it is essential that the recipient of benefits should make a direct personal contribution, however small, to the cost.  A contributory scheme has the additional advantage of establishing a clear contractual relationship between the parties concerned, namely, the individual and the state.  Under a non-contributory scheme there is, in effect, no contract, and therefore nothing to prevent a needy government from reducing benefits at its discretion.  We oppose, therefore, a scheme of social security financed out of general revenue and in which no direct personal contribution is involved.

   Recent Commonwealth legislation pertaining to unemployment and sickness benefits, invalid, old age and widows' pensions, and maternity allowances, is founded on the non-contributory principle.  With the extension of these benefits, particularly to unemployment and sickness, there is danger that the absence of the contributory principle may lead to grave evils, including loss of personal responsibility and self-respect and the inculcation of the idea that security can be had without work.

   We accept the principles of finance adopted in the proposals of Sir William Beveridge for Britain, namely, contributions from employers and employees and from general revenue.

5. Upon this national foundation of full employment and social security it should be possible for the employers of labour to go forward with the introduction in their own organisations of measures that will promote a better understanding with their employees.

   In recommending the steps detailed below it is appreciated that all of them will not be suitable to every organisation.  Several are applicable mainly to businesses of some proportions;  however, it is often in such businesses that the problems of industrial relations are most acute.

   
   

   CONSULTATIVE COUNCILS

6. It is desirable that labour in all its grades should be brought into closer contact and association with employers and management.  One of the chief causes of industrial dissatisfaction is the misunderstanding, or the absence of understanding, of the motives inspiring the policies and actions of employers.  Conversely, employers have too little knowledge of the thought and motives of their employees.  This misunderstanding is, to a considerable extent, the result of the impersonal nature of the larger industrial organisation.  It is urgent to devise machinery that will assist in re-establishing relations on a more intimate and more human basis.  In a "meeting of the minds" between employers and employees lies one of the great hopes of achieving industrial peace and stability.

   This general aim can be assisted by the wider adoption of consultative councils, factory committees, and such-like bodies, consisting of an equal number of representatives of employees and of the management.  It is necessary that the representatives of the employees should be elected by secret ballot and irrespective of their membership of a union or other association.

   These committees should in no way displace the trade unions as the negotiating bodies on questions of wages and conditions affecting the whole trade.  Nor can they relieve the management of the responsibility for taking all necessary decisions affecting the conduct of a company's business.  The powers of such committees should be, in the main, advisory and consultative.  Efficiency measures, safety devices, welfare arrangements, and a host of matters connected with the everyday life of the factory would fall within their purview.

   One of the chief advantages of such bodies is that they provide the means of informing employees of the financial facts, the reasons underlying policies, and the future programmes and prospects of their organisations.  The provision of information of this character, on a foundation of free and open discussion, is essential to better understanding and improved relations.

   
   

   PERIODICAL EMPLOYEE REPORTS

7. To assist in this aim of informing employees on the position and prospects of their businesses, periodical, yearly or half-yearly reports, complementary to those issued to shareholders, but adapted to suit the needs of employees, are strongly recommended.  The institution of house magazines or bulletins, wherever practicable, will also provide a valuable medium whereby employees can be brought into closer touch with the operations of their organisations, and with the practical problems and difficulties inherent in the management.  Through publications of this kind the individual worker can be assisted to understand the particular purpose of his job in its relation to the general activities of his firm or company.

   
   

   PROFIT-SHARING

8. Wherever reasonably applicable, schemes of profit-sharing should be introduced.  The adoption of such schemes on a widespread scale should help to enlist the co-operation and enthusiasm of employees in increasing the efficiency and flexibility of industry, as a whole, and should have marked effects on the attitude of mind of employees towards industry.  Under profit-sharing an incentive towards maximum production would be provided which was generally absent under the arrangements existing before the war.  The general adoption of-systems of profit-sharing will, of course, be contingent on the severity with which profits are taxed and also on the provision of a reasonable and just remuneration for invested capital.

   Without commitment at this stage to any particular method of profit-sharing, and recognising the need for a diversity of methods to meet the circumstances of different organisations, it is believed that the system evolved by the Employee Partnership Institute of New Zealand under the leadership of Mr. H. Valder, is worthy of careful study by industry.  It is noteworthy that the Companies Acts of both New Zealand and New South Wales have been widened to allow of the application of the principles proposed by this Institute.

   
   

   HOLIDAYS

9. The physical and mental health of employees, and the social need for providing ample time for the breadwinner to spend in leisure with his family, make it desirable that a minimum annual holiday of two continuous weeks, with pay, should be instituted throughout industry.  It is suggested that employers and trade unions should confer with the object of bringing this about.  Full regard would need to be paid to the various economic factors involved.

   
   

   HOURS OF WORK

10. For the same seasons, suitable hours of work should be the-prerogative of all participants in industry.  Scientific investigations, based on recent industrial experience, have demonstrated that reduction of long working hours has a favourable effect on efficiency and output.

    
    

    FACTORY CONDITIONS

11. Standards of factory accommodation and amenity should be advanced progressively in line with scientific knowledge.  Representative employer organisations might well consider the adoption of minimum codes of factory conditions to which all their members should be called upon to conform.  Employers should take the initiative in these matters themselves.  Factory or office workers cannot be expected to give of their best in service and co-operation where their conditions are unsatisfactory and devoid of the amenities necessary for good health, happiness and efficient work.  Good working conditions will react favourably both on the efficiency of production and on industrial relations.  Full attention should be given to measures to prevent accidents and to ensure the safety of workers.

    Company medical and dental services should be more widespread.  There is much to be said for industrial organisations taking steps to provide for the medical examination of new employees.  The purpose of such examinations should not be to reject the unfit, but to assist in guiding employees into channels of work best suited to their physical condition:  All employees might be medically examined at regular intervals if they have not already been examined for special reasons.  Particularly should this be the practice for those engaged in work which involves unusual or harmful exposure, for example, to fumes or dust of toxic metals and to silica dust.  Such examinations should not be compulsory, but left to the discretion of the employee, who should, however, be encouraged to undergo them in the interests of his own welfare.

    Industrial health is not solely dependent upon what the worker does during his working hours, It is probably true that too few engage in healthy outdoor exercise.  This need might be catered for in large organisations by the more widespread provision of sports facilities, which need not necessarily be close to the places of employment.

    Nutrition in industry is another aspect of health which has not received its proper measure of attention.  Under modern conditions canteens are desirable and even essential in large establishments and should be instituted and administered by employers in co-operation with the workers' representatives.  An adequate interval should be allowed for lunch and every effort made to guide employees in the principles of good nutrition.

    
    

    HOUSING

12. An adequate standard of housing for all sections of the community is an indispensable element in social well-being.  Although the post-war housing of industrial workers may generally fall within the category of national works, large industrial organisations can assist in ensuring that their employees are properly housed by special assistance in financing and possibly by organising the erection of suitable homes.

    
    

    WELFARE SCHEMES

13. Subject to, and qualified by, the benefits which may accrue to all sections of the community under a comprehensive national scheme of social security, it is desirable that industry should give every possible protection to its employees against unemployment, sickness, accident and retirement, by subsidising welfare and superannuation schemes.  The extent to which this can be done will depend partly on the wishes and ability of employees to contribute to such schemes as well as to a national scheme, and partly on the capacity of individual concerns to make the dual contribution that would be necessary.

    
    

    EDUCATION

14. The signatories of this document look forward to a vast development in the educational facilities of the nation after the war.  The improvement of education is vital to the well-being of Australia, and will have important repercussions on industry.  We are in favour of the raising of the school-leaving age as soon, as practicable to 16 years with, possibly, part-time compulsory education to the age of 18.  Reforms of this kind will make it necessary for employers in conjunction with the state to regulate suitably the hours and conditions of work of juvenile employees to enable them to proceed with their studies.  It is also desirable that industry should so arrange shift and maintenance work as not to interfere with religious observance on Sundays.

    Industry should also pay full attention to the vocational training of its employees, in order to improve efficiency, increase the mobility of labour, and to fit employees with the requisite capacity for higher responsibilities.  Industry should extend the greatest possible financial assistance to schools, universities and technical training bodies.  Special training plans should be made to suit the needs of returned service men and women and to assist them to take up satisfactory occupation in civil life.

    
    

    OPPORTUNITY

15. Every effort should be made throughout industry to widen opportunities and to give every individual the chance of rising to a position of responsibility commensurate with his or her innate or acquired capacities.  While profound social reasons, concerned with the retention of incentive to effort and risk and the preservation of the family as the unit of social life, make it undesirable to attempt to achieve an absolute equality of opportunity for all, a greater measure of equality of opportunity than existed before the war should be provided. ⁽⁹⁾

    
    

    RESPONSIBILITY AND DISCIPLINE

16. We have stated above a code of duties of industry towards employees.  The institution of such a code would necessarily carry with it a greater degree of responsibility by employees for the conduct and efficient operation of industry.  The success of the measures proposed will therefore depend on the extent to which these responsibilities are recognised and carried out.  A special duty rests upon the leaders of labour in this regard.  Practices designed deliberately to antagonise the workers against their employers have no place in a system of industry based on the general conception of partnership, and should be abandoned.

    Beyond this a healthy respect for discipline and for worthy leadership by all engaged in the manifold activities of industry is fundamental to a more prosperous life for the whole nation.  Indiscipline and slackness are not characteristic of the great body of Australian workers, but a minority, irresponsible, neglectful of its duties, and deliberately fomenting unrest and disorder, can have a disastrous influence on industrial morale and efficiency.  Under conditions of full employment, where a man knows that there is probably another job around the corner, a fertile ground is provided for the activities of the irresponsible.  There must be available, therefore, adequate sanctions to be applied against those who will not observe the ordinary decencies of human conduct, and who tend to weaken the moral fibre of the community.  We recognise the difficulty of making specific recommendations on what is a very difficult and delicate subject.  The issues involved here are of such moment and so vital to the welfare of the nation that they require intensive study and consideration in all responsible quarters.

    The following proposals, while not meant to be complete, should, if adopted, help to offset the insidious influence of an irresponsible minority.

    1. The power of direct dismissal should be returned to the employer at the earliest possible moment after the war.  The present system of suspension and appeal with a third party with powers to arbitrate, while necessary during the war, would be wholly unsound under conditions of peace.  Efficient administration demands that the management of a business should have the power of final decision regarding questions of indiscipline and carelessness, without reference to a third party, which cannot, of necessity, be as well informed of the history and personal details attaching to any particular case.  It is bad in principle to introduce, except where unavoidable, an authority to arbitrate on affairs between employers and employees.  It tends to the division of the two parties into opposing camps and works in the opposite direction to the ideal of co-operation.  Moreover, the employee, if a member of a trade union, has a body which can act on his behalf in an attempt to obtain a further hearing of his case.  The responsibility rests on employers of establishing within their organisations arrangements to provide employees with the opportunity to appeal against dismissal to factory or works managers, and, if necessary, to the managing director, or general manager.
    2. But the power of direct dismissal, will in itself mean little if the dismissed is able immediately to fall back on adequate unemployment benefits obtainable under a national plan of social security.  We have stated our belief in a comprehensive social security scheme, based on contributions from employer and employee and from general revenue.  It should be a cardinal feature of such a scheme that a person dismissed for gross misconduct forgoes the right to draw unemployment benefits. ⁽¹⁰⁾  Those who will not accept the just responsibilities of citizenship must not be allowed to become a burden on the conscientious and hardworking.
    3. Consultative councils, whose wider adoption has been recommended, might be used beneficially to assist in the control of those who refuse to pull their weight in industry.
    4. The general introduction of systems of incentive, particularly piece work and other schemes based on the principle of payment by results, and, to a less extent, schemes of profit-sharing, should help greatly to counter laziness and carelessness, the tendency to which is strengthened where everyone gets a standard reward, no matter what the quantity or quality of his work.

    It cannot be too strongly affirmed that the post-war goal of security for the nation as well as for the individual will depend on two fundamental factors: --

    1. the efficiency of industry, using the term "efficiency" to embrace the qualities of enterprise, intelligence and energy;
    2. the measure of co-operation which can be achieved between the different sections concerned.

17. While it is believed that the general acceptance and adoption of the measures recommended above will provide firm foundations for the improvement of industrial relations, it should not be overlooked that these relations are, in their essence, a personal, human and moral issue.  Machinery such as consultative councils will achieve little success unless the qualities of tolerance and a high sense of mutual responsibility are present in both parties concerned.  Given such tolerance and responsibility, based on a recognition of the fundamental identity of interest of all engaged in the work of industry, confidence and trust can be built;  but in the absence of these qualities and this recognition, no machinery will achieve its objectives.

18. The proposals outlined above are put forward in a sincere desire to overcome a situation, which, if prolonged, will work disastrously against the welfare of all sections in the community.  Failure to receive these proposals in this spirit will cast a responsibility on those who reject them for suggesting workable alternatives for improving the status of the employee and the co-operative spirit throughout industry.

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SECTION IX -- A REPRESENTATIVE COUNCIL FOR INDUSTRY

1. The great complexity of modern industrial issues, and the universal and commendable tendency to relate these issues to the wider questions of national welfare, indicate the need for industry both to study these problems continuously and to approach them on the broadest national foundation.  Some form of machinery is urgently required through which the business community can more effectively discharge its responsibilities -- implicit in this policy -- in the betterment of the material and social life of the whole people.

   We believe that the time has come when industry should possess its own industrial and economic general staff whereby it can exert a strong and continuing influence on public opinion and on national policies affecting, directly or indirectly, its own sphere of activity.  There are many questions of high national policy which transcend the limits of single trades and sections of industry.  On these questions it is desirable that industry should be able to speak with a single voice of high authority.  The more parliament concerns itself with the conduct of economic affairs the greater is the necessity for an authoritative organ to express the viewpoint of industry, and to serve as a medium of co-operation with the state in translating policy into practice, (It should be made clear, however, that, while in the formulation of economic policy we regard closer co-operation between the state and industry to be desirable, parliament, as the -supreme authority and the body representing the people, can alone be responsible for deciding the final form that policy takes and in conflicts of opinion its will must necessarily prevail.)

2. Accordingly, it is recommended that a Central Council of Industry broadly representative of the manufacturing, commercial, banking, and finance sections of industry be established.  This body should be concerned only with matters of a national character, and would supersede in no way the main functions of the existing representative business and trade organisations.  Naturally, however, it would need to maintain regular consultation with these organisations.

3. The Council of Industry should be appointed or elected at suitable intervals by the existing chambers, associations and representative bodies.  The representation on the Council of the different sections of industry should obviously be proportioned on a basis which would recognise the relative importance 6f those sections in the industrial structure of the country.

4. The Central Council should have at its disposal a full-time advisory and research intelligence staff of high quality.

5. Its functions would include the following: --

   1. To engage in economic and industrial research with a view to advancing the effectiveness of industry as a contributor to the national welfare.
   2. To formulate and express the broad attitude of industry on general industrial and economic policy.
   3. To study and express the viewpoint of industry on international economic policy and on the means whereby world trade may be expanded in the interests of the peoples of the world.
   4. To consult with the Australasian Council of Trade Unions on means of enhancing efficiency in industry and of improving harmony and understanding between employers and employees.
   5. To recommend to the Government of the day adjustments in the existing industrial and social legislation and to act for industry on general questions concerning the relations of industry to the state.
   6. To study, and to disseminate information concerning market and economic conditions, trade fluctuations, credit facilities and other matters affecting the welfare of the average business.
   7. To keep the Australian business community informed on the latest thought and practice in business and economic development both in Australia and abroad.  It should provide a constant flow of information and of balanced and considered views on national and international matters of importance.  The absence in Australia of suitable high-class publications dealing with questions of this nature makes this function of special significance.

6. The purpose of the above recommendation is broadly twofold: --

   • First, to enable industry to exert an influence in the national life appropriate to its singular importance, great resources, and to the vast numbers of people for whom it provides the means of employment and livelihood.

   • Second, to provide industry with the means of achieving a full and efficient realisation of the responsibilities it owes to its employees, investors and the consuming public.

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SUMMARY OF PROPOSALS

1. To meet successfully the industrial and commercial problems which will confront the nation after the war, the economy must be so organised as to provide the fullest encouragement to individual enterprise and courage.

2. Within the field of private enterprise both employers and the leaders of labour should assume the responsibilities they owe for material and social uplift by virtue of their privileged stations.

   
   

   EMPLOYMENT

3. In order to maintain a high level of total employment an Economic Advisory Council consisting of nominees of the Commonwealth and State Treasuries and of the Commonwealth Bank, the Coordinator-General of Public Works, and of members selected from private industry for their special experience and knowledge, should be established.  The Council should have attached to it expert advisers including at least one economist of high standing.  It should be responsible for co-ordinating financial policy and public works and private investment programmes, and for devising the broad economic plan necessary for a continued high level of employment.  It should make public reports at regular intervals on the total economic situation, with particular regard to the position of private investment as affecting employment.  The Economic Advisory Council should have at its disposal a small central economic and statistical secretariat.

4. The Commonwealth Bank should be in a position to, and should pursue, a credit policy, which at all times makes possible a level of investment adequate to maintain full employment.

5. Government financial and budgetary policies should be designed to encourage employment-giving private enterprise, particularly in times of threatened economic stress.

6. Government budgets should be so constructed that in years of high economic activity surpluses from current revenue and public loans would be accumulated for expenditure in years when the level of employment shows signs of declining.  The balancing of budgets should be a long-term rather than an annual objective.

7. The public works programmes of state instrumentalities, apart from urgent and indispensable national projects, should be used chiefly as a "balance wheel" to private investment with a view to keeping the total national investment -- public and private -- at a high and stable level.

   
   

   THE ROLE OF THE STATE

8. The goods and services to be produced should, in the main, be decided by the people in their capacity as consumers, and not by the state acting through its executive officials.  The latter policy would necessitate a far-reaching system of government controls and of state regimentation of the life of the individual, and would usurp the individual's prerogative to choose the commodities on which to spend his income.  This means that a return should be made, as soon as possible after the war, to a price and market mechanism sufficiently free to register the real demands of the people.

9. The functions of the state in the control of the economic system should be basically fourfold: --

   1. To assist in preventing the periodic recurrence of large-scale unemployment;
   2. to provide for all responsible citizens (through social legislation) protection from the fear and degradation of economic misfortune;
   3. to regulate private business so as to encourage the maximum enterprise and initiative of individuals and groups;
   4. to conserve, in the interests of the nation those natural resources fundamental to its future security and prosperity.

10. The state and private industry should regard themselves as partners in the task of improving the living standards and security of the community.  The representatives of the state and of private business should work in the closest collaboration.

11. Expert review should be made now of the vast and complicated system of war-time regulations as a preparatory step in reconstruction.

12. During the transition from war to peace, a measure of government direction and control -- particularly over prices and consumption -- will be necessary.  Controls' should be progressively relaxed.

13. Use should be made where clearly desirable of the accumulated experience of economic planning gained during the war.  For instance, it would appear that a greatly modified manpower administration has a part of permanent value to play in the better ordering of our economic affairs.

14. Where controls are necessary they should be simple, direct, and involve a minimum of interference with the day-to-day activities of business.

15. The civil service -- particularly those sections concerned with economic and industrial matters -- requires to be strengthened and should include men with a broad knowledge of business and with proved practical attainments, as well as men of high academic qualifications.

    
    

    ENCOURAGEMENT OF ENTERPRISE

16. An adequate profit margin, after payment of taxation, is essential if private business is to improve the efficiency of its capital equipment and to conduct the scientific research and experiment necessary to material progress.

    Taxation of business should be adjusted so as to provide the fullest encouragement to enterprise and initiative.

17. Taxation on private incomes should be very substantially reduced at the earliest possible moment after the war to allow of adequate incentive to the individual to assist in the promotion of post-war revival and progress.

18. The structure of Australian taxation should be simplified and overhauled in the light of the requirements of full employment and individual incentive.

19. The Commonwealth Government should immediately explore ways and means of providing taxation relief to business organisations to permit the building up of ample depreciation and of general reserves necessary for effective post-war recovery and expansion.

20. The trading banks should investigate steps which might be taken to provide increased financial assistance and support for smaller businesses.

    
    

    THE BANKS

21. Control of the volume of currency and credit should remain with the Commonwealth Bank, and in vital matters of monetary policy this institution should enjoy a measure of autonomy from all save the will of the people as expressed by Act of Federal Parliament.

22. Trading banks of the existing types should continue to act as the distributors of credit to industry.

    
    

    MONOPOLIES

23. Legislative provision should be made requiring the presentation of the accounts of organisations of a monopolistic character -- that is, organisations supplying the whole, or substantially the whole, market for their special products -- in such a form that the public has sufficient information for an intelligent appraisal of their affairs.

24. Practices of associations or combinations of producers and traders which conflict with maximum output and efficiency, or resulting in prices and profits in excess of what is reasonable, should be regulated by the state.

    Legislation should be enacted to define in specific terms the principles upon which any charge against a monopoly or combine or trade association can be laid.  It should also specify the principles to be observed in the determination of penalties.

    Any machinery which it may be found necessary to set up under the legislation to deal with monopolistic practices should, in our view, take the form of a properly constituted Court, but it should be adequate to frustrate arrangements such as the fixation of minimum prices and the control of entrance into a trade where they are detrimental to the public interest.  The legislation should provide for periodical investigations of costs and prices by an appropriate Court of Enquiry.  The restrictive practices of trade unions should be similarly controlled, possibly through suitable amendment of existing industrial legislation.

25. Insofar as existing patent legislation may be inadequate to ensure the availability of patented articles to the public within a reasonable time, or to prevent unfair or restrictive trade practices, it should be suitably amended.

    
    

    TRADE UNIONS

26. The trade union movement should strengthen its democratic character, and abandon entirely its claim that membership of a union should be compulsory.

27. Trade unions, as well as organisations of employers, should endeavour to educate the public in a true appreciation of economic and industrial fact:  Their propagandist activities should be turned to constructive purposes.

    
    

    ARBITRATION AND WAGES

28. The Australian system of arbitration should be amended so as to allow the Commonwealth Court of Conciliation and Arbitration to make a common rule in an industry, or part of an industry, and to hear and determine purely intra-state disputes where desirable.

29. The essential principles underlying the system of determining a minimum basic wage before the war for men and women should be retained.  The principle of "equal pay for women" should be rejected as being incompatible with the strengthening of home and family life.

30. Systems based on the principle of "payment by results" should be introduced, wherever practicable, throughout industry.  Payments made under these systems should be over and above the minimum basic rates as determined in industrial awards.

    
    

    SOCIAL SECURITY

31. Social insurance to protect the individual and family against economic misfortune should be adequate, comprehensive, and contributory.  It should, in general, be financed by contributions from employers and employees, and from consolidated revenue.

    
    

    INDUSTRIAL RELATIONS

32. The following steps to improve relationships between employers and employees are recommended: --

    1. The wide adoption of consultative councils consisting of an equal number of representatives of employees and of management.
    2. Employees to be fully informed of the activities and plans of their organisations through regular reports and house magazines.
    3. The introduction of profit-sharing schemes, wherever practicable.
    4. The institution of a minimum annual holiday of two weeks, with pay, for all employees engaged in industry.
    5. The regulation of hours of work, factory conditions, and the introduction, where necessary and when practicable, of medical, dental and canteen services, and encouragement and assistance in establishing sports facilities in the interests of the health, happiness, and general well-being of employees.
    6. The provision by larger industries of assistance in the proper housing of their employees.
    7. The supplementing of national social security benefits by company superannuation and welfare schemes, where financially possible both for employers and employees,
    8. Regulation of the conditions of employment to conform to the need for a vast expansion and improvement of the educational facilities of the nation after the war.  Vocational training of employees should be adequately assisted and special training plans made to help service men and women to take up satisfactory occupation in civil life.
    9. The widening of opportunities to give every individual the chance to rise to positions of responsibility commensurate with their capacities,
    10. The education of the public in an understanding that greater production, and therefore higher wages and incomes, are seriously handicapped through industrial strife, and that any action inducing industrial strife is anti-social and as damaging to the national effort in peace as it is in war.
    
    

    INDUSTRIAL DISCIPLINE

33. The power of direct dismissal should be returned to the employer as soon as possible after the war.

34. Social security schemes should contain suitable penalties and sanctions to be applied against those who refuse to accept the just responsibilities of citizenship.

    
    

    A COUNCIL FOR INDUSTRY

35. A Central Council for Industry, representative of the manufacturing, commercial, financial and banking sections, and elected and constituted by the existing representative business and trade organisations, should be established.  It should have attached to it an expert economic and industrial secretariat.

36. The Council should be responsible for formulating the broad industrial and economic attitude of business and for expressing the viewpoint of industry or national economic policy.  It should engage in economic and industrial research to enable a more effective fulfilment of the responsibilities of industry as a contributor to the national welfare.

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ENDNOTES

1.  For Britain, the following statement is made in the Beveridge Report -- "the real wages of labour -- what the wage-earner could buy with his earnings just before the present war -- were, in general, about one-third higher than in 1900 for an hour less of work each day."

2.  It is important that the term "Pull Employment", wherever used in this document, be interpreted strictly in the sense defined in paragraph 3 of this Section.

3.  It is probable that Australia has advanced further than the older industrial countries in the state and municipal ownership and control of important public utilities and services such as those indicated here.

4.  In a paper delivered before the Summer School of the Australian Institute of Political Science at Canberra in January, 1944, Dr. H.C. Coombs, the Director of Post-War Reconstruction, stated: --

"Decisions as to how labour, materials, equipment are to be used will be made or influenced increasingly by public authorities rather than by individuals. ..."

5.  We have seen during the war an economy based substantially on private ownership and administration rigidly planned and controlled by the state.  Such an economy can be made to work with reasonable efficiency under the great driving motive of national survival.  It would not, however, provide the conditions necessary to vigorous work and initiative when that motive ceased to be present.

6.  Since this suggestion was drafted the Commonwealth Attorney-General has appointed the Advisory Committee on National Security Regulations to review war-time regulations with a view to modification and repeal.

7.  Tho taxation figures quoted in this and preceding paragraphs relate to the rates of taxation ruling at June, 1944.

8.  This problem is receiving special attention from governments and industry in the United States, Canada and Great Britain.  The recent British Budget contained certain provisions to provide relief for industry.  The White Paper on Employment Policy recently issued by the British Government states:

"During the war British industry has amply demonstrated its power to improve the technique of its production, and this improvement must continue if we are to solve the problems of the post-war years.  The Government has been considering, as part of its general reconstruction plans, what help it can give to this end.  The Chancellor of the Exchequer has already announced in his Budget speech the means by which taxation policy will be adapted to foster the development of industrial research, and to facilitate the modernisation of industrial plant, machinery and buildings.  These important modifications in the incidence of taxation on industry will make a substantial contribution towards industrial recovery after the war and will pave the way for a continuous technical advance throughout British industry."

9.  Sir William Beveridge, in stressing the necessity of safeguarding the family as the basic social unit, has pointed out that it is an institution aiming at inequality of opportunity.  He states:

"The family as a social unit is an institution for favouring particular children, not on account of their capacities but because of their parentage, that is, their race or class.  It is an institution aiming at inequality of opportunity.  Ought the family to be allowed to stand for inequality of opportunity?  Yes, for two reasons:

1. Family life, its responsibilities, and its cares, are the material of which most of human happiness for most people is made.  Charles Darwin summed up happiness as:  'Work and the domestic affections'.  The work which different men find to do is of differing degrees of importance and interest.  For a few it is an absorbing vocation, a complete life in itself;  for many it must be dull and heavy.  But the domestic affections are for all men and women.  The family is the means of vicarious immortality through children, the stepping-stone from selfishness to service, the common heritage and bond of all mankind.  Through it each of us can project himself into the future.  Through it, in trying to do better for the next generation than we have done for ourselves, we get our second chance.
2. Heredity is a basic fact.  The children of different parents are different in capacity.  Heredity is not invariable;  children of exceptional capacity may be born in almost any family;  children of little capacity may be born of highly capable parents.  But that, taking large numbers, the children of the more capable parents will, on the average, be more capable themselves, is undeniable.  In leaving it possible for parents who by special service to the community acquire special rewards to favour their children because they are their children, one works with nature -- not against her."

10.  It is to be noted that the Unemployment and Sickness Benefits Act 1944, provides adequate sanctions to meet abuses of this nature.