What is ahead for Australia?

A Statement on the Nature of the Problems likely
to confront Australia in the Post-war Period

FOREWORD

Early this year we considered the problems ahead of Australia, the steps so far taken to meet them, and what contribution we might make.

It soon became clear, from our investigations, that proposals so far made, whether official or unofficial, generally failed to view the post-war scene as a whole.  The Government's "full-employment" policy, for example, aims at providing full employment for potential employees without taking into account, in any detailed way, the difficulties in, and the possible repercussions of such a policy upon, either the primary industries or Australia's oversea trade.

We, therefore, set ourself the task of presenting the general post-war picture as it is likely to be and, in particular, of bringing all aspects of the picture into correct focus.  It appeared to us that, not until this was done, could methods to the attainment of desired ends be rationally considered.

As an aid to public thought, our statement has drawn attention to the official approaches to post-war problems in Australia and Britain respectively.  For the Australian approach we relied largely upon the Prime Minister's address to the Secondary Industries Conference last February.  The White Paper, "Full Employment in Australia", was not available until this statement was about to go to press, but its contents have served only to confirm the views and fears which had already been expressed.  Footnotes have been added which link the White Paper with opinions expressed where that was considered appropriate and of value.

This statement shall have served its purpose if it presents the problems ahead of Australia as a whole, and related as they will be one to another.  This, it is hoped, will provide the basis for rational thinking by a widespread public.  Widespread public interest is already overdue, for reconstruction problems are even now upon us.  The war effort is declining.  The return from a war economy to a civilian economy has begun.  On latest figures relating to war expenditure, it would seem that the decline from the peak of the war effort is already of the order of twenty per cent.

Two sentences which appear in the statement might be taken and placed here as a warning:  "No country has less excuse than Australia to be found floundering after the war.  As things stand at present, no country within the British Commonwealth seems so likely to find the war over and itself ill-prepared to face the day after."  That is everybody's concern.  If it is not attended to, it may be everybody's undoing.

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CHAPTER I -- SHORT TERM PROBLEMS

(i) TRANSFER OF RESOURCES TO PEACE-TIME PRODUCTION

It should be made clear at the outset that the sub-division of post-war problems into "short-term" and "long-term" is largely artificial and made for convenience only.  That is the case with most subdivisions.  The problem of placing the members of the Services in civilian employment, for example, is not solved when they are, in fact, placed.  How long are they likely to remain in employment?  What are to be the prospects for them in such employment?  These are long-term problems.

Most of the so-called short-term problems are only the more immediate, and often the more acute, stages of long-term problems.  To overlook this is to invite a subsequent breakdown.  The main reason for distinguishing short-term from long-term problems is that the conditions in the earlier phases are likely to be different from, and in some cases contrary to, the conditions in the later phases.  In the earlier stages, for example, there will be, over a wide field, a condition of shortage, while in the later period threatened superfluity is more likely to be a problem.

Not only is there a danger that the essential continuity of the whole problem will be overlooked, but there is also a tendency to exaggerate the nature of the short-term problem.  When Mr. Forde talked in London recently about "the job of rehabilitating 1,500,000 men and women from the righting services" ⁽¹⁾ he was merely straining after effect.  Most of these will be rehabilitated automatically or will rehabilitate themselves -- that is, unless the Government itself "queers their pitch".

There is, unfortunately, a prospect of the Government doing that.  If for no worse reason, this prospect springs from the notion that, because the Government had to take the lead and become a sort of national managing-director in the transfer from a peace-time to a war-time footing, the Government will also have to be the managing-director in the reverse process.  That notion was clearly recognisable behind Mr. Forde's assertion (in the same statement as the previous quotation) that "the Government must have the full co-operation of private enterprise". ⁽²⁾  It did not occur to him that it might be better to assure private enterprise of the full co-operation of the Government.  That seems to be the more urgent if the war-time actions of private enterprise are compared with the war-time words, and even actions, of the Government.

Actually, that is by far the more likely way to achieve success on the road back.  A war effort is of its very nature a mass effort.  Only the Government can initiate and act on behalf of the mass.  Only the Government can decide what is to be the content of a war effort.  Only the Government, that is to say, can know the demand to be met, because it itself creates the demand.

The demand, once the war is over, will be almost wholly a civilian demand.  Unless we are to go over to socialism (and if that is the intention, we should he told) the civilan demand will not be a mass demand.  It will be an aggregate of millions of private demands.  That the Government will have to take a hand in tempering those demands to shorn resources is true enough.  The demands will be private demands all the same.  They will be, therefore, essentially demands for which in general private enterprise is best able to cater.  Those who do not agree with that will not, like the Government, seek the co-operation of private enterprise -- which presumes its continuance -- but will wish to destroy it.

The rehabilitation after the last war was left wholly to private enterprise.  It was accomplished with phenomenal speed, not only in Australia, but in Britain and elsewhere.  In Britain, for example, it is officially reported that "there were a few months of dislocation and unemployment while industries were switching over from war to peace." ⁽³⁾  There immediately ensued a period when "unemployment was very low".  Soon, however, trouble started.  This was because short-term solutions were looked upon as permanent.  It was also because governments did not attend to the things they should have attended to in the initial stages;  and, in the long period, sometimes did too little and sometimes did the wrong thing.

That need not be repeated.  It was excusable then, because the situation was a novel one.  To-day we have that experience to guide us.  It does not guide us, however, to the other extreme, that the Government should do everything, nor even that the Government should lead and private enterprise merely follow.  Yet it will be seen, as these pages are read, that there we have the fundamental difference between the Australian approach and the British approach to the problems ahead.

(ii) SHORTAGES OF RAW MATERIALS AND EQUIPMENT

This is essentially a short-term problem.  Even so, the short-term may be so long that, for most of us, no other term will matter.  To a considerable degree its length will not be of our choosing.  Shortages will not exist in Australia only, but almost everywhere.  How soon they will be overcome will not be dependent only upon what we do, but upon what others do as well.

It is admitted that, left to itself, this situation can cause a rapid soaring of prices.  It is the same situation as we have been experiencing during the war.  Yet here again there will be differences which must not be overlooked.  In war-time, attempts to find substitutes or other means of neutralising the effects of the shortages of civilian goods may safely be frowned on, because they would probably affect adversely the war effort in some other field.  Substitutes at high labour cost, for example, may occupy labour which could be better used in the war effort.  The same would apply to the use in war-time of inferior equipment;  it, too, would probably involve a wasteful employment of labour.

On the return of peace, however, there will be a case for encouraging ingenuity in the search for alternative materials and methods, even at the cost of some waste.  It will also probably prove surprising what private enterprise will do with worn equipment or ill-adapted equipment, if allowed.  Controls, which seem to be the Government's stock weapon for dealing with shortages and their price-consequences, may often work harmfully in a situation in which the aim will be civilian comfort not military efficiency.

(iii) SHORTAGES OF SKILLED LABOUR

In the years immediately following the end of the fighting there should be no fear of mass unemployment.  That will happen only if private enterprise is held up, either because it has to wait upon governmental direction or because of some other avoidable interference, as, for example, the continuance of the practice of some unions during war-time of holding industry and the consumer to ransom.  Given a disposition on the part of governments not to interfere unnecessarily or, when interference is necessary, to make quick decisions, general unemployment should not be an early post-war problem.  Given a disposition on the part of the unions to further production and to seek settlement of their problems without holding up industry, unemployment because of deliberately created bottlenecks by workers will be out of the question.  In a period when demand will be unusually strong, and when there will be a demand for more of almost everything, only such short-comings or faults on the side of production can bring about anything approaching large-scale unemployment. ⁽⁴⁾

There will be, of course, a probability of some temporary unemployment in the "switch-over".  The rate of demobilisation from the Services and also, to some extent at least, from other war-time occupations will have to be regulated.  This is not a simple case requiring positive action on the part of the Government alone.  It will also mean considerable action of a passive nature, as well as some of an active nature, by members of the Services, as well as by those at present employed in war-material production.  An orderly demobilisation can take place only if those concerned adapt themselves to the arrangements made for them.  The desire for early discharge is understandable.  But better to tolerate a delayed discharge than to return to a civilian life which means immediate unemployment.

Just as there will be for some time shortages of essential raw materials, and of certain kinds of equipment, so there will be shortages of workers with certain types of skill.  That follows because suitable training for many thousands shall have been suspended for anything up to six or seven years.  Shortages of "key" workers can lead to unemployment among others.  As the British Government sees it, "patches of unemployment may develop where the industrial system fails to adapt itself quickly enough to peace-time production." ⁽⁵⁾

At this point, we come up against an example of a possible short-term solution of a problem, which may be anything but a long-term solution.  To adapt the industrial system to meet immediate post-war demands may itself create a long-term problem.  Workers trained to meet the phenomenal housing shortage cannot ail be regarded as settled in suitable occupations for the whole of their working lives.  As the shortage is progressively overcome, so the rate of construction can be expected to slow down.  Unless such a development is foreseen and steps taken accordingly, unemployment in the long-run is likely to be a feature of such industries.  Building, of course, is not the only industry which may be "over developed" in the short period.  Just as the members of the Services may be counselled to put up with some delay in the rate of discharge, so members of the consuming public may also be urged to show much the same patience in the face of shortages for some time after the war as they have shown during it.

(iv) SHORTAGES OF DURABLE CONSUMPTION GOODS

Probably the most obvious and most pressing example of this type of shortage is housing -- the problem just referred to.  However it is faced, it is going to be a staggering task.  At his recent conference with representatives of the secondary industries, the Prime Minister showed that he had no illusions about what he described as the "colossal task of housing".  Shortages of materials and trained operatives will mean, as he also pointed out, the arrangement of priorities.  Unless considerable wisdom is brought to bear this can work both ways.  While it may lead to those most in need being served first, it can also result in such a slowing down that comparatively few will be served.  The net result of government-sponsored housing in New South Wales over the past twelve months presents an almost startling prospect in its ineffectiveness. ⁽⁶⁾

Building has one great advantage:  It is a small man's industry.  Thousands of experienced men have the necessary liquid capital and such equipment as is necessary to build ordinary homes.  If the proposed priorities are intended to give preference to government-sponsored schemes, and these thousands of private builders are to be left without reasonable access to materials, the job of overcoming the housing shortage is likely to be a slow and expensive process.  The Government's concerns should be:  (i) To stimulate the output (or import) of materials;  (ii) to encourage the private builder, while exercising such supervision as may be necessary;  and (iii) to help the prospective home-owner by the arrangement of finance.

Home equipment (furniture, refrigerators, etc.) comes much in the same category as housing.  Since these at least are likely to be left to private enterprise, the problem of production (except again for necessary priorities in respect to materials) is not likely to be great.  With the unspent purchasing power which will be available (see next section) the pressure of demand on prices will be the Government's chief concern.

(v) ACCUMULATION OF UNSPENT PURCHASING POWER

The outstanding short-term problem is to avoid price inflation.  Never before were its two main causes present in combination as they will be in the post-war years.  Despite the unprecedented war loans, liquid savings (e.g., savings-bank deposits) were never so great.  Even the moneys for the time being put by in bonds can be withdrawn through sales, unless restrictions, hitherto untried and for many reasons inadvisable, are imposed.  War savings certificates (not a great volume by comparison with other forms of saving) can be negotiated over a bank counter at any time.  There can be a veritable orgy of spending.

There cannot be an orgy of buying.  In the best of circumstances the increase of civilian goods must be, by comparison with the latent demand, a slow process.  Six to seven years of increasing wants, of increasing purchasing power, of decreasing capacity to produce, will tell their own story if the three are brought into active conjunction.  The story will be an upward movement of prices which will make the 1919-20 boom appear moderate.

It is obviously the intention of the Government to maintain, as far as possible, the war-time controls at present governing these conditions.  How effective will they be?  If it is true, as a responsible police officer said recently, that "the average citizen does not hesitate now to deal on the black market", what will the prospect be with war-time patriotism gone?  It may well prove folly to attempt to rely alone, or even in the main, upon the perpetuation of controls.  Some other approach should already be receiving serious attention. ⁽⁷⁾

(vi) THREEFOLD DANGER

The British Government, with the immediate post-war period in mind, has called attention in its White Paper ⁽⁸⁾ to an expectant situation in which there will be an "inherent threefold danger" as follows:

1. That patches of unemployment may develop where the industrial system fails to adapt itself quickly enough to peace-time production;
2. that demand may outrun supply and create an inflationary rise in prices;
3. that civilian production, when it is resumed, may concentrate on the wrong things from the point of view of national needs.

The British Government promises that "action will be directed to forestall, as far as possible, each of these dangers."

It is significant that the action proposed is "to forestall".  In Australia we seem to have concentrated, so far, on action to prevent or to prohibit.  There is a world of difference between government policy which aims at "tempering" the conditions within which a people are likely to act in their own best interests and government policy which aims at "preventing" a people from acting freely in what they believe to be their own best interests.  The one approach recognises that a free people are likely to rank their freedom high, higher probably than economic well-being itself;  the other presumes, even against evidence, that a free people can be persuaded that it is in their best interests to allow themselves to be coerced.  The former approach may not achieve all that is hoped for it.  The latter is almost certain to break down and, in consequence, achieve little.

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CHAPTER II -- LONG TERM PROBLEMS

(i) RECOVERY AND EXPANSION OF MARKETS

"Export," the Prime Minister agrees, "is vital to the economic life of Australia". ⁽⁹⁾  That has always been the case though, in the past, it did not prevent us from throwing much of the burden of the living standards demanded in metropolitan areas upon the rural industries.  These are the industries which hitherto have provided far and away the bulk of our exportable surpluses. ⁽¹⁰⁾

These markets must be recovered or others found or our exports of primary produce allowed to contract.  To begin with, it is anything but certain that we will recover the whole of our best market, the British market.  Britain was compelled during the war to expand her own rural output;  and her Government has clearly indicated that its policy is not to allow Britain's rural industries to sink back to their pre-war position.  In pre-war days Britain produced only about 30 per cent. of her home food requirements.  To-day (with a rationed market) she is producing 80 per cent. of her requirements.  In the post-war years it is estimated she will produce about 60 per cent. of her then normal requirements.  That does not make the prospect look bright for our potential export surpluses.

Our second best customer was Japan.  What will Japan's immediate future be?  What will be her capacity to pay for imports of, say, wool?  What will be her capacity to use wool products (i.e., market them) when she has procured the wool and manufactured it?

Those who are giving most attention to the future of Australia's primary industries (and too many seem to regard them as of inconsequential account) seem to rely mainly on hopes of greatly expanding our own home market.  For this they appear to look chiefly to a high rate of immigration.  Previous history and the probable attitude of governments and populations (especially in the countries from which we wish most that immigrants should come) give no grounds whatever for optimism.  Apart from more permanent considerations tending to keep hoped-for immigrants at home, there will be plenty of reconstruction in devastated Europe to keep all the people whom we want -- for example, British people -- busy for some, and probably many, years to come.  If we are not careful we may fool ourselves with a tremendous amount of wishful thinking on this point.  We can also spend enormous sums on immigration policies with nothing approaching a commensurate return, as we have done before. ⁽¹¹⁾

The expectation that, for some years, we are going to be busy supplying a starving world with food, a shivering world with clothing material, and an under-developed world with basic raw materials is at best only a short-term expectation.  But how are all these things to be paid for?  Already it is accepted that these poverty-stricken countries cannot pay cash, and to grant them credits is simply to build up debts which are likely to overwhelm them later.  Much of this rehabilitation will have to be in the form of relief.  The payment will come, not from the users, but from the suppliers.  That, while it goes on, will find markets;  but it will be a subtraction from, rather than an addition to, the national incomes of the exporting nations.

There is much to think about in respect of the future of our primary industries.  But, as the Prime Minister pointed out, "the development of secondary industries in Australia during the war made possible increased exports of manufactured goods".  The export of manufactured goods will not only be possible but necessary, that is, unless we propose -- which we do not -- to abandon most of our war-developed industries.

Here the Prime Minister became realistic.  He recognised that there was "ample evidence that other manufacturing countries, with far greater potentialities than Australia, were giving immediate consideration to the development of external markets". ⁽¹²⁾  So "management and operation" in Australia must be "as efficient as the rest of the world".  Every endeavour must be made to supply goods "at a price and quality that would be competitive". ⁽¹²⁾  There in a few words -- the Prime Minister's words -- is what is going to decide our fate;  that is to say, our capacity to sell, our progress, our living standards.  Competitive efficiency applies not to secondary-industry exports alone, but to primary-industry exports as well.  In the long-run it applies to our internal as well as our external markets.  Even a closed market must be efficient if it is to be sustained, if it is to make progress, and especially if it is to lead to rising living standards.

But Australia is not a closed market;  and it has less chance of becoming one than most other countries, even if it were foolish enough to try.  We must export to live and to grow.  This means that we must also import -- that is, unless we reduce our exports to a point sufficient only to meet our oversea debt commitments.  It is to be hoped that the fatal delusion of pre-war days, that exports were to be encouraged and imports discouraged, is one of the aberrations which the war will banish from the earth.  When imports become a problem it is usually a sign that costs of production at home are too high. ⁽¹³⁾

(ii) ATTAINMENT OF ECONOMIC STABILITY

Economic reconstruction once attained, stability becomes the matter of greatest moment.  Indeed, as reconstruction is being achieved, whether what is being constructed will be stable should be constantly in mind.  The measure of stability is the extent to which slumps can be avoided.  Large-scale unemployment is, of course, the most obvious and the most distressing aspect of a slump.  Rehabilitation once achieved, to avoid slumps is to avoid unemployment, and vice versa.

That, however, is not as simple as the Government affects to believe.  Far too much reliance seems likely to be placed, for example, on public works as a cure for unemployment.  When a slump and unemployment threaten, public works may well be a useful expedient for averting the threat and even, in certain circumstances, of turning the tide.  But that may do no more than reduce the temperature of the patient or perhaps stimulate him into feeling temporarily well again.  More often than not the cause of the trouble will be more deep-seated.  Unless that is removed the success of the expedient can only be temporary.  In the meantime, the real trouble will probably grow worse, if not at the same time become aggravated by the expedient itself.

Stability will be assured only by the maintenance, and the restoration when absent, of all-round balance.  There must be balance, as between industries, more broadly as between primary and secondary industries, and as between international industries.  The lastnamed, the proper adjustment of industries on an international scale, is probably the most important, yet hitherto the least thought about and the least attended to.  That is because Governments which have faith in controls are comparatively helpless in the international field.  Furthermore, it is seemingly easy to run away from the international complication by imposing a tariff or a subsidy or by some similar expedient.  Here again the expedient, while it may counter the symptom, leaves the disease untouched if it does not aggravate it.

On this point, Australia no less than Britain might ponder the following:

"It is our view that the greatest single cause of the severe unemployment which afflicted practically every industrial country at some time or other between the two wars was the failure of the nations to diagnose unemployment rightly as a world problem, and to act accordingly and collaborate confidently with each other in policies designed to remedy deep-seated causes." ⁽¹⁴⁾

(iii) HARMONIOUS EMPLOYER AND EMPLOYEE RELATIONS

The future for Australian industry will turn on this aspect of economic life probably more than on any other.  The Prime Minister's call for "competitive efficiency" depends upon the attitude to this of managements and workers alike.  Both must rank it high in their economic aims.  However the proceeds of industry are to be distributed among the factors contributing to the output, the cost per unit of output must be at the lowest practicable level.  That, together with quality of output, is the only test of competitive efficiency.

How the proceeds of industry are apportioned among the factors is not unimportant.  But it is not the major issue which is responsible for the employer-employee conflicts to-day.  If it were, the Arbitration Courts and their awards would still be respected, as they once were.  The root cause of present conflicts is, not the determination of the workers to improve the working of the industrial system, but to destroy the system as it is at present exists.  The aim is not to improve the existing system but to substitute an entirely different system.  That aim has to be rejected once and for all, otherwise there cannot be any approach to competitive efficiency.  If other countries staged similar conflicts, the effects on efficiency might balance out;  but there is no indication whatever that other countries will.

Beyond all doubt those who are provoking this struggle are a minority, probably a small minority, of those workers who are members of trade unions;  and the members of trade unions are only a minority of the total number of workers.  But, however small the militant minority may be, the effect will be the same while the majority passively follow as they are now doing.

Harmonious relations can never come if the intention is to "liquidate" the employer.  Nor can they come if matters with which the employer has nothing to do are turned into industrial disputes.  What, for example, has the employer to do with the inter-union feud in New South Wales between the Building Workers' Industrial Union and the Ship Joiners' Union?  Yet that feud is being fought out within industry itself, not within the trade union movement.

If the workers want higher wages, a reduction of working hours, improved conditions and other benefits, those wants are susceptible to rational solution.  They are reducible to a simple question:  Can industry afford them?  The answer to that depends upon objective considerations.  These, in turn, are reducible to another simple question:  Will the resultant costs of improvements so affect prices as to reduce harmfully the demand for the product either at home or abroad or both?  The only question left dragging is:  What machinery is to be used to arrive at decisions -- an arbitration system as now, wages boards or conciliation committees, or ad hoc conferences of representatives of employers and employees concerned? ⁽¹⁵⁾

All this is not to overlook the responsibilities of employers.  Costs, though mainly, are not wholly a matter of wages.  Nor will all that the workers in an industry may do assure competitive efficiency.  Rather the ascendancy of the United States in the industrial world is usually attributed in the main to able and progressive management.  Up to a point both labour and management can evade their responsibilities by passing on unnecessary costs to consumers through increased prices.  While the field for that expedient is wider in the internal than the external market, it is bad for the economy and the general welfare in either.

For the moment the concern is that, if post-war reconstruction is to proceed in an orderly way, if industry is to be rehabilitated and stability is to be assured, harmonious employer-employee relations must be accepted as one of the essential conditions.  Competitive efficiency is unattainable without it.  Stability is impossible without it.  In the early post-war years there may be some progress towards desired ends without it;  but there can be no permanent progress without it.

(iv) BALANCED AUSTRALIA-WIDE DEVELOPMENT

Part of Australia's long-term aim must be a more even spread of the population over the continent.  The concentration of half the population in a few seaboard State capitals is not good socially.  A more widespread development, especially the development of the "empty north", seems almost certain to be necessary strategically.  The Prime Minister, addressing himself to this subject, said:  "It is important, both for economic and defence reasons, that the potential resources of the less-developed areas should be given special attention after the war.  In this secondary industry would be called on to play its part." ⁽¹⁶⁾

The part which secondary industry will have to play can be expected to increase as the years go by.  There is the fact that the dependence of the human race upon the primary industries, especially the foodstuff industries,, tends to decline relatively.  There is the fact that migration, even in Europe, is strongly in the direction of industrially developed areas.  The quest is largely one for modern amenities.  These are not to be had except in association with the development of secondary industry.

Such an aim, nevertheless, is one which will encourage all sorts of hare-brained proposals.  There can be much talk, even great expenditure, and very little achieved.  Australia, with its vast hinterland of precarious climate or climates, its lack of water and water-power, presents exceptional difficulties.  But these difficulties should be taken into account as a warning, not as a deterrent.  In addition, care must consistently be taken to improve the countryside as a place in which to live a civilized life without at the same time destroying its rural atmosphere.

It should not be our aim to convert the continent into a whole series of small industrial centres.  Rural life -- that is life on the land and by the land -- has great social value apart altogether from its economic worth in the national life.  Even at some cost in the living standards of those engaged in the secondary industries or other urban occupations, a strong and sturdy rural community spread over the continent is not only to be preserved but encouraged.  That farming is not only a means of earning a livelihood, but in itself a way of life bulwarked by tradition, is of significance to the town-dweller no less than to the husbandman himself. ⁽¹⁷⁾

(v) MAINTENANCE OF AN ADEQUATE DEFENCE SYSTEM

No one is likely to be prematurely carried away by illusions about this war being a war to end war.  Nor are plans to disarm aggressor nations, to dismantle their industries essential to war production, to impose upon them armies of occupation, or even to dismember them likely to be accepted as adequate to the maintenance of peace in the future.  Brookings Institute (Washington) recently completed a study of methods of preserving peace.  Australia of all countries dare not neglect one firm conclusion reached:  'That only military force can be relied upon to give complete protection against nations bent on aggression." ⁽¹⁸⁾

In the four years before the outbreak of the present war Australia spent an average of little more than £6,000,000 a year on defence.  Such "token" payments as contributions to defence cannot be accepted as adequate for as many years as we can see ahead.  Our peace-time defence expenditure in the post-war years has already been tentatively estimated in official circles at £60,000,000 per annum.  The actual cost may well be more rather than less.  This at all events is one item in the national life which can be given inadequate attention only at our peril.

Defence will be a constant drag on our national income.  This drag is not to be measured only by the portion of the total national income spent in the maintenance of a defence system.  It is also to be measured by the fact that the defence system will keep occupied (i.e., out of civilian production) much of the best among our productive resources, both human and material.

Long-term economic stability is not likely to be attained if we lose sight of the fact that expenditure on defence will be a deduction from the living standards we might otherwise enjoy.  There appears to be no reason why we should not look forward to progressively increasing living standards, combined with more adequate measures of social security than hitherto enjoyed.  But there is every reason, if we wish to be realistic, why these expectations should be tempered by the prospect that defence in the future days of peace may be perhaps a burden equal in severity to what we regarded as quite a commendable war effort in the first two years of the war.

(vi) THE PROBLEM AS A WHOLE

The main long-term problem is to recover lost markets and develop others;  and having got them, to hold them.  That is the way -- the only way -- to high and stable employment.  There is no need to pose employment as an objective in itself, as is now so commonly done.  To talk about building up and then maintaining markets is to talk about maximising production and distribution, which can be done only if we do maximise employment.  To talk about promoting full employment is, for the sake of political kudos, to turn into an end what is only a means.  To put it another way:  Markets cannot be developed to the maximum without at the same time developing and even obliging high-level employment.  So-called full employment, on the other hand, might conceivably be attained without developing markets correspondingly.  That would mean that we would find employment for many only by lowering the living standards of many others, as indeed we have done wittingly, but more often unwittingly, in the past.

The recovery and expansion of markets, both internal and external, is the only way to the betterment of material standards.  The stability of those markets, once they are developed, alone constitutes an assurance of social security.  The attainment of these objectives should surely be the common aim.

They concern the entrepreneur, the rentier and the worker alike.  That being so, harmonious industrial relationships are not only essential but practicable, provided that matters which are foreign to the common objective are kept out of the industrial field.

The only concessions that the urge to increase living standards may have to make to other objectives are two:  First, in order to secure a well-balanced and Australia-wide development, it may be necessary for urban interests to make some concessions, at least for a time, to rural interests.  Second, it will certainly be necessary for the living standards of all interests to make concessions, probably considerable concessions, to the maintenance of an adequate defence system for Australia.

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CHAPTER III -- METHODS OF PROBLEMS

(i) CONTROLS

There is no question about the fact that controls, once imposed, cannot be removed suddenly;  nor that some controls will need a longer period for their safe removal than others.  That would be so in the best of possible circumstances.  To decontrol suddenly would be to remove a factor which for the time being had become one of the conditions governing economic activity.  Controls tend to throw pre-existing factors out of action.  They can be removed only at the rate that these can be expected to return to action.

While shortages of equipment, raw materials and requisite labour remain on the one hand, and a relative over-supply of spending-power remains on the other, controls will be necessary contributions to stability.  But controls can impede the process of overcoming the shortages, and can even maintain, if not increase, the relative over-supply of spending-power.  Freedom begets freedom as like always begets like.  If a basically free economy is to be restored, the risk to be taken will have to be in the direction of removing controls rather too soon than in undue delay in removing them.

The Commonwealth Government's "economic plans", as outlined by the Prime Minister to the Secondary Industries Conference, give reason to fear that, notwithstanding the undertaking that controls "would be relaxed progressively", the progress would be slow.  The fact that the Government's Party programme has always shown a leaning towards controls -- in fact, has a controlled economy for its ultimate objective -- cannot do other than reinforce the fear.

There lies what is probably our most delicate problem.  Many who would be prepared to submit to controls, even more controls or controls for a longer period than they thought necessary to counter short-term abnormalities, will find themselves in something of a dilemma.  Either they must risk breaking away from controls too soon or risk their being used to perpetuate a kind of economy regarded by them as undesirable.  That is a situation which can easily become embarrassing, especially as other countries, some of them our market competitors, will have no such problem. ⁽¹⁹⁾

In any event there is danger of over-stressing the effect and value of controls.  To say that certain controls were found effective under conditions of war, is not to point to the probability that they will be equally effective in a transitional period from war to peace.  The objective will be different and the mental attitude will be different.  In the one case the aim was to limit civilian output;  in the other it will be to increase it.  In the one case the mental attitude was one of self-denial in the interests of national preservation, while in the other it will be one of seeking after individual satisfactions.  The days of the self-denying ordinance will be past or, at least, the disposition to self-denial will be rapidly on the wane.  Attempts to maintain controls without taking this into account are almost bound to fail, and perhaps to do great damage in the failing.

There is another danger about controls.  While they may preserve an outward show of stability, they often do so, not by removing dislocations, but merely by covering them up.  They may often give these dislocations the opportunity to grow without detection.  Such a course almost invariably means that, in the passing of time, the dislocations overwhelm the controls.

Hence the progressive relaxation of controls should be a cardinal objective of policy.  Such a policy should be clearly stated, and nothing should be allowed to cast doubt upon it.  Such controls as must remain for a time should be "co-operative" rather than "bureaucratic".  That is to say, they should not be "the plans we have prepared for you" but the plans agreed to at conferences of the parties concerned.  A free people will submit to controls, only if they are parties to their making and privy to their purpose.  In this way we can have planning, at least all that is ultimately practicable, even if not all that some may think necessary.

(ii) FINANCE AND TAXATION

Provision is at present in the process of being made through the Commonwealth Bank Bill and the Banking Bill for the Commonwealth Government to exert as much control over what is commonly known as the monetary and banking system as any government could hope for short of outright nationalisation, and more than any government outside the totalitarian countries ever enjoyed.  Apparently it is presumed that here at least is sufficient control to overcome the financial difficulties ahead. ⁽²⁰⁾

The control of money and banking may save the Government from immediate budgetary embarrassment.  It may, at least for a time, enable the Government to provide large-scale employment.  It may enable the Government to prevent the growth of enterprises which it, perhaps for good reasons, desires to discourage.  It may do other things desirable in themselves.  But it cannot do any of them with any assurance that the repercussions will not outweigh the expected benefits.  Added to that, there are other financial difficulties with which it cannot cope.  It is likely to detract from private investment where private investment is desirable.  It cannot check private spending (i.e., consumption expenditure) where private spending is undesirable.

The British Government has thought farther ahead -- or certainly with more realism -- on the general question of post-war finance than the Commonwealth Government.  It has not only recognised the importance but also the difficulties of maintaining the total volume of expenditure.  It has divided expenditure into its five main categories -- private (consumption and investment), public (current and investment) and foreign balances.  Its aim is to maintain as far as possible a proper balance among these five.  The Commonwealth shows every intention of pushing one of the categories (current public expenditure) to the limit with a promise, as soon as the war is over, to drive public investment equally hard.  That may be the way to a boom.  It is not the way to stability.

The British Government admits the difficulties, especially in relation to private investment and foreign balances.  It knows it cannot exercise any firm control over foreign balances.  It recognises, also, that private investment is, in the last resort, a matter for private decisions.  It does not presume that, by taking control of the banking system, it can effectively control private investment.  On the contrary, it recognises that to make the attempt would probably make the last state worse than the first.

All the same, the British Government does not wring its hands.  It feels satisfied that the machinery already exists for framing monetary policy, and feels assured of the co-operation of the private investor once the situation and the appropriate attitude to it are made clear.  There will be difficulties and anxious moments of course.  Yet the "guiding principles" (not the financial controls it should be noted) are deemed sufficient to maintain total expenditure.  These guiding principles are:  "to avoid an unfavourable foreign balance";  "to limit dangerous swings in private investment";  to plan public investment so as "to offset unavoidable fluctuations in private investment";  and "to check and reverse the decline in expenditure on consumers' goods which normally follows as a secondary reaction to a falling off in private investment". ⁽²¹⁾

Obviously these envisage not only short-term, but long-term problems as well.  In fact, taken as a whole, they constitute the monetary policy necessary to reach stability and, having reached it, to maintain it. ⁽²²⁾  Their prospects of success spring from broad policies to be devised, not by the Government alone as is the apparent intention in Australia, but by the Government in close collaboration and co-operation with managements, industrial, commercial and financial. ⁽²³⁾

It is not a question of plan or no plan.  The real distinction between the Australian way and the British way, in this as in other aspects of post-war rehabilitation and stability, is between centralised or bureaucratic or government planning on the one hand and co-operative planning on the other.  The antithesis of a free economy is not a planned economy but a controlled economy.  A free economy never has been planless.  As the economy has grown more complex, it has been necessary to develop an ever-increasing co-operation among the individuals and institutions in the field of industry.  To say that the day has arrived when the institution known as the Government should be more intimately associated in the planning -- and especially so during the post-war transition period -- is not to say that the Government should do the planning and that industrial managements should co-operate simply by sliding into the plan.

The other main aspect of finance is taxation.  It must always be the base upon which public finance is built.  Public borrowing is not an alternative to taxation, for borrowing, unless the spending of the proceeds is confined to revenue-producing works, adds to future taxation burdens.  It is true, of course, that certain types of public works (e.g., highways) though not revenue-producing in themselves, may contribute to the capacity to produce, and thus increase real incomes even sufficient actually to lighten the real burden of increased taxation.  But there are many reasons -- the time element being one -- why that kind of consolation requires careful scrutiny.

Looking to the early post-war period, it must be evident that the lower income groups will be unwilling to bear the existing taxation rates, while public companies and others among the higher income groups will be unable to do so.  No government is likely to live that does not recognise the first, and no government can contribute to the expansion of industry (upon which high-level employment will mainly depend) which does not recognise the second. ⁽²⁴⁾

The upper limit to taxation is always the point at which to go farther would detract from the ability or the willingness of persons and institutions to earn incomes.  No doubt some are so placed that the rate would need to be extremely high before either ability or willingness -- especially willingness -- would become a really effective detracting factor.  But here the principle of equity comes in.  In any case, before this situation is reached discontent and an obstinate attitude towards government is likely to manifest itself with harmful national results.

Beyond all doubt we will have to square ourselves to accept a considerably greater taxation burden after the war than would have been tolerated before it.  The burdens of a huge war debt and of service pensions and other repatriation commitments are not to be avoided.  Except at our peril, neither is the burden of a defence system many times as costly as any defence system ever contemplated before the war.  Nor can either of these be regarded as purely short-term problems.  The grin-and-bear-it attitude will, no doubt, stand to us in these because we recognise their inevitability.  All that is necessary is to levy the community for these purposes justly, thus leaving as little room as possible for sectional discontent.

With all the wisdom in the world, both in respect to taxing and public spending, income tax is going to be a heavy burden for many years to come.  That is all the more reason why it should be rational and equitable.  At present the income-tax structure resembles a building held up by a series of props.  It is a mass of anomalies and inequities.  The work of designing a scientific system is one for experts.  It cannot be effected by amendments suggested by the Treasury or by a Parliamentary committee.  There are such questions as the complexity of the basis upon which the tax is assessed, the discrimination against composite incomes, the concessional instead of straight-out deductions for family and other allowances, the incidence of the War-Time Company Tax on public companies, the shortcomings in respect to deductions for depreciation and alterations to buildings;  and there are others.  After all it is still a virtue, and a national benefit, that high incomes should be earned.  There is no point, therefore, in discouraging such earning, either from personal exertion or investment, by maintaining either excessive tax rates or exasperating tax complexities.

(iii) SOCIAL SECURITY

There is, however, another burden in the process of being imposed which will be dangerously harmful for many reasons.  Unlike almost every other country, Australia proposes to place the whole burden of what is generally known as social security on the shoulders of the taxpayer.  This, especially when added to the burdens of wars fought and wars to be guarded against, threatens to be insupportable in the best of circumstances.  But the circumstances will not be the best.  Willingness to work and save will be sapped over a very wide field.  It will be advantageous for many to remain in the position which conforms to the means test (which must be applied in any system of non-contributory insurance) rather than to strive to get beyond it.

One example suffices.  An aged couple with no savings other than those which have gone into their home are entitled to old-age pensions amounting to £3/5/ per week.  They have paid their taxes and paid off a home, but otherwise they have made no attempt to earn more and save more, although -- as will be the case in thousands of instances -- they could have done.  A second couple, having behaved differently, have added to their life savings war bonds to the value of £5,200.  They, too, may retire on £3/5/ a week -- the interest payable on their bonds at 3¼ per cent.  In this case, though they would probably have paid much more in taxation than in the former case, there will be nothing coming from the existing old-age pension scheme for them.  So the question arises:  Why impose any self-denial to save at all?  In fact, the more the policies at present approved are examined, the more it will be realised that the thrifty wage-earning and salary-earning classes are inequitably served and, in consequence, their thrift discouraged.

It is curious to read in the "Federal Objective and Platform" of the Australian Labor Party that its broad aim is:  "Cultivation of Australian democratic sentiment, development of an enlightened and self-reliant community and maintenance of White Australia".  All three are admirable.  But without self-reliance what is likely to become of democratic sentiment or of White Australia either?

Actually a non-contributory scheme of social security is. not social insurance at all, but a social levy.  How does that square with the Labor Party's aim of "an enlightened and self-reliant community"?  A contributory scheme would be social insurance.  It would stimulate self-reliance.  It would allow all to share who contribute.  It would avoid the application of a degrading means test.  It would assure to all an irreducible minimum.  At the same time it would leave the way open for those who were able and willing to build on this minimum.  That is the scheme favoured by over forty countries.  It is the scheme worked out and found to be practicable in Britain by the Beveridge Committee.  On what grounds, other than short-run political expediency, is it to be presumed that something fundamentally different is preferable for Australia?

A non-contributory social insurance scheme is almost certain to break down of its own weight.  It is clear from his warning to Caucus early last March that the Commonwealth Treasurer is already beginning to sense that. ⁽²⁵⁾  In any case, social-security schemes supported wholly by taxation cannot hope to do more than avoid destitution.  Contributory social insurance, aided, of course, from taxation, can be a base below which no one will fall but upon which the thrifty can build.

While the Australian scheme will be a perpetual drag upon progress and stability, the British scheme, while no drag on progress, is actually to be used as a means of maintaining stability.  The British Government's plan is to provide an elastic scale for social insurance payments.  When incomes are high and, consequently, inflationary developments a prospect, social insurance payments will be a little higher than necessary.  When slump conditions or wage and salary decreases threaten, the insurance payments will be reduced.  Thus, "the maintenance of purchasing power would reduce substantially the variations in total expenditure and employment." ⁽²⁶⁾

This is only part -- a small part -- of the general budgetary scheme already worked out to an advanced stage in Britain.  Something is already being done, and more has been specifically promised towards relieving industry of war-time tax burdens so that a sufficient surplus will be left to it for rehabilitation and expansion. ⁽²⁷⁾  Plans are also in train to return to balanced budgets, not necessarily balanced in each and every year, but balanced over a period.  The idea behind this periodical, rather than annual, balancing is that taxation can be so planned that it will tend to dampen down civilian expenditure when stability threatens to develop into boom conditions, and leave the way open for the expansion of expenditure when stability threatens to drift into slump conditions.  A warning might be added here that the capacity of budget "manipulation" to maintain stability is at yet largely in the realm of theory.  But it is one thing to try out a theory presumed to be sound, as is promised in Britain, and another to push along recklessly with projects which, though they may be immediately popular and presumed vote-catchers, conflict with both theory and experience.  It is not possible to feel assured that the latter is not a reasonable description of the budgetary policy ahead of Australia.

(iv) TRAINING AND RE-TRAINING

The Re-establishment and Employment Act recently passed by the Commonwealth Parliament would appear to make ample legal provision for the training that will be required to rehabilitate the members of the Services whose occupational training has been interrupted or has never begun.  But this Act only enables these things to be done.  Schemes have to be approved and planned.  Training facilities have to be provided.  It would appear that, at present, schemes have assumed little more than outline shape.  The training equipment as yet available is beyond all doubt totally inadequate.

While this may be a problem for government co-ordination and even direction, it is not a government responsibility alone.  The larger industries and industrial, commercial and professional organisations are, no doubt, able and willing to take a hand.  Both the Government and industry in Britain are alive to this joint responsibility.  Both recognise, also, that the problem of education and training which lies ahead is not one to be concerned with the ex-members of the Services only, though theirs will be a special and pressing case.

Basic to the policy of high and stable employment is the educating and training of all in need of it, irrespective of age and special claims on the community.  The British idea is that education, whether cultural or vocational, "can be merged or dovetailed into the early years of entrance to industry".  Facilities can be provided in close association with industry and often within an industrial unit or in association with industrial organisations.  It is also urged that "mutual discussion between people engaged (in different capacities) in industry and in education is the soundest means of relating not only the timing but the content of further education to the needs of the present day." ⁽²⁸⁾  The British Government's expressed view is that "much closer collaboration between industry and commerce and the education service is essential." ⁽²⁹⁾  The ideas in mind run from elementary education to technical education, and from "staff colleges" associated with the larger industries to the Universities.

The greatest practical problem in wrestling with unemployment -- that is to say, the unemployment that is always to a greater or less extent with us -- is the unskilled or poorly trained worker.  There are nearly always more in this class than industry can absorb.  A resolute attention to vocational guidance and vocational training should go a long way towards avoiding this problem.  As things have been, too many get off to a bad start.  Too many find themselves in occupations which they dislike, or in dead-end occupations, or in industries declining in capacity to maintain employment.  Sooner or later they find themselves among the unskilled and on or near the economic scrap-heap.

However efficient a system contrived for taking care of and advancing the newcomers into the economic field, there will be errors of judgment, mistakes in choice of occupation or in anticipation of prospects.  So a corrective seems necessary in the form of opportunities for re-training.

This would be expensive.  Among other things, the living costs of many adults -- some with family responsibilities -- would have to be subsidised during re-training.  But that would not be all loss.  It would be largely a substitute for the normal costs of unemployment, poverty and their consequent social evils.  Further than that, such an expenditure would be a form of investment.  Improving the earning capacity of the human being should at least be comparable with improving the productive capacity of industrial plant.  The facilities which will have to be provided for the training of the thousands denied opportunities because of war service would be available, though almost certainly they would not be needed to the same degree, for this essential task of re-training.

High employment combined with stability will never come from starting public works just to mop up the unemployed, which is now so often put forward as a solution.  Planned employment of that type, except in cases of emergency, would break down of its own costly weight.  We need to get back to the old idea of providing the opportunities, and carry it to new heights, instead of trying to plan other people's lives for them.  "Planned full employment" is not possible without power to direct everybody, similar to what exists to-day.  Discussing the possibilities along these lines, Professor Giblin expects, not full employment, but "a very low level of unemployment".  Even that, he agrees, would involve a man-power organisation directing people where and at what to work and, he adds, "perhaps compelling them". ⁽³⁰⁾

(v) SCOPE FOR INITIATIVE

Addressing himself more particularly to the problems of the early post-war period, the Prime Minister told the Secondary Industries Conference that "there will be an important task for the Government in this period but the main responsibility lies with the manufacturers themselves".  That, of course, is true.  It applies also to managements in other spheres -- commercial, agricultural, professional, and so on.  To act up to responsibility demands initiative.  The scope for initiative must be adequate.  This involves a considerable measure of freedom.  The Government and private managements cannot take the initiative at the same time without risk of confusion.  Nor can private managements take the initiative if surrounded by controls or if they fear that the Government will step in at some stage and upset their plans.

It cannot be said that the Prime Minister made it at all clear just how far "the role of Government in industry" -- which he warned industry to expect -- was likely to expand.  At times he spoke as though the Government had the plans, or would have them, and all private managements had to do was to co-operate.  He said, for example, that "if manufacturers, and the people of Australia generally were fully informed of the Government's proposals, the desired co-operation should be forthcoming." ⁽³¹⁾  But what are these proposals?  "To this end," added the Prime Minister, "the Government intended to present a statement to Parliament dealing more fully with the economic policy designed to maintain high employment, and with the various measures necessary to carry it into effect." ⁽³²⁾

British manufacturers and other managements find themselves in a better position.  The Government's policy "designed to maintain high employment" has long since been at least clearly indicated.  Its financial policy, budgetary policy, policy in relation to the retention of controls, its policy of co-operating with industry, its agricultural policy, its policy of encouraging exports and developing markets -- all these are to be found in one or other of the official White Papers.  A great amount of light would be shed, an enormous amount of labour would be saved, and a great deal of heart-burning avoided, if the Commonwealth Government could only bring itself to say that these policies, as propounded for Britain, would be pursued in Australia to the extent that they were applicable to the Australian economy.

The fact is that nearly the whole of them should be applicable to the Australian economy.  Like ourselves, Britain will be a debtor nation obliged to seek first a balance of export income over import outgo so that oversea debts can be honoured.  Like ourselves, she will be concerned to establish a better balance in national economic development.  She must maintain her agricultural industries in order that she can feed herself in case of emergency.  We must maintain our manufacturing industries in order that we can defend ourselves in a similar emergency.  She must find employment for her war-released millions as we must find it for our war-released hundreds of thousands.  She has to deal with a people who are self-reliant enough to demand and use scope for initiative;  so have we.  The effect of the war on Britain and Australia has been to draw the parallels closer than ever before.  The main point of difference is that Britain's problem will be relatively greater, and the obstacles to be surmounted in some respects more formidable.  That may have urged Britain to see things more realistically and to make up her mind sooner than we have done.  But it does not excuse us.  No country has less excuse than Australia to be found floundering after the war.  As things stand at present no country within the British Commonwealth seems so likely to find the war over and itself ill-prepared to face the day after.

(vi) POLITICAL POLICIES

The outstanding factor which precludes Australia from seeing ahead and planning for the future, as Britain seems able to do, is politics.  No one knows, probably not even the Cabinet, how far it is intended that politics will enter into industry. ⁽³³⁾  It is known that one section of the politically influential regards the post-war reconstruction period as a golden opportunity to impose upon the economy the Labor Party's objective of "the socialisation of industry, production, distribution and exchange".  On the other hand, it is suspected that another section, with an eye on the electorate, wants to hasten towards that end slowly.  Probably a third section in the same group would prefer not to think about socialisation at all, though they think that general government direction, government control over a great part of the field, government enterprise as a substitute for private enterprise in so-called key areas, and a substantial bolstering by public works are necessary to achieve, and are likely to achieve, their idea of full employment.  Those on the other side of the political fence range from some who agree with the last described section in some respects to others who believe that the less governments have any part in the workings of the economy the better.

Where the Prime Minister stands is impossible to say.  No Prime Minister has so often found himself in the position that, having said one thing, he led a Government that did another.  That may be his misfortune, but care must be taken lest it become the country's also.  His address to the Secondary Industries Conference was hardly reassuring.  He showed that he had a strong sense of what will be some of the basic realities of the post-war situation.  At the same time he showed equally clearly that for him there were political realities, too.  That the two are likely to conflict rather than harmonise is obviously his dilemma

When the Prime Minister said that "it was important that means should be devised whereby governments and business managements could work together in drawing up an advance programme of capital expenditure for the whole country", he talked like a realist. ⁽³⁴⁾  But who is preventing them from getting together?  Obviously the get-together invitation must come from governments.  When he said that "expansion would come if management would take the lead" he reminded managements of a responsibility they are ready to accept.  But when he said that industry must accept an "enlargement of the role of Government", an enlargement which may be so wide as to include steps to socialisation (to wit, the government control of banking and the nationalisation of air lines) or so limited as to include no more than is contemplated in Britain, managements were left bewildered about what lead, if any, would be open for them to take.

In contrast to this, the British Government frankly recognises that its proposal to maintain for a time certain of the war-time controls will be to the people "altogether unpalatable".  It disclaims any intention of "maintaining war-time restrictions for restrictions' sake." ⁽³⁵⁾  It does not say, as Mr. Curtin did, that while some controls "would be relaxed progressively", the retention of others was "an unfortunate necessity".  Which controls?  In what sense unfortunate -- the misfortune of politics or the ill-fortune of industry?

There is one point upon which the Commonwealth Government and the British Government seem to think alike.  They both agree that the Government can render valuable service to industry and the nation in the field of research.  The principal aim of such research would be to measure and analyse economic trends and to disseminate such information.  Nobody wants errors or actions which unwittingly fly in the face of circumstances.  A "small central staff" (the British Government's proposal) with authority to collect the requisite information, and qualified to draw conclusions of national import, from it, could do a great deal which would help to avert errors in both the direction and the timing of expansion.  If we are an intelligent and responsible community, not only industrial and business managements, but trade union leaders and the investing and consuming public would take heed, if it was felt that this small central staff was competent and capable of taking a national view undistorted by any political predilections.  This would be better than volumes of regulations and orders.

It all comes back to this.  If we are to work together, and thus expect progress and not conflict and confusion, it has to be accepted that Australia is to remain a basically free society.  Controls to be acceptable will need to be the minimum necessary, and to be worked out co-operatively, not dictated bureaucratically.  The main aim of governments will need to be equality of opportunity for each to work out his life in his own way, not a master plan to which individuals must conform.  Since we live and must live in a family of nations, the Prime Minister's call for competitive efficiency must rank high in the list of priorities.  Competitive efficiency has always been highest where scope for initiative has been widest.  The British Government's statement of its employment policy ends significantly:  "That aim can be achieved only if the whole productive power of the nation is employed efficiently;  it is not enough that it should be employed." ⁽³⁶⁾  There is all the difference between success and failure wrapped up in that warning. ⁽³⁷⁾

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CHAPTER IV -- METHODS OF MEETING LONG-TERM PROBLEMS

(i) OVERSEA MARKETS

The short-term problems are those which will be involved in the attempt to get back to a stable peace-time economy.  The long-term problems are rather those involved in maintaining stability once it is achieved.  As already pointed out, the two overlap;  and the distinction, though convenient, is largely artificial.  Yet it is possible to adopt measures to achieve the short-term objectives, and which may appear to achieve them, which, in fact, do rehabilitate, but on unstable foundations.  That is a real fear.  It was with that fear in mind that the short-term problems and the possible methods of their solution were discussed in the previous chapter.  What will it avail if .we build a house which, though comfortable while it stands, is not likely to stand long?

If we want prosperity without slumps, there is nothing to which we must give more attention than our oversea markets.  Yet nearly all the plans now being put forward either overlook, or regard as of secondary importance, our oversea trade.  The importance of providing employment is stressed.  The fact that actually employment for many thousands of Australians always has been, and in the future must be, found by demands outside Australia is almost entirely overlooked.  The necessity of maintaining total expenditure is fully recognised.  What seems to be lost sight of is that a substantial portion of total spending power must come from abroad. ⁽³⁸⁾

We are not a self-contained economy.  We could become one, if at all, only by such a fundamental alteration in our economy as would be impossible to bring about without a prior and complete economic collapse.  When we had achieved it, all we would have for our pains would be a new order the. capacity of which to provide living standards would be far and away below the capacity of the existing order.  It might shield us from the blizzards that may blow from outside Australia.  But at what cost?  Instead of risking an occasional slump caused by things going wrong in other countries, and over which we had no control, we would be living perpetually at a mere subsistence level.

In the post-war years, oversea markets are likely to be more vital to us, not less, than they were before the war.  Our export surpluses of foodstuffs and industrial raw materials will be, on the whole, approximately the same, if not greater.  Our surpluses of semi-processed and manufactured goods will unquestionably be greater.  The competition from other countries will be greater.  Synthetic fibres will challenge our great stand-by, wool.  Re-established agriculture in the older countries (especially in Britain itself) will challenge our agricultural foodstuffs.  As for manufactured goods, we will be the challengers with all the handicaps of the new-comer and the less experienced.

The shortages almost everywhere will give us no more than temporary opportunities.  Even those opportunities will be of limited value from the point of view of general living standards.  The poverty-stricken countries which will have to be fed and clothed, and the war-ravaged countries which will have to be re-equipped, will have little or no means of paying.  Supplies to them will have to be largely on a charity basis and, for the greater part of the rest, on a pay-some-day basis.  Who will meet the immediate bill which alone will add to our current national income?  That is already being worked out, and we ourselves will have to meet our share of it.

We can plan all manner of employment schemes in Australia.  We can nominally guarantee many forms of social security.  We can raise wages and reduce hours.  We can control the banking system, and by that means direct investment, and reduce interest rates.  But if we do these things without taking into account the probable effects on our oversea markets, or on the income from them, or on the oversea capital which we hope will be invested in Australia, unpleasant reactions are bound to come.  Let us remember this:  The great depression came to Australia when two things happened.  The first was the sudden and serious fall in the prices of the goods we were selling overseas.  The second was when oversea lenders to us suddenly ceased lending;  and they ceased lending because of their doubts about our financial stability following the fall in our export prices. ⁽³⁹⁾

We may never again borrow from abroad on the scale we were doing then.  But Ministers who have made recent visits to London and New York have impressed on them both that we will want a share of their investment capital.  We will get it on their calculation of our prospects, not on ours.  We will get it only if investments in Australia are likely to be safe and reasonably profitable.  The profit motive will still have great sway in international economic relationships, whatever we may think of it here.  Not even Russia will invest in Australia at the risk of loss, The brotherhood of man does not reach so far. ⁽⁴⁰⁾

(ii) PRICES AND WAGES

We need not look so far as another collapse of oversea prices for the goods we must export.  That may or may not happen.  But we must look to the prices we will probably have to charge for our exports.  Whether they can be paid or not does not depend upon wage levels here but wage levels elsewhere.  The prices obtainable in other countries are in no way related to costs of production here.  There is no way, except in rare instances, of "passing on" to oversea buyers.  We can pass on, and in the past we have passed on, to the Australian exporter the increased wage and other costs incidental to the Australian economy.  That increases his costs.  Pushed far enough it finds him selling at a loss or not selling at all.  We may bolster the situation by subsidising him;  but that is paid by Australian taxpayers not by oversea consumers.

Apart from that, variations in wages and prices in one country out of conformity with movements or lack of them in other countries ultimately react on international exchange rates.  In recent years there has grown up among many economists, some of them of considerable repute, the idea that national monetary policy (and wages and prices must always be regarded as one of the chief ingredients of monetary policy) should have internal objectives as its chief aim.  In other words, they lean strongly to the view that the effect on the international value of a currency should be regarded as secondary to internal policy.  That, however, is a theory to be regarded as suspect.  In fact, it largely grew up out of an attitude of despair.  So many countries were doing that in the years between the depression and the war that these economists saw little hope for their own countries unless they did the same.  At all events it is not the spirit behind the decisions at Bretton Woods.  These decisions, already in the process of receiving legislative sanction in some countries, and soon to be before our own Parliament, have for their clear purpose the maintenance of international exchange stability.  Countries which presume to play lone hands in monetary policy or which, unless driven by force of circumstances, bring about depreciation of their own currencies will soon find themselves out of step with Bretton Woods.  They will be contributing to the defeat of its objective, to their own immediate undoing and probably to the undoing of the general aim of world stability.

Prices and wages have been bracketed together because -- and this is especially true of Australia with its wage system -- wages are a main factor in price levels and price movements.  The main element of danger in the relationship is that wages can push prices up, as they almost invariably have done.  There is, nevertheless, a point beyond which wages cannot push prices -- the point at which potential consumers feel they cannot afford to go.  From that point onward, the effect of wage increases is not price increases but unemployment.  That is worth considering because it was a contributory cause of the great depression as it affected Australia.  As Professor Copland put it, "the steady upward trend of unemployment up to 1929, must be regarded as an indication of the development of wage rates somewhat beyond the capacity of industry." ⁽⁴¹⁾  He also pointed out that the fact that "Australian prices were kept at too high a level" affected export incomes adversely and over-stimulated imports.  Let us not forget that unemployment in Australia may result, either from the costs of our exportable goods being too high for oversea consumers to pay, or the costs of our locally consumed goods being higher than the cost of importing similar goods.

Let it be said at once that there is no attempt here to lay the blame for uneconomically high prices wholly on wages.  But the strong tendency to use the machinery of the Australian arbitration system, backed by a strong trade union pressure, is a factor which is calculated to do harm as well as good to the stability of the Australian economy. ⁽⁴²⁾  Wages, according to Professor Copland, were pushed higher during the last post-war period than industry could afford to pay -- and that fact, according to the same authority, did cause unemployment in Australia, and it did affect adversely our income from overseas.  Always wrapped up with the problem of wages is a consideration of the quantity and quality of the work done for the wages.  High wages, to the extent that they are a measure of output, are not only commendable but wholly beneficial.

Beyond all question, a steady price level (which does not mean a static price level) is an essential ingredient of stability.  Sharp variations are bound to cause dis-equilibria.  Even if wages in general quickly respond, some do not.  Most salary incomes do not.  The various kinds of fixed incomes (e.g., incomes from interest, pensions, etc.) do not.  Let us by all means strive for high wages provided they are associated with efficiency -- provided, that is to say, that they are associated with increased production.  Wage movements which can continue only if they force prices upward may help the wage-earners a little but not for long.  An assured period of stability should advance living standards, not so much from increasing wages, but from slowly but steadily falling prices resulting from increased technical and human efficiency.  If wars and other aberrations can be removed from the earth this should come.

(iii) INDUSTRIAL ARBITRATION

Two extracts from an authority ⁽⁴³⁾ on industrial arbitration in Australia sum up admirably the growth, status and purpose of industrial arbitration in Australia.  They are:

1. "The Commonwealth Court of Conciliation and Arbitration is an institution that has sprung from the people, and as administered by that tribunal, compulsory arbitration is quite as consistent with the purest ideals of a democracy as is any other reasonable and necessary limitation upon freedom that is based upon a social consent."
2. "Summarily stated, the history of industrial regulation in the hands of the Court can be said to establish two propositions -- (a) that industrial peace and industrial justice in the modern complex environment are each attainable and that in practice they can be a reconcilable combination;  and (b) that this twin ideal can be realised by a process that stimulates and does not prejudice industrial production."

Two extracts from an authority ⁽⁴⁴⁾ on left-wing trade unionism in Australia sum up menacingly the attitude and purpose of that section.  They are:

1. "Reformist class-collaboration expresses itself in the adherence of the unions, in Australia and New Zealand to legalism -- to the State-instituted Arbitration Courts, the Arbitration System.  The functions of Arbitrationist legalism are to prevent strike struggles and to enforce acceptance, by law, of a low standard of living.  It will be seen at once that Arbitration is detrimental to the development of the class struggle and class-consciousness and that genuine and fundamental solidarity and perfect organisation necessary to the revolutionary struggle for Socialism."
2. "The Communists regard the State-controlled Arbitration System as a pernicious, anti-working class institution, whose objective is to keep the workers shackled to the capitalist state, i.e., eternally wage-slaves.  We fight against this Arbitration, relying on the unity and organisation of the workers in the struggle to improve conditions and enforce collective agreements with the employers instead of legalised Awards ... In the meantime, until the majority of unionists are convinced of the role of Arbitration, Communists have to represent their unions in Court, in order not to lose contact with the masses, and for tactical reasons may temporarily support one form of Arbitration against another, i.e., Conciliation Committees, etc."

There is abundant evidence to support all that Foenander has said of the merits and achievements of the arbitration system in Australia.  Its defects notwithstanding, it has grown, with almost universal approval, into the fabric of the Australian economy.  There is equally abundant evidence that, especially during the war years, Sharkey's views and attitude have secured a considerable following.  The effects of this development, both upon production and employer-employee relations, are beyond arguing.  The actual loss in production is a matter of statistics.  The worsening of employer-employee relations is a matter of every-day feeling.  Since other countries, especially those with which Australia will be most concerned in the post-war period, are either not experiencing these reverses at all, or feeling them to a far less extent, the effect on our competitive efficiency in relation to theirs is to be feared but not denied. ⁽⁴⁵⁾

It is possible that there is a better way of achieving the desired objective than industrial arbitration as practised in Australia.  But no evidence has been produced to support any alternative.  On the other hand, the industrial arbitration system exists;  it is understood and, except by the minority for whom Sharkey speaks, is universally accepted in Australia.  There seems abundant reason, therefore, why we should, and little or no reason why we should not, persevere with it.  If, on the contrary, we do not, it seems to be idle talk about, much less expect, competitive efficiency.

Beyond all possibility of doubt, the majority of the people wish to stand by the arbitration system.  It also seems certain that the majority of trade unionists wish to see it preserved.  Its position is jeopardised for two reasons:  the Government has signally failed in the past three or four years to enforce the law in respect to arbitration;  and the trade unionists who want it have failed to resist those other trade unionists who do not.  There is no doubt that the failure of the one has affected adversely the morale of the other.  But the Government must accept the ultimate blame.  It has positive power, and an equally positive duty, to uphold the law.

The Commonwealth Government seems to have great faith in the theories which hold that much can be achieved to secure employment and stability through monetary policy.  These views of the value of monetary policy are too optimistic.  All the same, if monetary policy is to be used as a weapon, the industrial arbitration system, as a factor regulating wage movements and consequential price movements, can be a valuable aid.  But to be an aid, arbitration itself will have to work efficiently.  As an instrument of monetary policy the industrial arbitration system can no more be challenged and rendered inefficient than, say, the Australian Loan Council.

Apart altogether from that, which after all could only be a secondary purpose of the arbitration system, the whole industrial system is strengthened or weakened according as the arbitration system is respected or defied.  It is the chief institution which we have, or in any circumstances will have for some time to come, for the purpose of laying down conditions in industry and, consequently, of establishing and maintaining harmonious relations in industry.  There can be no real order, and hence no real efficiency, unless awards made are observed.  The worst possible state is to have an arbitration system which successfully regulates conditions in some industries but not in others, or which binds employers by its award but not employees.  The problem ahead is not whether we are going to have arbitration or some other system, but whether we are going to have an arbitration system which can be relied upon as an effective economic instrument, or an arbitration system which so frequently breaks down that it itself becomes a menace to stability.

Other aids to harmonious industrial relations -- such as profit-sharing, bonus systems, workers' share in management, etc. -- can be thought out and developed where desired and practicable.  These do not affect, nor are they affected by, the existence of the industrial arbitration system.  They may be developed through the machinery of industrial arbitration or they may be developed as an adjunct to it.

The Prime Minister said that "during the war some experience has been gained in increased employee participation in the functions of management". ⁽⁴⁶⁾  There will be general agreement with his view that "further consideration should be given to this as a possible development".  But the consideration must come from both sides.  If it is to have any value it must have as one of its objectives, if not as its main objective, the promotion of cordial industrial relations.  In any case, without cordiality there cannot be effective co-operation between employer and employee in management or anything else.  Nor can there be even the beginning of cordiality, if the fundamental conditions laid down by the arbitration system are held to be binding by one party and liable to be set at defiance at any moment by the other party.

It should be pointed out here that the experience in "increased employee participation in the functions of management" to which the Prime Minister referred must have been in government munition factories rather than in privately-controlled organisations.  Evidence suggests that there has been little or no participation in management in private industries.  Participation in management must not be confused with the appointment of shop committees for the purpose of dealing with internal disabilities, social welfare and the like.  Neither must it be overlooked that the higher costs and the managerial inefficiencies associated with much government-controlled production may have been due, at least in part, to the experience to which the Prime Minister referred.  Authority without responsibility cannot be expected to offer any assurance of efficiency.  In any case, it is far from evident that wage-earners as a whole desire either the authority or the responsibility.

Be that as it may, unless the basic conditions as laid down by the arbitration system are accepted and fulfilled, there can be no building on them.  Competitive efficiency, the means to progress, and harmony in industry stand or fall together.  If they are not allowed to stand on the established principles of arbitration, it is impossible to see how they are going to do anything but fall.

(iv) LIVING STANDARDS AND NATIONAL BEFENCE

It is probably not too much to say that what is in store for Australia depends more upon political leadership than upon any other single factor.  The kind of leadership contemplated is not the leadership which wants to control or direct industry, but the leadership which aims at creating mental attitudes.

During the war political leadership has fanned the idea of a new order after the war when there would be greatly increased living standards for all, adequate social security supported by taxation of the wealthy for everybody, and unemployment for nobody!  That was good politics only if good politics is concerned with the short-term popularity of a political party.  But it was bad political leadership on every other view.  It must have been evident all along to everybody fit to be a political leader that for many reasons the more immediate post-war scene could not be so promising.

The living standards we will be able to enjoy must be subject to deductions from total production to provide:  (i) for the repairs and renewals not provided for a period of six or seven years of war, and also for pensions and other repatriation costs as legacies of war;  and (ii) for the preparation and maintenance of an adequate defence system as a guarantee against invasion, if not war itself, in the future.  These burdens, after all deductions have been made, and all allowances made for the fact that taxation is often not to be regarded as a loss but as a transfer of income, will be real, and they will be heavy.  Thousands of our best potential workers will be unable to produce anything, or unable to produce what they could have produced, had the war not left its marks upon them.  That is a real burden of the war which can never be removed.  Many other thousands of our best potential workers will be producing war equipment which we hope will never be used, but which we must have.  Thousands upon thousands will be training to defend the country when they might otherwise be training to produce, or actually producing, those goods and services which contribute to living standards.  In addition, some industries will be preserved and extended which, though unjustified on purely economic grounds, will be essential to an adequate defence system for Australia.

These necessities, from the point of view of living standards, will involve a waste, a waste of valuable human energy and material resources.  This waste, as a contribution to the defence of a continent, has to be borne by seven millions of people who cannot count with any certainty upon an early and appreciable increase in their numbers.  Any expectation of an increase in the level of living conditions which does not take these handicaps into account is due for a rude awakening.  Any political leadership which will not undertake, even at some immediate risk to its own popularity, to temper mental attitudes to physical realities is both unpatriotic and dishonest. ⁽⁴⁷⁾

Reviewing Britain's difficulties and prospects in the early post-war years, Sir Robert Dalton, Britain's Senior Trade Commissioner in Australia, said recently:  "Much, of course, will depend on the readiness of the home population to continue after the war to deny itself so that the nation's best interests can be served". ⁽⁴⁸⁾  Will they?  "If they are properly led and properly convinced of the need," Sir Robert answered, "I think they will."  There is no need to be less hopeful for our Australian population.  But it is not by any means certain that our population will be "properly led and properly convinced";  for that there requires to be something like a new order in politics.

Let it be made unmistakably plain that these views do not contemplate any going back to 1939 conditions or behind them.  They do not contemplate that progressively increasing living standards are out of the question.  They merely utter the warning that new orders -- whatever that much-mouthed cliche may mean -- must be sought with the realities of the post-war situation in mind.  We cannot stand by those who lost their chances in life, and many of them their own inherent capacity, unless we deny ourselves.  We cannot preserve this continent for the future of Australians unless we continue to deny ourselves.  It is for us, especially the younger age groups among us, to recognise that.  It is for political leadership to see that we do.  These conditions accepted, there is much we can do.  These conditions rejected, we may or may not achieve a temporary level of prosperity;  but there can be no doubt at all about the ultimate.

If we want progress toward better living conditions, broad-based on a plan for social security, we must begin by accepting two injunctions laid down by the British Government for its own people.  They read:

1. Workers must examine thetr trade practices and customs to ensure that they do not constitute a serious impediment to an expansionist economy."
2. "Employers must seek in larger output rather than higher prices the reward of enterprise and good management." ⁽⁴⁹⁾

Not only an expansionist economy, but high and stable employment also, is embraced in these injunctions.  High-level employment which is not associated with an expansionist economy cannot be maintained, even though it may be attained temporarily.  An expansionist economy almost inevitably assures, not necessarily "full" employment but -- to use Professor Giblin's words -- "a very low level of unemployment".  If the level is kept low the strain on unemployment insurance schemes will be bearable, and the relief can be adequate.  Apart from an expansionist economy, the objective of high employment, the adequate relief of the unemployment likely to exist from time to time, the bettering of the living standards of all, and the adequate defence of the nation will all alike suffer.  To challenge that statement is to live in a world of make-believe. ⁽⁵⁰⁾

(v) FUNCTIONS OF GOVERNMENTS

Scattered through these pages, each in what was conceived to be its appropriate setting, the activities which governments can most usefully engage in have been indicated.  They may be summarised as follows:

1. Aid in the planning that will be necessary by bringing those who have to take the lead in the nation's economy into close and frequent consultations.  Government's part is not necessarily to co-ordinate but to see that co-ordination can and does take place.  The Government can, on the other hand, play a significant part, either for good or ill, in the ordering of its budgetary policy.
2. Proceed with economic research so that trends, both internal and external, will be known as far as possible in advance.  Much dislocation and what is commonly called over-production can be avoided, provided that business managements are made as fully aware as possible of the environment and the changes likely to develop in it.
3. Provide the conditions in which the nearest possible approach to equality of opportunity for every individual exists.  This will mean sometimes positive action and sometimes negative.
4. Direct the vocational guidance, the training and, where necessary the re-training of the men and women who want to contribute to the nation's welfare and to promote their own.  This is an outstanding instance of necessary positive action.
5. Prevent interference with economic expansion and output by combinations of any section or sections.  Combinations which attempt to limit production are to be condemned whether they come from employers or employees.  This is an outstanding instance of necessary negative action.
6. Exercise, mainly through budgetary policy, such action as will ensure an equitable distribution of what is produced.  Provided that the established system of arbitration is allowed to do its work, this should in general not be necessary beyond providing for desirable social services.
7. Plan public works programmes, as far as practicable, so that, on the one hand, they will not stimulate boom conditions when the economy is otherwise expanding and, on the other, will give a filip to the economy when private investment is tending to fall.  Public works policies cannot be the basis of permanent prosperity and should not be relied on to that end.
8. Pay special attention to the problems associated with regional development for social as well as strategic reasons.  This again will be reduced largely to government-sponsored research to begin with, followed by co-ordination through close and frequent consultations with the leaders in the economic spheres concerned.  But let us at all times remember that regional development for either of the purposes here suggested will be a brake on the standard of living.  In this case at least we cannot expect the best of both worlds.
9. Give continuous attention to the problems associated with external trade -- imports as well as exports.  If stability is the object, our goods cannot simply be forced on other people by such expedients as subsidies.  Neither can their goods be kept away merely by the use of tariff or more drastic weapons.  Efficiency at home is the fundamental preventative of both evils.  Added to that is the necessity for reasonable stability of exchange rates, the maintenance of virile trade commissions, healthy and vigorous advertising, and the maintenance of cordial international relationships.  In some of these things the Government must take the lead, but. always in close co-operation with the industries concerned.
10. Accept the responsibility of statesmanlike leadership so that the majority of the people will be in the frame of mind which, while expecting the best, does not expect the impossible.  Election success for a party is dearly won from the point of view of the nation, and fraught with nemesis-like consequences for the party itself, if it is based on fallacies, even though the fallacies may be popularly approved.  But what is approved is itself very largely decided by good or bad political leadership.

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ENDNOTES

1.  "S.M. Herald", 3/4/'45:  The recently issued White Paper, '"Full Employment in Australia", puts the figure at 1,000,000 which also exaggerates the number likely to impose any responsibility on the Government.

2.  This notion is also evident in the White Paper, "Full Employment in Australia".

3.  "Employment Policy" (British Ministry of Reconstruction).

4.  All sections in Britain seem to be agreed that the way out of post-war difficulties is through initiative, enterprise, hard work and self-denial.  There seems to be a comparative absence of the illusion of getting more for doing less.  On the other hand, an A.C.T.U, conference, at the moment meeting in Sydney, seems disposed to force the post-war Australian economy along the same road that led to the depression which followed the last war.

5.  "Employment Policy" (British Ministry of Reconstruction).

6.  The Commonwealth Government's concern was expressed in revised plans adopted by Cabinet on 4/6/'45.  The people's concern is the extent to which the priority system for materials will hold up private enterprise in favour of slow-moving public enterprise.

7.  The recently issued White Paper does not appear to contemplate any other approach.  From the point of view of the prospect of control relaxation it is less hopeful than the Prime Minister's address last February at the Secondary Industries Conference.

8.  "Employment Policy" (British Ministry of Reconstruction).

9.  "S.M. Herald" report of Secondary Industries Conference. 6/2/'45.

10.  See "The Australian Tariff", 1929 (the report of a Committee set up by the Bruce Government to inquire into the general effects of tariff and kindred policies).

11.  See W.D. Forsyth's "The Myth of Open Spaces", 1942, and L.T. Meade's "Economic Basis of a Durable Peace", 1942 (especially Chapter VIII).  There is also much to reflect upon in the British Migration Commission's report of their investigations in Australia in the boom period just before the depression.

12.  "S.M. Herald" report of Secondary Industries Conference, 6/2/'45.

13.  The recently issued White Paper recognises the problem but does not face it.  The counters suggested must have been Cabinet or Caucus amendments, for they could not have been seriously put forward by economists.

14.  "Work" -- a Report on "The Future of British Industry", by the Conservative Party Sub-committee on Industry, 1944.  Dr. Evatt's proposal, recently accepted by the Economic and Social Sub-Committee of the San Francisco Conference, would appear to be aiming at such collaboration.  But the problem is "to diagnose unemployment rightly as a world problem".  The Commonwealth Government's White Paper clearly does not contemplate such a diagnosis, much less does it show any intention of conforming to the findings of such a diagnosis.

15.  The record of the arbitration system in Australia should leave little doubt in the mind of either employer or employee as to th© choice.  On this point, see Section (iii) of Chapter IV.  A strong point that might be noted here is that the arbitration system as we know it is the one system that can hold the scales evenly, not only between employers and employees, but also between producers and consumers.

16.  "S.M. Herald" report of Secondary Industries Conference, 6/2/'45.

17.  The Commonwealth Government has not yet made up its mind in respect to rural policy.  Its White Paper promises "a detailed statement" when the work of the Rural Industries Commission "is complete".  The Commission has already submitted four reports.  The fourth, dated 28/8/'44, deals with the "financial and economic reconstruction of farms".  Its recommendations do not accord with the "collectivist" principles of tltw Labour Party's policy.

18.  H.G. Moulton and L. Marlio:  "The Control of Germany and Japan", 1944.  (Published by Brookings Institute.}

19.  The recently issued White Paper rather adds to the fear that the Commonwealth Government intends, or at least is being pressed by Caucus, to maintain controls as part of the Party's socialistic policy.  It would appear that the Government is reverting to its pre-referendum policy, and is relying on the co-operation (or compliance) of the States for the necessary powers, and also upon possible uses of the defence power and the power to enter into and implement international agreements.  This is all most disconcerting to those who may be prepared to accept the continuance of certain controls as a means of transition from war-time to peace-time conditions.

20.  The Bills were still being debated by Parliament when this statement went to press.  A detailed explanation of the place of the banking system in the community will be found in "Money and Banking in Australia" and in "The Origin and Development of the Commonwealth Bank".  We published both these booklets.

21.  "Employment Policy" (British Ministry of Reconstruction).

22.  It should be observed that a policy of off-setting fluctuations in private investment by public works without measures to induce adequate capital formation (i.e., private investment) is likely to be insufficient.  This is a matter to which many competent critics say even the British White Paper has given too little attention.

23.  The Australian White Paper also adopts the live categories of expenditure referred to above.  But it professes greater optimism in respect to the practicability of controlling them through government action than the British White Paper.

24.  The Australian White Paper admits that "there are limits on the extent to which taxation can be used".  But it immediately goes on to express the opinion that post-war taxation can be expected to cover "at least all public expenditure on current items, including the maintenance of existing assets".  The Treasurer's figures submitted to Caucus last March hardly support that expectation.  See the next note.

25.  Mr. Chifley:  "With existing social non-contributory services and others contemplated by the Government, Australia's annual expenditure from taxation on the basis of existing commitments will be £297,000,000.  The budget estimate of taxation collections for 1944-45 is £284,000,000, or already £13,000,000 below needs ... On the basis of existing commitments.  Commonwealth expenditure from taxation in 1947-48 ('that is, about two years after the war'} will total £297,000,000, compared with £72,000,000 in 1937-38".  (Quoted from report in Sydney "Sun", ll/3/'45.)

26.  "Employment Policy" (British Ministry of Reconstruction).

27.  There were, for example, the forthright assurances of "major reductions in taxation" in the Chancellor of the Exchequer's budget speech last April.

28.  "Work" -- a Report on "The Future of British Industry", by the Conservative Party Sub-Committee on Industry.  It is interesting to note that a manifesto recently issued by the Employers' Federation of N.S.W. seems to be in full accord with these views.

29.  White Paper on "Education Reconstruction".

30.  L.F. Giblin:  "The Problem of Maintaining Full Employment" (No. S of Realities of Reconstruction pamphlets).

31.  "S.M. Herald" report of Secondary Industries Conference, 6/2/'45.

32.  The White Paper on "Full Employment in Australia" was submitted to Parliament on 30/5/'45.  The Prime Minister's "high employment" has become the Caucus's "full employment".  The "various measures" are, on the whole, vaguely expressed.  There is, however, implicit in the contents of the White Paper a threat of more far-reaching controls than Mr. Curtin gave the Conference reason to expect.

33.  The recently issued White Paper substantiates this impression.  There is evidence on the face of it that the statement as originally prepared has been mutilated.  As it stands, it is unworkable.  There must be either more regimentation than it pretends to require or a reorientation of its proposed policy.

34.  "S.M. Herald" report of Secondary Industries Conference, 6/2/'45.

35.  "Employment Policy" (British Ministry of Reconstruction).

36.  "Employment Policy" (British Ministry of Reconstruction).

37.  Strangely out of keeping with its general approach, the Australian White Paper, when it comes to the "special problems of a full employment policy", recognises that "to an important extent" success depends upon whether "a spirit of enterprise is alive amongst all concerned with productive effort, whether business men, primary producers or workers".

38.  Th© Commonwealth Government's White Paper recognises it, but shys away from it.  It is the Achilles heel of all the would-be planners of Australian prosperity and security.

39.  Nor will unpleasant reactions necessarily await oversea developments.  For example:  The tendency of a policy of raising wages and reducing hours must be towards increasing costs.  The general effect then is, though the money standard may be rising, the real standard of living is falling.  In this connection see also Professor Copland's comments on wage increases prior to the last depression which are referred to in the following section.

40.  The suggestion in the Commonwealth Government's White Paper that depreciating our exchange rates is a method it has in mind to preserve the financial terms of trade (instead of, say, reducing export costs) is not likely to encourage the investment of oversea capital in Australia.  This raises just another doubt about the real purpose of the banking legislation now before Parliament.

41.  D.B. Copland:  "Australia in the World Crisis", 1934.

42.  The danger for the future seems to be that trade union pressure is taking ultimate decisions out of the hands of the Arbitration Courts.  See the following section.

43.  O. de R. Foenander:  "Solving Labour Problems in Australia", 1941.

44.  L.L Sharkey:  "The Trade Unions", 1942.

45.  For example, John L. Lewis, a leader of the more extreme section of American labour, makes clear that American unionism "presupposes the relations of employment;  it is based upon the wage system and it recognises fully and unreservedly the institution of private property and the right to investment profit."

46.  "S.M. Herald" report of the Secondary Industries Conference, 6/2/'45.

47.  A glaring example of bad, if not dishonest, political leadership has been the constant harping on "full employment".  At the Secondary Industries Conference, where propaganda was of no value, the Prime Minister talked soberly of "high employment".  Apparently a similar aim was set down in the White Paper.  But Caucus could not undertake less than what the people had been led to expect;  so the unattainable "full employment" was substituted in the White Paper for the more modest but practicable high employment.

48.  Reported in Sydney "Sun" of 2/2/'45.

49.  "Employment Policy" (British Ministry of Reconstruction).

50.  It is evident that the United States do not intend to live tax such a world.  Only th© day before the Commonwealth Government's White Paper was tabled in Parliament, the Australian Press revealed the U.S.A.'s plans.  According to the Chairman of the War Production Board (Mr. Julius Klug), the aim was "a prosperous economy free of restrictions".  His estimate is that within twelve months, and the Pacific war notwithstanding, the consumer goods output of the U.S.A. will be "more than 30 per cent, more than in 1939".  As for regulations, "of 650 regulations in effect on April 1, 1945, 156 had already been revoked and 80 would be revoked in the next six weeks".  ("S.M. Herald", 29/5/'45.)  What is Australia's answer to be to that?