Fear Sells: Xenophobia and the MAI

An address to the National Environmental Law Association
at the Victorian Law Institute on 25 June 1998

It is much easier to raise fears than to dispel them.  Any moderately articulate person can raise more fears in 10 minutes than can be dispelled in 30.  And fear is a powerful emotion.  Fear sells.

So let us not chase every speculative rabbit down every fearful burrow.  Let us simply confront some of the things we know.

We know that more wealth means people live longer.  People in high income countries live longer than people in low income countries.  Wealthy people live longer than poor people.

We know that while the move from low income to middle income levels tends to increase pressure on the environment, the move from middle income to high income generally reduces such pressure.  The air and water quality of the US is far better than China or India's.  London has much better air and water than Bangkok.  Environmental indicators for developed countries are typically much better now than 50 years ago -- London does not have murderous "pea soup" fogs any more, you can fish in the Thames, the Ohio river no longer catches alight.

We know that economic deprivation or pressure reduces concern for the environment, economic prosperity and confidence increases it.  Environmental concern goes up in booms and down during recessions;  environmental concern is much stronger in rich countries than poor ones.

Though the connection is a bit weaker, wealth is also positively connected to freedom and democracy.  With the exception of Bahrain, the top 20 per capita car owning countries are all democracies.

We definitely know that freedom and democracy are fundamentally based on the rule of law.  While it is true, alas, that one can have capitalism without democracy, it has not proved to be possible to have democracy without capitalism.  There is nothing mysterious in this connection:  without a large area of personal freedom -- including the crucial ability to dispose of resources one owns either individually or together as one chooses -- and institutions independent of government, one cannot have the institutional basis for democracy.

Wealth is a good thing;  for a whole lot of very basic issues such as longevity, environmental quality, freedom, democracy, human rights.

Indeed, the various attempts to, as much as practicable, replace the consensual private acts of market exchange and civil society with the coercive diktats of the state have produced vile societies which have been shown to be a failure even by their own standards.  They have not only produced most of the most grotesque violations of human rights -- rivalled only by the Nazi holocaust, the Armenian and Rwandan genocides -- but also produced environmental disasters on a scale far in excess of any produced in the capitalist West.

The state is by no means automatically environmentally friendly:  and it is certainly not automatically human rights friendly.

The MAI is a pretty innocuous treaty.  All it basically says is that foreigners have rights too.  Specifically, that investing foreigners cannot be treated worse than domestic investors.  It is about protecting BHP or CSR's investments in other countries while we promise not to treat Holden or Kodak any worse than we treat any Australian owned company.  It bars the expropriation of property;  which our Constitution bans the Commonwealth from doing already.

There are about 1600 international treaties on investor rights.  Australia is a member of about 600 of them.  The MAI is just a clean-up exercise.  It has the great advantage that, as a multilateral treaty, the weight of players like the US or the European Union is relatively less than in bilateral agreements, so a more even outcome is likely to be achieved.

The consequences of MAI will depend entirely on the content of local laws.  If Australian laws and practices on human rights and the environment are basically sound, the MAI will not change that.  It is simply about a fair go for foreigners.  And, in the rest of the world, Australians are foreigners too.

The MAI is, essentially, an anti-xenophobia treaty.

That is what xenophobia is about -- turning "foreign" into a "boo-word".  Capital xenophobia is about turning demonising foreign investment;  trade xenophobia is about demonising foreign goods;  immigration xenophobia is about demonising foreign people.  If "foreign" is a boo word then it is;  you cannot draw neat borders around it and say, Humpty-Dumpty like, that "foreign" is a boo-word only when I say it is.  Inconsistent or partial xenophobia will be easily trumped by consistent xenophobia.  As the Democrats and the Greens, who are inconsistent xenophobes, have been trumped by Pauline Hanson, who is a consistent one.

The patter against the MAI is about selling xenophobia, and I would prefer not to support that game in any way.  But if you want to help build the case for Pauline, go right ahead -- sell your xenophobia.  Her overt patriotic traditionalism makes her much better placed in the selling xenophobia stakes anyway.  She is ready, waiting and demonstrably able to trump you.

What xenophobia is about is selling fear.  Which is what the opponents of MAI are about, because there is money in fear, lots of it.  Environmental groups make lots of money out of fear.  There are votes in fear too -- see Pauline again.  Journalists fill newspaper and the airwaves with stories playing on fear.  Fear makes social control easier -- those who wish to control markets, such as capital markets, trade on fear.  Such social control is particularly important for lobby groups seeking to impose costs on economic activity.  There is a lot of money, votes, newstime and even, potentially, power in the great MAI fear beat-up.

Talk of the MAI conspiracy has much the same status as Hitler's talk of a Jewish Conspiracy -- to conjure up fearful bogeys to fill donation boxes and get votes.  And the great Jewish conspiracy, we should remember, was also about the evil agents of international capital corrupting green and innocent lands and visiting destruction on the weak and helpless.

The rampant hypocrisy of the beat-up merchants is shown by the fact that they are very keen on international treaties on other matters, many of which are potentially far more intrusive than the MAI -- many environmentalist groups, for example, advocate positions for treatymaking on global warming whose consequences would be to close the La Trobe and Hunter valleys.

As for those nasty transnationals, it is often far better for less developed countries if a Western multinational moves in rather than a local company, because the Western company brings its, typically much higher, standards of corporate governance and environmental quality with it.  It has to also operate back in Western countries where environmental concerns are a serious issue.  Companies from countries where environmental sensitivity is much less significant have, predictably, lower standards.

Bunnings in Papua New Guinea replaced by slash and burn Malaysian company.

Greenpeace's dishonest Brent Spar campaign raising claims even it admitted later were incorrect after the close of Shell's 2 year consultation period on the optimum method of disposal for the purpose of boosting Greenpeace UK's membership and donation base

But the concern here is not with actual environmental consequences.  It is about selling fear and being holier than thou.  We are dealing with moral voguing -- just strike pose.

The modern politics of fear have lots of attractions.

Personally, I would prefer to sell confidence, in particular, self-confidence.  What the xenophobes are saying is that Australians can't cut it.  Those nasty foreigners, they are too big, clever, shifty, hardworking, dishonest, etc, etc, and they will do over us poor, honest, dinky-di Aussies.  I reckon this is nonsense.  First of all, I would put Australian used car salesman and real estate agents up against anyone in world in the dubious deal stakes.  More seriously, I think the proposition that Australians can't cut it is just nonsense.  I think Australians can.  Indeed, I think Australians, can, do and will and the best thing for Australians is let the world in to allow us to show ourselves that we really are, or can be, world class.  I believe a country of people who believe in themselves is a far, far better and happier country than an insular, frightened, parochial people who do not believe they cut it in the world, who give in to their fears.

So we should reject xenophobia and the peddlers of fear, and go for self-confidence, a fair go for all, and openness to the world and all it has to offer.  Because, after all, one of the best things it has to offer is us.

Market for CDs is fiercely competitive

Letter to the Editor:

Mr Lee and Dr Walker of the Australian Competition and Consumer Commission suggest (CDs and free trade, 9/6) that I am confused in my letter of 24 May ("Do not interfere in the CD market").  They take this view because I advocated genuine deregulation of that market and not the regulatory control favoured by the ACCC.  Being labelled confused is preferable, I suppose, to being described as advocating a position to obtain a commercial benefit.  Astonishingly, following my previous letter, Mr Lee called me to say that on instructions from Professor Fels, he was seeking assurances that I am not receiving support from the industry.  I am not receiving such support but it is surely preferable to address the issues raised rather than denigrate another agency's position because it is developed without the luxury of vast amounts of taxpayer provided funding.

In their latest letter, the two authors show an unfortunate ignorance of basic economics.  They say that price discrimination is only possible if the seller has market power.  Try telling that the thousands of hairdressers, cinemas, supermarkets that offer discounts to pensioners or students (and therefore a premium price to others)!  Try telling it to nightclubs that admit attractive young women free!  Price discrimination by these and other businesses allows them to be viable, to the advantage of both those paying the premium price and those benefiting from a discount.

Higher revenues that record companies might earn from skilful pricing action must go to the artists.  Unless Lee and Walker are subscribing to the absurd position that the record industry operates as one world wide cartel, market forces will dictate this.  No amount of jingoistic populism about the record companies earning "extraordinary profits" that "are largely repatriated overseas" can beat considered analysis.

The market for CDs is fiercely competitive.  Commercial rivalry ensures any higher revenues that are earned are shared in two ways:

• Established artists are able to obtain them direct when they have achieved sufficient public appeal (would Lee and Walker think this a nefarious exercise of "market power"?).
• In other cases, competition leads the record companies to engage in higher promotional expenditure etc. on behalf of their artists.  The higher revenues make it profitable for record companies to consider acts that would otherwise not be offered an opportunity.

All this adds to the diversity of offerings and improved artist remuneration.  The ACCC is seeking to introduce regulation into this industry that would require artists to surrender a part of the property rights they presently hold in their own material.  Such requirements will always adversely impact on efficiency.

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They Had the Tests, but No Explosion

It is well over a month since India tested five nuclear weapons, and three weeks since Pakistan retaliated with its own tests.  Although the anti-nuclear movement has had more than enough time to mobilise, the response has been remarkably restrained.  Given that India carried out its first test on Buddha's birthday, at the very least the more spiritual people in the movement should have been provoked into strong action by such sacrilege.

True, Greenpeace went through the motions and organised a small demonstration outside the Indian Consulate General in Sydney.  A few of its international officials travelled to New Delhi and Islamabad to join rather feeble local protests and to speak at seminars attended by military officials.  Rebukes were sent to the Indian and Pakistani governments.  But representatives of the anti-nuclear movement also did their best to spread the blame for the tests to the United States, France and Britain.  It was their fault for hanging on to their own nuclear weapons.

Compare this response with the furious indignation and sheer nastiness that greeted the 1995-96 French nuclear tests on Mururoa atoll in Polynesia.  The Mayor of Cairns urged people to send stuffed cane toads to President Chirac;  the French Consulate in Perth was fire-bombed;  environmental groups circulated lists of French-owned companies so that people could boycott their products and services;  and a number of public figures made the kind of offensive statements about French people that they themselves would have denounced bitterly had they been made against non-Europeans.

Although they may have been personally opposed to the tests, many French residents of Australia felt as threatened by these outbursts as Asians now feel about Hansonism.  A few decided to return to France.  A number of French restaurants thought it advisable to erect large banners outside their premises proclaiming their disapproval of President Chirac's actions.  Even ordinary Australians with French sounding surnames or who drove Renaults were sometimes made to feel uncomfortable.

There was something very peculiar and disturbing about all this ugliness, not least because those most actively involved appeared blind to their double standards.  In May 1995, only a few weeks before France announced it would resume testing, China carried out its own nuclear test.  As has been the case with the present Indian and Pakistani tests, the anti-nuclear movement was marvellously effective in suppressing its rage.

The French press asked, quite reasonably, why reaction to the Chinese test in Australia and other countries had been so muted compared to the hammering that France was receiving.  When Greenpeace sent Rainbow Warrior II and a contingent of activists to French Polynesia in an attempt to disrupt the tests, the respected Paris newspaper Le Monde pointed out that the organisation confined itself to attacking soft targets.  Le Monde questioned whether Greenpeace was morally justified in only taking action against "open, transparent democracies".

In fact, Greenpeace is a talented exponent of what can be called "virtual danger";  exploiting situations which appear dangerous on television, or in self-serving press releases, but which are most unlikely to have any hazardous consequences.  The one apparent exception, France's 1985 infamous bombing of Rainbow Warrior I in Auckland harbour which inadvertently killed a Greenpeace photographer, was a crazy plot that went horribly wrong.

Nevertheless, realising that it was vulnerable to charges of hypocrisy, Greenpeace made a big fuss about its piddling protests when the Chinese tested a further nuclear device in August 1995.  Six of its members unfurled a banner in Peking's Tiananmen Square and were quickly deported.  They went quietly, making no attempt to engage in the kind of obstructive contests with the Chinese military that their compatriots in Polynesia were playing with the French.

The unfortunate truth is that nuclear programs of non-Western nations simply do not arouse the passions of the people in anti-nuclear and environmental organisations.  It seems that bombs on our side are much worse than bombs on any other side.  It is fair to ask "why?"

After all, contemporary Western democracies have been more responsible than China, India or Pakistan in their conduct of international affairs and military matters.  They are rather more constrained by a public opinion which desires peace, and which is worried about nuclear weapons.  In contrast, a Times of India poll conducted in six major cities immediately after the first set of Indian nuclear tests showed that they were extraordinarily popular, with 91 per cent of people interviewed stating their approval.  And because Western governments are less corrupt, and generally more effective at controlling potentially devastating threats, there is less likelihood that nuclear materials may eventually fall into the wrong hands.

Perhaps those in the anti-nuclear and environmental movements don't accept any of this, and genuinely believe that nuclear-armed governments in the Third World pose less of a danger than does France, or other NATO powers.  I suspect that more than a few activists really do hold such a loony view of things, which is one of the reasons I am dubious about the diagnoses and solutions they offer for other problems.

Alternatively, it is possible that the silence of the anti-nuclear activists has a very different explanation.  They could be subconsciously expressing a colonialist view of the world, one in which non-Europeans are morally and intellectually inferior to Europeans, and therefore have to be judged by different standards.  So whenever they do something naughty -- like developing nuclear or chemical weapons -- it would be unreasonable to complain too loudly.  Better to blame the Western nations who must have been responsible in the first place.

Or perhaps there is yet another reason.  Maybe the anti-nuclear movement has become paralysed by "political correctness", and is terrified that any strong actions against India or Pakistan will be seen as "racist".

I look forward to a satisfactory explanation of the selective nuclear outrage.  In the meantime, I am making my own protest.  I have sworn off tandoori chicken until India renounces nuclear testing.  And if China resumes its test program, I will include Peking Duck as well.

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Asian Malaise Calls for Australia to Take Cure

To reform or not to reform, that is the question confronting governments.

Over the last 15 years, the Australian economy has been transformed by forces of "economic rationalism" -- less regulation, smaller government and great use of market forces.

This process has never been popular, but until recently voters and pollies, aside from the greens and the Democrats, were convinced of its necessity.  This consensus is now crumbling.  One Nation is pushing the Nationals towards supporting the Democrats belief in government control.

Ironically this retreat comes at time when the evidence in support of economic rationalism has never been clearer.  It also comes at a time when a populist retreat to the policies of the past would be most disastrous.

Clearly the economic malaise engulfing our region is having a deleterious impact on our economy and may well push us into recession.  However, the undeniable fact is that we are weathering this cyclone far better than we would have because of the many reforms undertaken over the last decade and a half.

Just imagine if we had not floated the dollar.  Given our large current account deficit, low savings rate and small domestic economy, the Australian currency would have been exposed to the same speculative forces as has, for example, the Malaysian ringgit.  The result would be double digit interest rates, plummeting investment and higher risk-premiums.

Imagine if we had not reformed the banking system by opening it up to competition, deregulating interest rates, and imposing rigorous fiduciary and accounting requirements.  Instead of Australia financial institutions being currently in the market to buy assets in Asia, the government or the IMF would now be involved in a costly bank bail-out.

Imagine if we still had a public sector deficit of 7% of GDP and an inflation rate of over 10%, as we did at the time of Mr Keating's now famous Banana Republic warning.  Instead of confronting a current account of less than 6% of GDP -- which is high, but manageable -- we would be looking at a double digit current account, rapid growth in foreign liabilities, and the currency crashing below the 50 US cent mark.

Imagine if Telecom had remained an unreconstructed government behemoth -- consuming three times the resources and producing half the output, at twice the price as it currently does.  We would be locked out of the global telecommunications system.

Imagine if we had not made efficiencies in government trading enterprises or staffing levels or service delivery.  Not only would government services be poorer and taxes even more crippling, but we would be unable to compensate the losers of reform.

Clearly not everything is going well down under.  Unemployment is far too high and the regions are being disproportionately effected.  However, these sins arise because of the lack of reform and the anti-development ethos pushed by many urban anti-rationalists, than from reform.

Importantly, now is not the time to get cold feet or retreat to the past.  The threats and opportunities thrown-up by the Asian contagion demand that we reform the remaining holdouts -- starting with the labour market and tax.

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The Good, Bad and Ugly of Tax Reform

Howard has put Taxation reform back at the top of the political agenda.  Some say courageously but, whether he regrets putting it there or not, he cannot now take it off without being identified as a wimp not worth electing.  We will, therefore, have the Coalition's tax plans to accept or reject at the coming poll and in the probably short meantime we have an opportunity to influence the package.  The ideal tax system, even if tax experts could agree, would be beyond political achievement;  it is, nevertheless, nice to know when one is heading in more or less the right direction.

Total tax receipts reached 31.8% of GDP in 1997 -- the highest level ever and some 4.6% of GDP above that of the early 1980s.  How the three arms of government tax the nearly $200 billion that they raise annually is less important than the fact that they do raise it.  Reform of the method of collection is not a first league issue but neither is it trivial and it is currently one that can be influenced.  Our tax system's shortcomings can be grouped under four heads -- economic inefficiency, unfairness, compliance costs and its tendency to negate the federal division of political power.

An activity taxed is an activity reduced -- tax savings and people save less, tax employment and entrepreneurs substitute machines for people, tax tobacco and some give up smoking, tax the realisation of capital gains and people sit on their assets, and so on.  These are only first round effects.  More unemployed people require higher taxes, taxed smokers spend less on food or leisure, employers pass some pay-roll tax costs on in higher prices and so on but we don't need an economic model to know that when people are caused to adopt their second or third preferences they are worse off.

The so called "sin taxes" levied on tobacco, alcohol and gambling might be a exception.  Although I believe their attitude is mite high handed, many people see these imposts as saving ignorant folk from themselves.  Even though, tobacco taxation is by far the most regressive tax and is therefore by one popular criterion the most unfair, these are off the current agenda.  Mr Costello says we are against sin!

Only a poll tax does not discriminate between activities or between paid activity and leisure.  It, however, would attempt to gather far too much from poor people and is not on anybody's agenda.  We should, however, attempt to tax at least close substitutes at the same rate.  At least wholesale sales tax, pay-roll taxes, stamp duties, and the financial taxes (FID and BAD) and most petrol taxes should be abolished in favour of some form of tax that does not discriminate.  A GST or similar tax at 14% would do this.

Are income and leisure close substitutes?  For some people:  yes.  Moreover, the income tax has other serious problems caused by its high marginal rates and a tax base that defies precise definition even in volumes of law that, when bound, are 12 inches thick so far and getting thicker.  Effort devoted to avoiding income tax is, therefore, likely to be well rewarded.  It is so well rewarded for those with high enough incomes to justify accountants, lawyers, residences in the Bahamas or wherever, the Australian income tax is well on the way to being discretionary for them.  Since not everybody has the same capacity or inclination to avoid it, income tax is damned unfair.

Naturally (or is it unnaturally?) foot-thick legislation is associated with huge compliance and enforcement costs.  Further, as we should expect, the high marginal rates and the manifest opportunities for avoidance encourage even more economic distortions than do most taxes.  One of the more serious of these is encouragement to invest in untaxed housing rather than assets that produce taxed rewards.  It has been estimated that to raise an extra dollar of income tax costs between $1.23 and $1.65.  This seems unbelievably inefficient, but it is about right in my own case.

Income taxation hits savings both prior to investment and upon the investment's earnings.  This is not smart in a country that has a big and growing savings and balance of payments problem.  Mark Latham, the Opposition Education spokesman, proposed to avoid this with an expenditure tax.  Although theoretically attractive, no country has one and the implementation problems are daunting.  Income tax also taxes the effect of inflation upon the value of bank deposits sometimes causing the least sophisticate investors to suffer negative post-tax real returns.

It is an election year and the domestic economy is still strong, therefore, Howard will almost certainly use some of his budget surplus to reduce income tax.  Because a biggish budget surplus would be appropriate at this stage of the economic cycle, we would be better served by a 20% GST -- enough to subsume the above indirect taxes, affect a tax switch and compensate the least wealthy losers.  However, that would require a braver government than we have.

Finally there are the problem visited upon our federation in which the central government raises over half the States' revenues.  The reason that federations are favoured is that they allow diversity which in turn allows choice and by comparison identifies waste, inefficiency and all forms of bad government.  Of course, not everyone wants these things identified.  Nevertheless, genuine autonomy and responsibility should be returned to the States by replacing most States-grants with what some have called a "piggy back" income tax.  That is, one in which the Commonwealth sets the tax base and does the collecting but the States compete with each other to offer the best combination of tax rates and services.  Prime Minister Fraser proposed such a measure only to back off when Premier Wran fibbed about "double taxation".

Thus, much good could come from tax-reform.  Howard's central political difficulty is that he will be replacing relatively invisible taxes with a new tax.  For that he deserves our sympathy but not our willingness to settle for reforms that are too modest.

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Interactive (on Pauline Hanson)

Pauline Hanson's political future depends greatly on the very people who are most vocal in denouncing her.  Her own qualities are unimpressive -- she is not bright;  she seems to lack the discipline that would enable her to develop necessary political skills, as well as competence in the policy areas that concern her supporters; and she appears to be at least as hypocritical and vain as any of the politicians that she and her followers despise.  Left to her own devices, and given the same level of media attention that other minor political movements usually receive, her ineptitude would probably cause much of her support base to become disillusioned and fall away.

Unfortunately, the belligerence with which she has been attacked is counter-productive.  The great and the good should realise that their overwrought attacks on Hanson may only make her more attractive to many.  On the other hand, she serves a useful purpose for the interest groups she opposes, such as the human rights and multicultural lobbies -- easy to dismiss, while helping to justify their demands for additional resources.  They would hate to see her fade away, and will probably do all they can to keep her in the public eye.

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The Pauline Hanson Story ... by the man who knows

The Pauline Hanson Story ... by the man who knows
by John Pasquarelli

Why has such an inadequate politician, Pauline Hanson aroused such ire in her brief and probably soon to be forgotten public career?  One has to search hard in John Pasquarelli's book to find an answer.  It is essentially a diarised account of the life of a very private person who finds herself in the middle of a very public debate into a nasty can of worms, in which she acts as nothing more than a tin opener.  By contrast, the author is a very robust character, used to public life, with very definite opinions, and apparently in control of his difficult charge.  But in the end she sacks him.  He is not a happy man, and I have some sympathy for him.

Pasquarelli is clearly a good political mechanic, with plenty of experience in the game, including a stint as a member of the PNG House of Assembly 1964-1968, and in 1987 as the Liberal candidate for the Federal seat of Jagajaga against Peter Staples.  He is also a very old style kind of bloke when it comes to women, his comments on "handling" Pauline are classics!  "I felt like a gun horse-breaker unable to get a bridle on a flighty and stubborn filly", and "I felt ... just like the trainer who gets a problem filly up to win her maiden race ..."  He was also a patrol officer in PNG, and no doubt this experience shaped his views on military service, Asian immigration, and aborigines, all familiar Hansonite themes.

His descriptions of the herd mentality of the electronic and print media, and for their ability to contrive a story where none existed, are worth noting.  The Australian newspaper's headline, "Liberal reject proclaims a victory for the 'white community' " belies the transcript version in the book where Hanson calls for people to "work together as one" on racial discrimination.  Eighteen months later the Human Rights and Equal Opportunity Commission found that the transcript of interview, as opposed to the published edit was not racially discriminatory.  The ABC and Courier Mail gatecrashed what was to be a private meeting between Hanson and the elders of Purga mission just outside Ipswich.  The elders hurled racial abuse at Hanson, calling her "white trash".  These words were not relayed in the media reports.  The Courier Mail journalist, who when tackled later by Pasquarelli, stated "But what's so bad about white trash?"  Imagine if Hanson had used such language.  Noel Pearson's comment that supporters of the Wik legislation were "racist scum" virtually put him out of business overnight.  To not run the anti-Hanson comment was an act of bias.

There is little that I now know of Pauline that I did not, or rather could not have found out by watching endless television interviews, or reading copious magazine interviews with the painfully inarticulate and wooden Member for Oxley.  However, the one valuable insight of the book on Hanson as politician is the reflection on Pauline's reluctance to run for the Senate.  Clearly, Hanson feels inadequate to assume greater responsibility, she is poorly read, poorly disciplined, and is not at ease outside her own circle, and as a Senator possibly holding the balance of power she would be totally out of her league.  Indeed, Pasquarelli's advice on politically destroying Hanson is sound, "the more Pauline is exposed to public and media scrutiny, the more her intellectual shortcomings are revealed".

If nothing else it proves that whatever ones views about politics, or who one identifies with as best representing ones interests, the person has to have sufficient intelligence to be a representative.  It is no paradox that working class Labor branch members select articulate, well educated often middle class representatives.  Such people come to the job best equipped, Pauline just does not have the goods.

The other valuable insight of the Hanson phenomenon is that while Pauline Hanson appeared in Ipswich, it could have happened in Townsville or Gladstone or elsewhere.  If a dumped Liberal candidate, whose name remained on the ballot paper as an endorsed candidate, with the fortuitous flow of preferences from minor parties, including the Australian Democrats, and a weak sitting member, and in the circumstances of the last Federal election anything was possible.

These towns are full of people who feel very threatened by what they see going on around them.  They may or may resent the usual class enemies, the bosses and owners, but they certainly feel uncomfortable with those in a similar position, recent immigrants and aborigines.  Rather than play the script laid out for them, hating those above, they choose their own enemies, those below.  Why do they do this?  I think Pasquarelli knows.  His description of the events at Palm Island when Charles Perkins and Pauline Hanson debated aboriginal drunkenness, in front of the 60 Minutes cameras is worthwhile recalling, "White Australians have become accustomed to images of their drunken black brothers and have become so over-exposed to the problem through the media that they don't wish to become involved at any level.  White Australians have enough of their own demons to conquer."

Howard's battler's, Labor's old base, want to know that everyone has attempted to solve their own problem, not just been good at lobbying government to ensure what they assert as their due is granted.  The task of the anti-Hansonites is to convince her supporters that each person has an obligation to tackle their own "demons".  A lot less aboriginal leadership press conferences from Canberra, and a lot more leadership in the townships and out-stations will knock the hard edge off the so-called race debate.

I do not put much weight on Pasquarelli's predictions.  For instance, that "a National party backbencher in Queensland and two Liberal backbenchers in NSW are planning to switch to One Nation close to polling day.  The three first-timers intend resigning from their respective parties and joining One Nation after nominations have closed.  The tactics will imitate the scenario that led to Pauline Hanson's election, but may not necessarily have the same result."  There is a world of difference between a candidate being dumped by a big party and a big party Member resigning.  The Member would be (quite rightly) wiped out at the polls.

If Pasquarelli's book is valuable for just one message it is this.  It was not an emotionally and intellectually stunted political fluke who caused the capture of Australia's attention for over two years, it was a slumbering and self-deluded leadership class who had confidently mapped out a new future for the country but forgot to ask if it was okay for those who could not find a convenient label by which they could sell their political wares.

The forthcoming election is another chance for leaders to spend a lot less time preaching about how they expect others to behave, and a lot more demonstrating how a lot of little people feel left out.  The prize of government goes to the one who gets it right.  Read Pasquarelli if you are unsure.

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An Enemy They'd Hate to Lose

If One Nation does poorly in next Saturday's state election, a lot of people around Australia are going to be extremely disappointed.  Obviously, they will include Pauline Hanson and her supporters.  But they will also include many people and organisations who have been very vocal in denouncing the member for Oxley.

The Pauline Hanson phenomenon has been a godsend to the race relations and human rights industries, together with all the others who love to bag contemporary Australia.  By seeming to "prove" that Australia is still a racist country, Hanson's prominence has helped them to weather the chill of Paul Keating's defeat.  The member for Oxley is the enemy of their dreams, and they would hate to lose her.

Hanson is not terribly bright, and she seems unwilling to discipline herself for the hard intellectual and parliamentary slog that might make her a more effective champion of her causes.  Her arguments are usually muddled, and she frequently gets things wrong.  And when talking about non-Europeans she tends to use language that makes it difficult to accept her claims that she is not a racist.

She also suffers from the very hypocrisy and vanity that many of her supporters criticise in other politicians.  In The Pauline Hanson Story, her former advisor John Pasquarelli recounts the guidance about love and marriage this supposed champion of family values gave to one of her young female employees:  "Use men for their bodies -- get what you can out of them, then give them the flick".

Even allowing for Pasquarelli's resentment at his dismissal, there is enough evidence to suggest a large gap between what Hanson says and what she actually believes about many matters.  Pasquarelli also describes how she would spend many hours reading her fan mail, to the detriment of his attempts to give her the crash course in political and policy matters that she so desperately needed.

These faults have simply played into the hands of those she condemns, helping them to protect positions that might otherwise be threatened.  As Sydney journalist Paul Sheehan observes in his best-seller, Among the Barbarians:  The Dividing of Australia, Hanson's name has become "the standard weapon with which to bludgeon opposition".  Rather than opening up debate on important matters, Hanson's interventions usually serve to close it down.

A typical example occurred this week, with her inept and inflammatory comments about the United Nations Draft Declaration on Indigenous Rights.  The provisions of this declaration allow for a level of indigenous autonomy, separatism and territorial control that would be quite unacceptable to the great majority of Australians -- probably including Aboriginal Australians -- and harmful to the nation's interests.  Nevertheless, the legal implications of a declaration are quite different to those of a treaty, despite what Hanson wrongly claimed.

A little research, using the excellent services of the Parliamentary library, would have uncovered a much more credible and damaging assessment than anything that Hanson herself could produce.  In June 1996 the Aboriginal and Torres Strait Islander Commission published a analysis of the declaration by Dr Sarah Pritchard, a legal academic who specialises in indigenous rights.

Dr Pritchard wrote that although Australia would not be required to implement any final document, the declaration would still have an impact that "should not be underestimated" and that "at the national level it will bring about changes in legislation and policy".  Furthermore, some of its principles could eventually acquire the status of customary international law and "become binding on states", including those which had not signed the declaration.

Of course, even if the Member for Oxley had done her homework and used less hysterical language, she would still have been condemned.  But she might also have triggered debate about the long-term implications of the declaration, as it is an issue which also concerns a number of thoughtful members of Parliament.  Instead, she has probably ensured that serious and open discussion about the declaration will be taboo for the foreseeable future, much to the joy of its supporters.

There is one exception to the kiss of death that Pauline Hanson invariably gives to a cause, and it proves the rule about the way in which her opponents have cleverly used her to strengthen their own positions.  Pauline Hanson's economic nostrums are remarkably similar to those of Cheryl Kernot, the Australian Democrats, and to sections of the Labor Party.

But these similarities very rarely occasion comment from those who are so active in condemning her views on social and cultural issues.  Interviewers from the Australian Broadcasting Corporation do not thrust their microphones in Kim Beazley's face and demand that he denounce Pauline Hanson's statements about foreign ownership and protection for Australian industry.

On the face of it, this is very strange.  If it is morally acceptable to encourage suspicion and hostility towards foreign investment and foreign companies, why is it unacceptable to dislike foreigners in general?  Economics cannot be isolated from culture and society, and xenophobia in one domain helps to legitimise xenophobia in the others.

Although Hanson may not have the wit to realise it herself, at least she is consistent.  Many of her opponents are not.  Perhaps they can provide good reasons for the discord between their economic and their social views.  But they don't seem to feel any need to do so.  This suggests that they have simply used Pauline Hanson as a wonderful stalking-horse to damage John Howard's government, and to protect the interests of the victim industries.

So if you dislike the Human Rights and Equal Opportunity Commission, the unrepresentative ethnogogues of the multicultural lobby, and the whole motley crew who denigrate Australia for its "racism", next Saturday you will have the opportunity to really stick it to them.  Instead of voting for One Nation, as they fervently hope you will, vote for Labor, or the Coalition, or even the Democrats.  By placing One Nation last, you will be kicking away a vital crutch for many of the socially destructive interests that Hanson and her party oppose so ineffectively.

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Reforms Mean Power for Small Business

Business is set to get another big dividend from reform of the electricity sector.

As of next month, many small businesses will be free to choose their electricity supplier and thereby take advantage of the lower prices offered by the deregulated market.  Judging from current prices in the deregulated market, this should reduce electricity bills by around 20% and save the small business sector at least $50 million.

Over the last few years, large-to-medium electricity consumers have been able to reap huge gains from the deregulated electricity market.  When this market was first established back in 1994-95, the regulated price for the energy component of the bill for medium-to-large consumers stood at $40 per megawatt hour.  Although the players expected the price to come down somewhat with the introduction of competition, the general expectation at the time was for a price over the long term of around $35 per megawatt hour.  To the consumers' surprise -- and the producers' despair -- prices in the deregulated market have fallen steadily and currently average less than $20 per megawatt hour.

How did the industry get it so wrong?  First, they underestimated the extent of over-capacity in the national grid -- both in Victoria and New South Wales.  Second, they did not adequately factor in the improvement in operating efficiency available from privatisation.  Third, the Victorian generators did not expect the publicly owned generators in NSW to fight so hard and on uncommercial terms for market share.

Nonetheless, they did get it wrong and, according to the experts, the pressure for low prices is expected to continue for the next three to four years.  After that, who knows?

From 1 July, firms consuming more than 160 megawatts hours per year will also be allowed to buy electricity from the deregulated market.  This group represents around 15% of the State's electricity consumption and over 8,000 -- mostly small -- businesses.

Currently these businesses pay roughly about $100 per megawatt hour and spend between $20,000 and $90,000 per annum on electricity.  As such, electricity represents a major operating cost.  The current charge comes in two parts.  A charge for the energy which currently averages about $40 per megawatt hour and a charge for the cost of the lines, poles and retailing.

After the end of this month, the 160-megawatt customers will still be required to pay the gazetted charges for the line and poles, but will be free to buy their energy from any of the over 30 registered electricity retailers at the market price.

This means that most will be able to achieve savings of at least $20 per megawatt hour or 20% off their electricity bills.  This translates into savings of between $4,000 and $18,000 per firm.  There will be some variation in the extent of savings, because of the difference in line charges and effect of time-of-day tariffs.

Not all small businesses consume enough electricity to qualify for the deregulated market.  Although the smaller customers will receive some price relief via the phased reduction in regulated prices, they will have to wait, along with households, until the year 2000, to join the deregulated market.

Nonetheless, the reform dividend will give a boost to many firms in the new financial year.

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Gulf Is Neither Wide nor Deep

About five years ago, I was working through an Australian Bureau of Statistics publication about Aborigines and Torres Strait Islanders in the 1986 Census.  Struck by some figures on household composition, I did a few arithmetical calculations and produced what seemed to be an astonishing result.  I was sure that either I or the ABS must have made an error.

My calculations showed that 54 per cent of Australia's indigenous population lived in households that also contained one or more non-indigenous persons.  When I contacted the ABS, they were as surprised as I was, and they decided to re-examine their data.  But they soon informed me that the result of my calculations was correct.

Reflecting about this statistic and its possible significance, I then remembered that the Royal Commission into Aboriginal Deaths in Custody had commissioned a demographic study which was also based on the 1986 Census.  This had shown that just over a third of Aboriginal families comprised an Aboriginal man or woman married to a non-Aboriginal spouse.  Leaving aside single-parent households, this meant that around 1 in 2 Aborigines was married to a non-Aboriginal person.

This figure must have unsettled the Commissioners, committed as at least some of them were to a view of contemporary Australia as being torn by racial and cultural division.  Apart from a single lame comment, it had been completely ignored in the Royal Commission's reports.

Even more importantly, the study produced for the Royal Commission showed that the pattern of intermarriages was reasonably symmetrical.  In a society that was deeply divided and unequal, we would expect to find all or most intermarriages between men of the dominant group and women of the subordinate group.  The fact that over forty per cent of intermarriages involved Aboriginal men and non-Aboriginal women seemed a positive sign.

I wrote an article about these figures, which was published in the Melbourne Age.  I pointed out that the figures were consistent with other data which indicated that the majority of Aborigines rejected a separatist approach and wished to be part of mainstream Australia.  The data also seemed to show that the gulf between Aborigines and other Australians might not be as great as many would have us believe.

If my interpretation was correct, it should have been welcome news for the supporters of reconciliation.  I sent the material to a couple of members of the Council for Aboriginal Reconciliation, including the then Deputy Chair, Sir Ronald Wilson.  They made polite noises, but it was reasonably clear that they were not interested.  Certainly, I saw nothing to demonstrate that they attempted to publicise the data on household composition and intermarriage, or to investigate it further.  The information was simply ignored.

It would have been wrong to think that there was anything personal in this lack of interest.  This was shown by the rather similar response to the even more astonishing findings by John Taylor, which were published in the journal People and Place at the end of last year.  Taylor, who is associated with the Centre for Aboriginal and Economic Policy Research at ANU and who has written papers for ATSIC, found that the 1996 Census indicated that the intermarriage rate -- which includes de facto unions -- had risen to 64 per cent.

Certainly, a number of newspapers, including the Courier-Mail, wrote stories about Taylor's article.  But once the brief flurry of interest had passed, it also seemed to sink into oblivion.  On the face of it, this apparent unwillingness to acknowledge that these high rates of intermarriage are good news is rather surprising.  One would think that those charged with furthering the reconciliation process would be delighted with such developments, and do all in their power to publicise them.  Their seeming failure to do so only confirms my long-held suspicion that there is a fundamental contradiction involved in the process of reconciliation.

I believe that on one side of this contradiction stand the great majority of Aboriginal and non-Aboriginal Australians.  I think that these are the people who genuinely accept the vision of reconciliation -- "a united Australia which respects this land of ours;  values the Aboriginal and Torres Strait Islander heritage;  and provides justice and equity for all".  Their interpretations of this vision might vary considerably, and they may be deeply perplexed about solving the crucial problems of Aboriginal disadvantage and post-Mabo land ownership.  But they all wish to see an inclusive, fair and harmonious Australia.

On the other hand, there are people, again both Aboriginal and non-Aboriginal, who, recognising the strong desire of most Australians to transcend a truly unjust past, use reconciliation as a powerful political lever.  The effectiveness of this lever is undermined by suggestions that reconciliation may be bubbling along as a grass-roots process, independently of their attempts to direct and manipulate it.

These are the people who are prepared to threaten the end of reconciliation unless particular demands are met, and who pretend that they are speaking for Aboriginal people as a whole.  If they were really committed to reconciliation they would acknowledge that some degree of conflict over land management and other matters is inevitable between sections of the Australian population in the post-Mabo era -- including amongst indigenous people themselves.  Instead of using threats to exacerbate these conflicts, they would do everything possible to insulate such conflicts from the process of reconciliation.

If this contradiction at the heart of the existing reconciliation process is to be resolved in a positive and socially constructive manner, I believe that a number of requirements need to be met.  The first is clear from what I have just said -- the need to quarantine reconciliation from local and national disputes to the maximum possible extent.  This would involve widespread condemnation of anyone, Aboriginal or non-Aboriginal, who attempts to use reconciliation as a political weapon.

The second requirement is to abandon the collectivist approach which has characterised much of the reconciliation process to date.  As its apparent unwillingness to publicise the intermarriage data suggests, the Council for Aboriginal Reconciliation seems to think that people should see each other first and foremost as representatives of highly distinct Aboriginal or non-Aboriginal communities, rather than as individuals.

This only perpetuates the kind of thinking that has generated many of the wrongs that the reconciliation process is trying to rectify.  In the words of the American psychologist, Daniel Robinson, "At the heart of racism is the rejection of the person;  the assimilation of the individual to the collective;  the assignment of praise or blame, reward or punishment, respect or contempt on the basis of some real or alleged, or imagined tendency of the collective as a collective".

One of the many harmful consequences of this kind of thinking is the reluctance of most of the media to publicise the diversity of Aboriginal views on important issues, and to seek out Aborigines who wish to present an alternative to the rather narrow range that is currently presented as "Aboriginal opinion".

The third requirement is to make significant advances in ending the social and economic disadvantage that many Aborigines suffer.  An essential prerequisite is to understand the causes of this disadvantage and to change those which are within our power to change.  If our understanding is wrong, all the money and goodwill in the world will not solve the problem.  The conventional wisdom places most of the blame on dispossession, racism and the non-recognition of Aboriginal rights and culture.  Even if this were true, it does not follow that the solutions which are widely promoted are going to be effective.  Indeed, the thrust of many well-meaning contemporary enthusiasms may help perpetuate the very conditions that we condemn.

For instance, I do not think that native title is going to be the panacea that many people believe.  Native title is a racist title.  This is not because non-indigenous Australians cannot claim it, but because no rational non-Aboriginal person would want to have their own property under such title, which precludes them from transacting in their land or holding it as an individual.  Native title involves the paternalistic and discriminatory assumption that Aborigines should not have the same ability to deal with their property that other Australian citizens take for granted.  I think that the long denial of Aboriginal property rights has been shameful;  but I want to see them obtain the kind of rights which are consistent with individual freedom in a contemporary economy.  To those who say that this is "assimilationist", I would respond that many of the characteristics which are now promoted as essential aspects of Aboriginality also involve assimilation;  assimilation to Western fantasies about indigenous cultures.

Finally, it has to be recognised that "reconciliation starts with the truth".  One positive aspect of the past few decades has been the end to what the anthropologist Bill Stanner called "the great Australian silence" about Aborigines and what had happened to them in the course of Australia's development.  Unfortunately, as the silence has ended another form of intellectual corruption has taken its place -- the culture of dishonesty that surrounds public discussion about many Aboriginal issues.

This is most evident in the willingness of most prominent Aborigines and a great many non-Aborigines to support the fraudulent claims about Hindmarsh Island.  Or in the credulous reception the media, academics and the churches gave Bringing Them Home, the shoddy report about the "stolen generations", which treated a truly serious issue in a deceitful and morally frivolous manner.  But it is also present in a widespread willingness amongst many who speak publicly on Aboriginal questions to distort history and anthropology in order to pass over matters which might be thought to cause embarrassment to present political causes.  The unfortunate consequences are to encourage a widespread suspicion that everything the public hears about Aborigines and Aboriginal culture has to pass a "political correctness" test.

If there are any grounds for hope that we might transcend the wrongs of the past, they lie in the willingness of ordinary Australians, Aboriginal and non-Aboriginal, to develop an increasingly dense network of personal relations.  This is manifested and fostered in many ways, one of which is the high rate of intermarriage.  But I suspect that this is happening more in spite of many prominent advocates of the reconciliation process than because of them.

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The Politics of Taxation Reform

I remember asking Lionel Bowen in the lead up to the 1980 election what the key issues would be during the campaign.  "Tax my boy, same as the last election, same as every election!"  Lionel was exaggerating somewhat but tax or tax reform usually feature prominently at election time.  And so they will at the forthcoming election.  Tax reform is a dangerous beast, the Capital Gains Tax scare certainly played a part in Fraser's survival in 1980, and the GST scare a large part in Keating's in 1993.  Will it lead to John Howard's demise in 1998?

Major tax reform is a rare thing.  Federal income tax was levied in 1916 to finance Australia's World War 1 commitment, and then became the sole responsibility of the Commonwealth in 1942 to finance Australia's World War 11 commitment. [1]  The Fraser government sought to curtail tax avoidance and the income tax base was widened in the Hawke government to include capital gains and fringe benefits taxes, and the top marginal rate of income tax was reduced.  All governments have from time to time given tax cuts which amounted to no more than reimbursement of the ravages of inflation and bracket creep, but that is not tax reform.

Why should John Howard attempt tax reform if it is such a risk?  The truth is he has to.  He was elected in 1996 without a platform, or one so thin that it was exhausted in his first year.  Governments are not rewarded for doing nothing.  So he had to create an agenda, and that agenda was always going to include tax reform, the last great intellectual task that the Liberal party undertook with Hewson and the one great reform that Labor could not tackle (outside the waterfront labour monopoly) after Keating's 1985 Option C died.

Both 1980 and 1993 were instances where an Opposition had proposed a new tax at election time, and both were subject to the most terrible vilification by the government of the day.  What happens when a government does the proposing?  In this instance the electorate are being challenged to toss out a government on the basis of tax reform, not fail to elect an Opposition.  There is a difference, so the Howard government which is otherwise not in a terminal state, has an advantage in the contest.

What needs to be fixed in the current tax system?

1. It consists of too many different, and overlapping taxes.
2. It is complex and makes compliance difficult.
3. It is unduly focussed on business inputs and income, and reduces competitiveness.
4. It applies differently to different parts of the economy, and distorts performance.
5. It is inequitable because the wealthy can minimise tax.
6. It does little to encourage savings.

What can the government do?

There are two main choices:

1. Retain the main features of the personal, corporate and indirect tax mix, as has occurred in the changes since the 1985 Tax Summit, or
2. Replace personal and corporate income taxes with a consumption tax.

Why has option 2 not been chosen?

Commonwealth governments have been trying to eliminate the 6 problems since the McMahon government established the Asprey Taxation Review Committee. [2]  John Howard as Treasurer in 1980 wanted to change the tax mix away from income and towards a consumption tax, Paul Keating wanted a 12.5% consumption tax on all goods and services, and major personal income tax cuts.  Is it just Treasurers who want reform, not Prime Ministers?  Treasurers deal with economic truth, Prime Ministers with political truth.

For example, if the government wanted to undertake a simple tax swap, the Wholesale Sales Tax for a GST, where at present only a small number of wholesalers have to file tax returns, in the future all retailers would have to do so.  A WST can only fall on goods (you cannot wholesale a service) so a whole new sector of the economy has to become involved.  If the government wanted to go further and change the mix of taxes, say raise more in indirect taxes but less in direct taxes (income and company) it then has to try to leave everyone at the same relative after-tax income.  Then everyone becomes edgy, and everyone becomes an expert on their own position.

The best way through this is to be conservative and opt for the indirect tax replacement of corporate taxes so as to keep the debate confined, as far as possible, to industry groups.  The only tax mix change would be at the fringes.  For example, where there cannot be a clean replacement of the revenue forgone with the abolition of the old tax, and where any compensation is due to any group because of a differential impact on incomes.

But just to make sure everyone is happy you must offer a very large apparent tax cut.  Apparent because the money will have to come (in the absence of swingeing cuts to outlays) from taxes.  This must be done not by raising new or existing taxes further, which like the 1993 Budget would be too crude, but by taking them from future Budget surpluses.  Of course, those surpluses need not be available in the first place at least not for the purposes of providing a cut to the marginal rate of tax, or lifting the income level at which they bite.  Nevertheless, that is the strategy for cleaning up the indirect tax system.  Income tax relief, which may or may not be economically warranted is politically essential.

The trouble with tax reform is the economy doesn't vote.  What could otherwise be a search for the most efficient form of tax becomes a game of buying the compliance of those who will be directly involved in the change, and buying the compliance of those who will only be involved incidentally but need reassurance just the same.

What will opponents argue?  That the new tax will rise in the future.  But why is that different to any other tax, and besides a government running a surplus at a lower level of total tax take has some basis for being believed that the rate will remain steady.  That it will force more transactions into the black economy.  There is a lot of cash-in-hand income now that avoids tax, but if there is to be no greater reliance on indirect tax for raising revenue then it is a criticism misplaced.  If there is to be some greater reliance placed on indirect taxes it is at least arguable that the cash-in-hand person (usually small business, pensioners and the lower paid) will be forced to pay some of what by law they should.  As long as there are measures to ensure that the wealthy can no longer escape their obligations then equity is preserved.  Services will be taxed.  Why should they not pay, and what about the relief to export manufacturers that the new system brings?  That the new tax mix will be regressive, and cannot adequately be compensated for?  Well, if I had the brief for the poor I would embrace the change conditional on more than adequate compensation, and have a win!

Modest tax reform is one step in major tax reform.  The Labor government took the first steps, the Coalition has to take the next.  I recall when interest rates hit 18% in 1990-91.  Facing enormous political pressure the Prime Minister Bob Hawke let it be known that he was considering easing rates.  The moment he made his announcement the nervous-nellies on the backbench started ringing around seeking to meet and demonstrate against the Treasurer and his interest rate regime.  The Treasurer Paul Keating told them to hold the line.  The government did, and it survived.  If Keating had shown weakness the government would have been doomed because the electorate would have asked, and quite rightly, "why did we have to go through all this in the first place?"  The electorate do not like change but they will accept it if they are convinced that it is essential and enduring.

1. John Harrison, Total Tax Review:  Major Reform Issues.  Current Issues Brief 1996-97.  Department of Parliamentary Library, Parliament House, Canberra.
2. John Harrison, The GST Debate:  A Chronology.  Background Paper 1 1997-98.  Department of Parliamentary Library, Parliament House, Canberra.

Consenting Marketplace Acts

Do you think full employment should be the prime goal of labour market policy?

Most people don't, you know.  Oh, they make noises about unemployment being terrible, but when it comes to actually doing anything about the shameful level of unemployment in Australia, it quickly becomes obvious that other things are much more important.  Keeping taxes down, keeping one's own wages up, protecting unions, holding on to fond beliefs, preserving traditional institutions and privileges. ...  All these things are regularly revealed to be much more important than achieving full employment.

How shameful is our unemployment record?  Very shameful.  Achieving 7.9 per cent unemployment in April after 5 years of economic growth was regarded as some great achievement.  Yet the US unemployment rate for the same month was 4.3 per cent.  The (January) Netherlands rate was 4.7 per cent, the (February) Austrian rate 4.4 per cent and the Danish 5.5 per cent, the (December quarter) Norwegian rate was 3.8 per cent.

Why are their rates of unemployment so much lower than ours?  Because they have reformed their labour markets and we have not reformed ours.

The proportion of the US population in employment is also higher than ours.  In 1970, 57 per cent of Americans 16 and over were in civilian employment compared to 60 per cent of Australians 15 and over.  In 1997, the relevant figures were 64 per cent of Americans and 58 per cent of Australians.  (And the American figure is almost certainly understated, as illegal immigrants are largely uncounted).

The US employment boom -- 30 million extra jobs from 1980 to 1997, a growth of 31 per cent -- is making major inroads into social problems -- companies are investing in the training of inner city black youths, because the shortage of labour is becoming so acute.  US wages are also generally higher.  The average starting salary of an engineering graduate in the US is $US40,000 -- in purchasing parity terms, about $A70,000.  This despite the fact that the US has a much higher proportion of its population graduating from universities than Australia and then imports still more graduates.

Despite the nonsense regularly claimed, low US unemployment rates are not being achieved through high prison populations and defence forces (the number of people in gaol, the defence forces or otherwise institutionalised has fallen from 6 million in 1970 to 3 million in 1997), low wages, poor social security. ...  They are being achieved through labour markets being allowed to work properly -- the same way Hong Kong achieves unemployment rates where 4 per cent is a record high.

What do we have to do to achieve full employment?  Allow the labour market to become a realm of capitalist acts between consenting adults.  If we are concerned some of those capitalist acts may result in unacceptably low incomes (even though many low incomes contribute to high-income households), then incomes can be "topped up" through devices such as the Earned Income Tax Credit used in the US.  And low income jobs -- which regularly lead to higher income jobs -- are much better than unemployment leading nowhere.  Those who decry the alleged results of a free labour market are either frightened of competition for their own jobs or have an ideological preference for telling other people what to do rather than letting them make their own choices.

If those consenting adults wish to associate together they should have every right to do so.  If they want to have recourse to arbitration procedures, these can be hired -- there is no reason for the taxpayer to subsidise a monopoly provider.  And, as the wharf dispute showed, real courts are perfectly capable of interpreting the law clearly and with speed (even law as unwieldy as the interaction between the 555-pageWorkplace Relations Act and corporate law).

The most important thing government needs to do to promote full employment is to stop doing things.  To stop setting wages rates by law through the award system.  To stop imposing a monopoly provider of arbitration services which plays grubby interest group politics under guise of being "the umpire" while sacrificing the prospects of the unemployed.  To stop raising the risks of employing people by unfair dismissal laws (no employer can sue a worker who leaves at a crucial time, after all), increased employer liability for actions by employees, etc.  To stop structuring the welfare system so it is destructive of the work ethic.  A classic example of the latter is a dozen years ago unemployment rates did not differ by family size -- it was a matter of indifference to employers how many children people had.  It still is, but now people with 3 or more kids have much higher unemployment rates than those with one or no children.  Why?  Because the family income support arrangements create massive disincentives to seek work if you have 3 or more children -- in the real world, the welfare system effectively sets minimum wages.

Why are so many actions by government so destructive of employment?  Because politics is an unrivalled mechanism for gaining benefits at someone else's expense.  Government action is coercive action -- you can force people to do things.  Relieved of the need to gain their individual consent (unlike market exchanges), you can impose costs on them to gain benefits for yourself.  Do it right, and it can be trumpeted as "democratic" and "in the public interest".  Awards are great devices for pricing competitors out of labour markets -- young people, migrants, women returning to the work force are likely to be less productive.  So one sets award wages sufficiently high that they find it hard to compete -- to the (short term) benefit of the unionised "insiders".  It is no accident that women are concentrated in industries with low rates of unionisation.

In the longer term, we all bear the costs of this:  through higher taxes to support unemployment benefits;  through living in a less productive, and a more insecure society -- insecure both because of high unemployment and insecure because of the belief that we "can't really cut it" unless big brother is looking after us.  But it looks like a good deal in the short term.  And union members whose children have problems finding work have reasons not to put two and two together.

Which is not to say that there is nothing positive that governments can do -- though extending economic freedom is pretty positive, actually.  Workfare ("work for the dole"), done correctly, can be an excellent way of re-socialising the long term unemployed back into work and preserving incentives to look for work.  It represents low cost job creation.

But we should be very suspicious of grand plans to do more than that.  Taxes are a very expensive way of funding something.  Not only do we have to pay public servants to collect the money and hand it out, there are all those accountants, lawyers, etc. kept busy ensuring their clients comply with the law;  all those commercial transactions which don't take place because of taxes;  all those changes from preferred behaviour due to taxes.  Because of these extra costs, we can only be confident of society winning on the deal if about $1.50 worth of value is created for every $1 raised in taxes -- and that is quite a big ask.  (And the bigger government gets, the less likely this criteria is to be met -- which is why it is not surprising a recent study found a strong correlation between bigger government and lower economic growth).  Market exchanges are much cheaper.

And it is very unlikely that spending taxes (which themselves cost potential jobs) on creating jobs needed because other taxes have been spent on activities which destroy jobs represents a net beneficial use of social resources.  Besides, which is likely to have more real value -- work created for the sake of creating work organised by people who have no personal stake in the value of the output?  Or something done because someone has voluntarily paid to have it done -- and paid someone with a personal stake in keeping customers satisfied?

That markets generally work better than command-and-control systems is not a matter of ideology, but of the inherent characteristics of each.

The real area of political art required for achieving full employment is not to find ways of spending yet more taxpayers' money in socially destructive ways -- the Commonwealth alone spends $8 to 10bn a year on labour market policies, or about $12,00 to $14,000 per unemployed person.  The real political art is to justify stopping spending taxpayers' money in socially destructive ways.  To convince people that full employment is the only proper goal.  That a few sacrifices have to be made to achieve it, sacrifices that will be shown to have been a lot more apparent and transitory than real.  That the labour market should indeed be the realm of capitalist acts between consenting adults -- not coercive privilege masquerading as promotion of the public good.

So, do you want full employment?  Really?  What are you prepared to give up to achieve it?  Are you brave enough -- and do you care enough -- to try a free labour market?

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