The Fraser Years II: The policies, the micro economy and the consequences.

CHAPTER 9

Every Government is a parliament of whores.
The trouble is, in a democracy the whores are us.

P.J. O'Rourke

INDUSTRIAL RELATIONS

Fraser had been elected in 1975 promising to do something about the excessive power of trade unions and unemployment.  In the end he did little.  His Government, unlike Thatcher's and later Howard's, had no strategy except during a brief period when Ian Viner was the Minister for Industrial Relations.

The Fraser Governments' most notable achievement in the area of industrial relations was by way of the Trade Practices Act.  New sections, 45D and 45E, developed by Howard and supported by Fraser, outlawed so-called secondary boycotts by imposing fines for black bans.  The restrictions that 45D and E imposed upon unions mirrored those imposed upon corporations for similar commercial behaviour. ⁽¹⁸⁴⁾  The outlawing of secondary boycotts had in fact been included in the 1975 Liberal Party platform but John Hyde doubted that at that point anyone other than Ian Viner realised the significance of the provision.

During 1981, Viner tried to set up the equivalent of a Campbell Inquiry to look at the industrial relations system.  Perhaps because of its experience with Holcroft (below) and Campbell, the Government could not agree on the terms of reference.  The employers' peak council industrial advocate, George Polites, and the ACTU -- both sides of the Industrial Relations Club, scuttled it.

Viner introduced a Bill to the House that, had it carried the Senate, would have legislated for industry-based in lieu of craft-based unions, the standing down of employees who could not be gainfully employed because of industrial action, and abolition of preference to unionists.  He had wanted to repeal the "conveniently belong" provision by which the Arbitration Commission, by recognising only those bodies to which employees and employers might "conveniently belong", confers monopoly status upon a small number of unions and employer equivalents.  He unwisely told the Metal Trades Industry Association of this intention.  In a statement to the House, he had also foreshadowed legislation allowing enterprise unions to be formed.  A campaign led by George Polites quickly and so completely undermined him with Cabinet and the Prime Minister that he was replaced with the conciliatory (super-wet) Ian Macphee. ⁽¹⁸⁵⁾  Viner, John Hyde recalls, was taken by surprise.  Macphee refused to have the Coalition proceed with the Bill in the Senate.

The Dries, for want of knowledge of what was proposed, had failed to give Viner the support they should have done and ended up with the worst of all likely outcomes.  Occupied with airlines, motors, TCF, the budget and other matters John Hyde had not absorbed even Viner's Second Reading Speech until all was too late and Viner made no attempt that Hyde is aware of to advance his cause outside the formal channels -- naïve politics all round.

That was the end of even cautious attempts to allow freedom of employment.  Compulsory awards (for the time being adjusted in line with the cost of living plus whatever benefits the unions could induce either employers or the arbitral authorities to grant) continued to set wages.  Workers and employers were forbidden by law to negotiate productivity and employment enhancing deals.  Unemployment, then at a post-war high of 6.5%, was to go much higher and the woeful productivity to which the Crawford Report and other studies had drawn attention continued.

In July 1981, the Arbitration Commission ceased to index minimum award wages for inflation.  A year later the ACTU estimated that the 55% of employees covered by awards had during the previous year received weekly wage increases of $20 or more, with much more in the metal trades that had been an aggressive wage leader during the economic upswing with no regard to the cost increases from the second "oil crisis". ⁽¹⁸⁶⁾  Treasury modelling predicted that each one per cent increase in average earnings equated to 30,000 more unemployed.  In fact, unemployment rose much more. ⁽¹⁸⁷⁾

Toward the time of its ultimate defeat, with unemployment rising rapidly and blamed correctly upon the so-called "wages overhang", the Government brought in a so-called "wages freeze".  "Wages overhang" referred to the extent that wage increases had exceeded productivity gains but the circumstance might as descriptively and more helpfully have been referred to as the "productivity underhang".  The "wages freeze" was a freeze of only wage-minimum awards.  Dries who supported this were taunted with inconsistency.  Had there been a wages freeze and had the Dries supported that, then the accusation would have been just.  In fact the policy froze not wages but the regulations -- the awards that set the minimums that caused the unemployment.  It in no way restricted the ability of employees and employers to negotiate mutually agreed remuneration above the award minimums.  The freeze merely prevented existing regulations from becoming even more damaging.

THE TWO AIRLINES BATTLE.

The Parliamentary Dries chose to make a stand on the two airlines policy.  It was quipped that their stand was like General Custer's at Little Bighorn but, unlike Custer, although defeated, they survived to fight again.  Since the early post war years, inter-capital domestic air traffic had been regulated by the Two Airlines Policy restricting services to Ansett and TAA.  Because the Commonwealth does not otherwise have the Constitutional powers to regulate domestic transport, competition was restricted by prohibiting potential competitors from importing aircraft.

The policy not only prevented competition from a third airline, it prevented competition between the permitted two.  They used the same types of aircraft, took off and landed within five minutes of each other and charged the same fares which by US, but not European, standards were excessive.  One of the more amusing pieces of economic theory, Hotelling's Law, explains why they moved in lockstep.  Consider ice cream vendors serving customers on a beach.  One vendor will establish himself in the centre.  If another takes a position other than beside the first, he will get less than half the custom.  If in the interests of customers they collude to set up their stands with 50% of the bathers between them and 25% on either end, each has a temptation to cheat by edging towards the centre.  So it was with Ansett and TAA.  Only the colour of the hostesses' uniforms differed -- not the price, type of aircraft, seating, flight times or safety.  That one airline was Government owned and the other private did not affect the equation.

In the United States, the Airline Deregulation Act of 1978 had opened airways to competition.  Travellers then enjoyed fares that were on average 30% lower than before but, as they were falling anyway, perhaps the Act saved passengers only 10% to 18%.  Depending upon how it is measured, in the first 12 years of US deregulation, airline safety improved by 20 to 45%. ⁽¹⁸⁸⁾  Tales out of the United States of cheap fares, frequent services, over-crowded airport lounges and topless hostesses abounded.  The plebs had taken to the air and those accustomed to travelling at Government or company expense did not always like rubbing their shoulders.  Airline deregulation had been undertaken by President Carter -- again the Left demonstrating its concern for the freedom of the underdog.  It benefited low-income people and it provided an example for much that was to follow, with the reduction of detailed Government control over trucking, railroads, buses, cable television, stock exchange brokerage, oil and gas, telecommunications, financial markets and local electricity and gas utilities. ⁽¹⁸⁹⁾

The Australian Two-Airline legislation was scheduled to expire in 1981 but the companies were protected by a clause that required five years notice of termination of their duopoly.  Long-haul fares, from Perth and Darwin to Melbourne and Sydney in particular, were believed to be subsidising short-haul fares such as Sydney to Melbourne and this was protested, particularly in Perth.  They hoped, therefore, for the support of non-Dries from the outlying States and air travellers outside the Federal Parliament.  From August of 1980, two Western Australians, Gordon Wade and Wayne Donaldson, ran the Fair Air Fares Campaign with skill and effect.  Until the Perth media took up the issue, the cause, however, received scant support from the Western Australian Government.  Charles Halton, the Federal Department of Transport Secretary, was a died-in-the-wool interventionist.

In October 1979 Peter Nixon, the Transport Minister, informed them that Cabinet had decided to maintain the two-airline system. ⁽¹⁹⁰⁾  Faced with the Government commitment, they set about learning the arguments they must combat.  Some of them called on TAA, Ansett and the freight carrier, IPEC, the last welcoming their proposed stand.  When Peter Shack asked Sir Reginald Ansett why he had insisted on the inclusion of the clause promising five years notice and then three years notice of termination, Sir Reginald with a mischievous grin replied, "Well my boy that is to give me time to change the Government".  He was charming but John Hyde's impression was that, able to rely on his political muscle, he had never felt the necessity to justify the two-airline policy in public welfare terms.

Ralph Hunt, who had replaced Nixon as Transport Minister, agreed to approach Cabinet with a proposal to set up a committee to investigate the allegation of fares cross subsidy. ⁽¹⁹¹⁾  This resulted in the Holcroft inquiry, but the Dries were interested in much more than the fare structure.  Hunt and then Fraser ⁽¹⁹²⁾ unwisely charged Shack and John Hyde with suggesting terms of reference for the inquiry.  This was their opportunity.  They could be reasonably confident that most competent economists would wish to report on the airline policy itself.  They set about drafting terms of reference that on careful and literal reading would require the inquiring committee to do so, yet subtle enough to escape the notice of a Cabinet that rarely bothered with underlying principles.  In this they were assisted by transport economist, Peter Forsyth.  Ten months later John Hyde was able to note:

Very argumentative but civil meeting with Ralph Hunt on Airlines. ... Hunt tried to argue that the terms of reference did not include consideration of the two-airline policy.  We kept reading the terms to him and pointing out that over 200 submissions to the inquiry read them as we did.

John Hyde's diary for 18 September, the last sitting day before the election, is less cocky.  It records that Hunt had

put down a dreadful statement (actually a Second Reading speech) on domestic airlines.  Far worse than I had understood either from the party room or committee. ⁽¹⁹³⁾

They had been double-crossed.  The next day Shack, Rocher, Drummond and John Hyde (all West Australians) gave evidence to the Holcroft inquiry.  Two days before the 1980 election Hyde discovered from Gordon Wade and Wayne Donaldson (of the Fair Air Fares Committee) that the Government had extended the airline agreement for ten instead of five years.  They had again been double-crossed and John Hyde had great difficulty hosing Wade and Donaldson down at least until after the poll.  Hyde pointed out that the Government required legislation that might fail in the parliament.  If the Government was going to behave as it had, then it was reasonable and they wished it to be seen as inevitable that they should take off their gloves.  Certainly they had ambushed the Cabinet with the Holcroft terms of reference, but, if they were too careless to read what was written or too ignorant to appreciate its implications, then was that their concern?  Besides who should complain about an honest report by three competent inquirers?

In November the Dries sent Hunt a letter stating that they would try to cut the extension of the Two Airline Agreement back from ten years to one and failing that would vote against the third reading. ⁽¹⁹⁴⁾

The day after the new Parliament met on 25 November 1980, Fraser and Hunt met the WA members.  The Government, while making it clear that it was committed to the Two Airline Policy, agreed under pressure to defer legislation until Holcroft had reported.  They agreed to their bringing forward the date by which it must report.  Despite a lengthy letter, written immediately after the poll, explaining to Fraser why John Hyde supported airline deregulation, he still did not understand the Dries.  He was convinced, because much of the pressure came from West Australians, not all of whom were consistent Dries, that the Dries would settle for the opportunity to portray themselves as heroes in WA on the issue of the imbalance in the regulated fare structure.  They had won only a skirmish.  Fraser held the outstanding trump in that, if there were no new legislation, the existing law continued.

Some outside the Parliament told them they could not succeed because while Rupert Murdoch owned The Australian newspaper and half of Ansett Airlines Fraser could not risk a "bucket of shit in every morning's Aus".  They were naturally, despite their irritation with the Government, reluctant to believe that their own party was so beholden to any individual.  Further, John Hyde doubted that The Australian was so beholden to Murdoch's other interests.  Without quibble it had published an article by Hyde roundly condemning the two-airline policy.  Reasons for many things are cumulative.  Fraser had said at the 26 November meeting that TAA could not be sold because it was part of "the Australian heritage".  He may have believed even that.  He did not say so, but it may have been significant that Doug Anthony's father had been responsible for setting up the Two-Airline Policy in the 1950s.

Tactics became rough.  John Hyde received a phone call from Peter Walsh who told him that a News Ltd journalist approached him with a story that Shack and Hyde had taken money from Western Australian financial interests.  The journalist wanted Walsh to raise the matter in the Senate -- Hyde presume to give the story the immunity of parliamentary privilege.  Walsh told Hyde that he had told the journalist that although he did not know Peter Shack he knew Hyde and thought the accusation unlikely.  Hyde heard no more of it.  Hyde would have anticipated Walsh's integrity but was grateful for his confidence.  The journalist, who was very junior, was probably a mere dupe for somebody higher up the corporate tree.

Reg Withers organised a meeting between those MPs interested in deregulation and Rupert Murdoch who argued that the Two Airline Agreement was necessary for as long as the Government owned his competitor, TAA.  He seemed genuinely worried that Labor would use the publicly-owned airline to cripple Ansett and argued the standard nonsense about large investment requiring protection.  He accepted, however, that gradually, by negotiation, the airlines could be made competitive with the full force of the Trade Practices Act applied to them as in the United States.  He was more excited about the refusal of his TV license "in the national interest". ⁽¹⁹⁵⁾

To the Government's dismay, Holcroft's committee accepted that it should report on the effect of the Two Airline Agreement upon air fares and told Ralph Hunt so.  Hunt still tried to argue that the Two-Airline Agreement fell outside its terms of reference, but the Australian Financial Review described his argument as ridiculous.  A game was being played at several levels.  Although the Government had got the Dries to agree to bringing forward to early on the new year the date by which Holcroft had to report, the Department of Transport asked for more time and did not submit until December.  Ansett did not submit until January.  They had difficult cases to make, it is true, but one could not but think that they were hoping that delay would encourage the Government to act before the report came down.  From the other side of the argument, "drafts" of a submission that the Bureau of Transport Economics was not permitted by the Government to make became available for the Committee's guidance.  The Dries demanded that, when the Holcroft Committee reported, its recommendations should be applied in full.

In February 1981 Transport Minister Hunt eventually tabled the report without making the usual statement to the House.  John Hyde's diary records:  "It must be the most damning report ever tabled".  That was no doubt a considerable exaggeration but the Committee had served what was for them its real purpose, the economic case against the Two-Airline Agreement had been authoritatively established.

The MPs opposed to the Two-Airline policy met and agreed to cross the floor to try to give it a five-year sunset clause.  They believed that if they stood firm and let Peter Shack do the talking for them to avoid confusion, faced with a big block of dissidents, the Government would negotiate.

The Government was also rounding up support on the backbench and the issue was again discussed in a transport committee meeting in the presence of two departmental officers.  Debate at this meeting, hindered by divisions and quorum calls, was not always edifying.  A Tasmanian, parochial as always, insisted that the two-airline policy was necessary because Tasmanian pensioners required that route to be subsidised.  One Western Australian dealt with the Tasmanians logically but, when he had finished, another, echoing the sentiments of many, said "And we'll have no more of that Tasmanian crap!"  The chairman, an unsuccessful aspirant for ministerial office, tried to insist that they agree that none of them should speak to the press.  It fell to John Hyde to make it clear to him that the Dries would reveal nothing from the meeting but would go on telling the press where they stood.  The Financial Review had that day carried an accurate account of the 26 November meeting at which the Government had agreed to await Holcroft.  It should not have been leaked but it was accurate and, such was the level of distrust, they counted its accuracy a blessing.

Defending a censure motion against Hunt -- a fairly routine Opposition tactic and not to be taken too seriously -- Peter Nixon unwisely reflected upon the integrity of the Holcroft Committee.  The Committee comprised three people who despite attempts to bully them had stuck to their task and reported in terms that relied upon the most conventional economics.  People who were not overt critics of the Two Airline Policy rushed to the Committee's support and the Government lost ground.  Nixon usually displayed better judgement.

The Independent ran a silly editorial criticising the WA Ministers for not publicly condemning the Two Airline Policy.  At Fred Chaney's request, all but two of them signed a letter defending their ministers.  There was little remarkable in that, but it is a measure of how hard they were now playing that John Hyde engineered the letter so that every signatory was nominally locked in to maintaining his opposition to the airline policy.  By this time Hyde was expecting to lose but not without a fight.

One of the two who did not sign was Peter Sim who, though tinder-dry on other issues, favoured the two-airline agreement and made no bones about it.  He was the only MP from WA who was required to display any courage.  The other WA Liberal backbench Members and Senators had acquired, if only temporarily, minor hero status in WA, a situation not entirely welcomed as it prejudiced acceptance of their contention that they were motivated by the national interest.  When ultimately John Hyde sat briefly with Labor Members, having crossed the floor, he was congratulated by a new Labor MP upon his courage.  In the few minutes available John Hyde had trouble explaining to her that it required no courage to vote in a manner that was popular in one's own State and that he would sooner be judged upon the quality of the arguments.

Ansett was clearly becoming worried that it would face a competitive market in which TAA had the advantage of Government ownership and on its behalf Ansett executives Alex Carmichael and Graham McMahon briefed us.  It was the first clear admission that their arguments had been understood.  Carmichael insisted that Ansett could not live with the Holcroft recommendations and continue with the intended purchase of new aircraft.  (They could, of course, have on-sold these.)  The company, which had had a change of management, had put a series of options to the Government, the first of which was the sale of TAA and effective deregulation, the second option was the -- unsatisfactory from their perspective -- purchase of Ansett by the Government.  The Government would accept neither, insisting upon the two airline policy.

Peter Shack developed a strategy that they felt just might work.  It was to convince Ansett that they had the numbers to force the Government to accept Holcroft, so encouraging it to demand deregulation to avoid a worse position.  To do this they needed to get as many MPs as possible to make a show of being with us, making it clear to them that they would not, if it came to a showdown, press them to cross the floor.

At this point a young lady in the Parliamentary Library pointed out to them that the Government would need a loans guarantee bill for the purchase of $600 million worth of aircraft.

Carmichael and McMahon came back to them with a package that included the sale of TAA but it did not set in train the end of the rotten system and they told them it had no legs.  Carmichael came back again:

About mid meal he put the proposition that we could work out the detail of deregulation and the sale of TAA but in the meantime the fares must be adjusted and the Loans Guarantee Bills put through.  I must have shaken my head at the mention of the loans guarantees.  Carmichael said suddenly but calmly and pleasantly enough "You're a hard bastard".  All pretence was then dropped. ... [He] said frankly that he had not mentioned the matter before because he had not realised that we knew of our capacity to block the bills.

Ansett will accept a 5-year agreement so long as TAA is sold in this parliament.  Really a very pleasant meal! ...

Went back to the House and Alex Carmichael went through it all with Peter Shack.  He showed us letters and a record of conversation made by the Department of Transport that made it quite clear Ansett sought as their first option, sale of TAA and deregulation and that the Government refused. ⁽¹⁹⁶⁾

The night before "Two Airlines" went to the Party Room, John Hyde's wrote in his diary "I'm a bit worried about tomorrow's debate.  I can't help feeling that Fraser will have something up his sleeve."

The Government came to the party room with an undertaking to take a loans guarantee bill to the parliament for only one aircraft, adjustments to fare-setting formulae and procedures and a special subsidy for Tasmanians.  The last was greeted with widespread cynicism but as the loan guarantee was for only one of twenty-one aircraft their bargaining coin was preserved.  They agreed to go along with the proposed statement to the House.  Hunt made the Statement and Shack took the adjournment of the debate.  When, on the resumption of the debate, Shack was on his feet praising the Government for a modest step in the right direction, Hunt came to John Hyde with the information that the Loans Guarantee Bill would be for all 21 aircraft.  Was this a blatant double cross or monumental incompetence?  They thought the latter and stayed away from the press, being unwilling to hang the nice guy that Hunt undoubtedly was out to dry.  What is more they wanted airline deregulation not a flaming row that would permanently damage the Government.

Next morning the allies met.  Fraser did not want to see all of them but Ross McLean, Allan Rocher, John Martyr and Mel Bungey all regarded Shack and me, the only ones who knew the detail, as too soft.  McLean was sent with them to keep them honest as it were.  Knowing that their position would be misunderstood, they did not like having to fight on the Loans Guarantee Bills so they agreed to stand out for:

• An enquiry into deregulation
• A five year term for the Two Airline Agreement
• The sale of TAA to private interests.

Fraser agreed to ring Sir Peter Abeles, the co-owner of Ansett, concerning the five-year term and to take an inquiry into deregulation to Cabinet.  He gave them no satisfaction concerning the sale of TAA.

Back in the PM's office Fraser started with a long and sickening homily about the duties of a backbench MP which Phil Lynch later made all the more sickening by saying that the Government had made a commitment to "a significant Australian Company".  He nevertheless called their bluff.  They were not going to get the numbers on the Loans Guarantee Bills and, arguably, there were costs associated with delaying these, even if they were small beside those imposed by airline regulation.  The three backbenchers withdrew and in private agreed that it would be better to fight on an Airlines Agreement Bill.  Subject to agreement from a group whose confidence they no longer held, they proposed that the Government promise by inserting a paragraph in the Second Reading speech of the Loans Bill to present an Airlines Agreement Bill this session.  The PM agreed.

They returned to face the others but were unable to persuade them.  The PM had gone out and before John Hyde could inform him he ran into Withers who had not been present at the dissidents' meeting.  He agreed with Shack and Hyde and said that there came a point where Prime Ministers should be trusted.  Given the circumstances of his sacking from the Ministry, this was remarkably magnanimous of him.  Hyde rounded the others up and it was agreed that at the imminent party meeting Rocher and Bungey would reserve their positions but that the rest of them would accept the Government's promise.

Meanwhile, it had occurred to John Hyde that the Government could get out of the spirit of its undertaking merely by not proclaiming the Two Airlines Legislation it had promised to introduce.  Immediately before the party meeting, Hyde tried to get an undertaking from Fraser that the Government would proclaim it and was taken aback when accused of trying to introduce "new matter".  As Chaney later expressed the opinion that Hyde had in fact introduced new matter, Hyde assumed the ministers all along knew that they had reserved the means to double-cross us. ⁽¹⁹⁷⁾  Hyde went to bed that night feeling that he had been playing in a league several grades above his talents.  Four days short of a year later Peter Durack was to warn Hyde that, if they crossed the floor amending the Bill, Fraser still held the essential card, he would not proclaim it. ⁽¹⁹⁸⁾

Numerous meetings now addressed the detail.  They had many quibbles with the legislation but they ended up insisting on only two provisions not adequately addressed by it -- full disclosure of the way each fare had been set and termination after five years.  Disclosure was accepted but the Government insisted on five years plus three years' notice of non-renewal if the Government of the day so chose.  The backbench agreed to accept an eight-year sunset clause instead of the five plus three but the Government still would not agree.  Little did the Cabinet foresee the future.

At one meeting attended by Sir Peter Abeles and Alex Carmichael the Ansett people simply refused to accept the distinction between Government and Parliament but the questioning led somebody to remark that the discussion had made Ansett look better and the Government worse.  The Government had done its best to force Ansett into a regulated environment without making it clear that it might not be able to deliver the anti-competitive elements of the package. ⁽¹⁹⁹⁾

Only Mel Bungey and Allan Rocher had been street-smart enough to foresee that once the loans guarantee bill was passed and they had lost their bargaining coin, the Government would break its undertakings.  Dries finally forced a vote on an amendment which, had it been successful, would have ended the Two Airline Agreement in eight years time.  In the Reps, eight crossed the floor but they lost fifty four to fifty five.  In the Senate three Liberals and two democrats voted for their amendments but they lost 29 to 31. ⁽²⁰⁰⁾  This was a significant real and symbolic set back for the dry cause but the seeds of a tree that was to bear fruit within the eight years had been sown.  Since they failed to amend the legislation, they will never know whether Fraser was prepared not to proclaim it.  Before the vote they knew, even if the Government seemed not to know, that they did not have the numbers.  Nevertheless, more by way of mischief than insurance, Ross McLean and John Hyde painted a happy little picture for Phil Lynch of what might happen to Fraser if he failed to proclaim it. ⁽²⁰¹⁾

Shack and John Hyde had done the hard work that others had not been prepared to do but when it came to negotiating with the Government they had not had the necessary fire power.  Nobody rubbed Hyde's nose in the fact, but he knew it did not go unremarked.  When the journalist Geoff Kitney told Hyde that a number of their colleagues were unhappy, Hyde encouraged him to write it;  for the little it was worth at that late stage, the story would improve their bargaining position.  They got front-page treatment in the Western Australian afternoon paper, The Daily News.  Not knowing that Hyde had encouraged the criticism of myself, some of their disenchanted allies became anxious to discuss anything else.

In August the Government announced an 8% increase in air fares but did not apply the Holcroft fare-setting principles. ⁽²⁰²⁾  Finally the Government, claiming the information was "commercial in confidence", broke even its undertaking to disclose the basis of fare setting. ⁽²⁰³⁾  The airline struggle was in terms of its strategies and obstacles typical of all the Parliamentary Dries' battles during these years.  It was atypical in the time it took, the resources it commanded and, I think, in the dishonour with which the Government covered itself.

C.E.R.

The Fraser Governments generally hindered foreign goods entering the Australian market.  They said, among much else, that Australians should not be expected to compete with people on lower wages than were customary here.  Yet in 1982 the Government concluded the Closer Economic Relations (CER) treaty with New Zealand which, being less wealthy, had lower wages.  New Zealand was also one of very few nations that imposed barriers to trade in manufactured goods that were more restrictive than their own.  John Hyde was suspicious and sought a briefing from a member of staff at the IAC.  He did not allay Hyde's fears that a plot was afoot to have the tail wag the dog.  Ironically, within less than a decade Dries were to wish that the tail would shake the dog, even though trade liberalisation in both countries had by then proceeded well ahead of the initial CER requirements.  In the five years from 1983 to 1988 trade in goods between Australia and New Zealand would double, with CER popular in both nations.

In 1988 the agreement broke new ground for Australia by also providing for exchange of services.  In 1992 and again in 1996 the agreement was widened, now providing for the harmonisation of domestic regulatory measures, elimination of anti-dumping measures and mutual recognition of standards and qualifications.  By the end of the Century each country had become the other's largest market for manufactures. ⁽²⁰⁴⁾  CER was one of the Fraser administration's significant successes.

MINERAL EXPORT GUIDELINES

Doug Anthony, like the Whitlam Government before, tried to have the Government impose minimum prices upon mineral exports in the apparent belief that, without loss of market share in a competitive international market, Australian exporters could by this means be prevented from undercutting each other.  The wool floor price and stockpile fiasco and its lessons were still years into the future and he may really have believed that it was possible for Australian companies to harvest some modest economic rents at the expense of foreigners.  A protracted struggle ensued.  The mining companies, who saw no such opportunity, opposed the proposed policy, but many of them were multinationals and unlike the car companies discussed below were reluctant to be seen to be pressuring the Government.  The WA Government vigorously opposed it, no doubt taking its cue from the mining companies, and the advice of its own treasury officials.  Several months into the struggle John Hyde's diary note read, "Long Cabinet apparently had difficulty reaching a compromise on mineral export guidelines.  PM finally issued a bland statement so John Hyde issued one of his own, [explaining the cost in conventional terms] not that Hyde expected much notice to be taken of it." ⁽²⁰⁵⁾  The malign influences of the Country Party, now the National Party, that Bert Kelly had battled, still dogged Australian governance.

TEXTILES, CLOTHING AND FOOTWEAR

In March 1977 two of the poorest decisions of the Fraser years were taken.  By announcing even tighter import quota restrictions, the Government significantly increased the protection afforded the already extremely uncompetative textile, clothing and footwear industries.  Because the cost is hidden and tends to increase over time, this was the worst way to impose a trading privilege.  It also broke GATT rules.  Further, the Government expanded the role of the Temporary Assistance Authority, allowing it to grant protection for two years without an Industries Assistance Commission inquiry and to grant protection in the form of quotas. ⁽²⁰⁶⁾

Howard was the minister directly responsible but he was less inclined than some ministers to big-note himself either truthfully or disingenuously with a group of disaffected backbenchers and John Hyde was unable to ascertain his own, as opposed to the Cabinet's, view.  A few months later Fraser attacked the then current TCF report and the IAC in general. ⁽²⁰⁷⁾  It seemed as though the nation was to be taken back into the worst days of McEwenism.

Before the 1980 election, Dries again clashed with the Government over protection for the textile, clothing and footwear industries estimated by the IAC to cost the average household $5.80 per week.  In July, while Cabinet was considering the IAC report on the industries, John Hyde's diary records that Fraser had "gone off his face" and was insisting on no change for five years.  Twenty years on, John Hyde cannot recall what "gone off his face" implied but clearly the Prime Minister was responsible for continuing the economic burden.  Hyde also recorded that Fraser warned Hyed "not to imagine I was God". ⁽²⁰⁸⁾  Hyde should have responded that neither of them should imagine he was God but repartee is not among his strengths.  Fraser, nevertheless, touched a nerve that was rawer than he would have realised.  Worry that Hyde would be seriously wrong about an issue was costing him sleep.

The Parliamentary Dries failed to make significant headway with the Government but a grass-roots campaign was organised by many people among whom David Trebeck of the National Farmers' Federation was important.  It was slowly to bear fruit.  They lost that battle but John Hyde's diary records that Brian Buckley predicted that they would win the war within five years.  Only six years elapsed before a Labor Government began unwinding TCF protection.

Early in 1981, stories circulated that named CEO's of two major companies threatened at a Manufacturing Industry Council meeting to bring down the Government and that representatives of another protected company launched a cowardly attack upon a civil servant at a meeting held at the Melbourne Club.  Although John Hyde doubted that one of the parties would behave so badly, the stories otherwise rang true.  As they had no way of verifying the accounts they could not use them.  A diary note reads, "I'm beginning to have a little more sympathy with Fraser but let no-one call him strong." ⁽²⁰⁹⁾  Later, when the protection debate had been won during a Labor Government, Hyde asked the individual whom he had doubted would behave so badly to join the board of the Institute of Public Affairs.  He declined on the ground that he had fought Hyde for so long and the alliance would do neither of their reputations any good.  Hyde thinks he was wrong.  The tariff debate seemed for the moment to be decided and other important issues upon which they could agree, such as taxation and welfare, lay ahead.

As noted earlier, the IAC had been asked to report on the general level of protection, the so-called General Reference.  But shortly after the 1980 election Bill Carmichael rang John Hyde from the Commission to tell him that the Cabinet had decided not to include Textiles Clothing and Footwear in the reference. ⁽²¹⁰⁾  The hold that this small sector had over Government policy not only reduced living standards, it also indicted our democracy.

MOTOR CAR PROTECTION

While Peter Shack concentrated on airlines, Jim Carlton and John Hyde tried to unravel motor car protection.

Australia had had a small motor industry before the war and after the war the Holden had been produced without significant protection.  By the late 1970s, however, vehicles with 85% Australian content were guaranteed 80% of the Australian market.  In November 1974 the Whitlam Government had devised a "plan" and had increased tariffs from 35% to 45%, but by as early as January of 1975 it had imposed "temporary" import quotas.  These were to continue apart from a short break in 1977 until 1988. ⁽²¹¹⁾

Following the 17.5% devaluation, the first Fraser Government had announced an end to the quota that guaranteed 80% of the domestic market for domestically assembled cars but retained the high tariff. ⁽²¹²⁾  Had it lasted, this would have been an important reform but it was to prove a false dawn except for a small gap in the clouds in 1980.

The gap allowed the duty-free entry of four-wheel-drive vehicles.  The IAC had reported separately on these and David Trebeck and Ian Wearing of the National Farmer's Federation mounted an unusually effective campaign.  The NFF, through its branch structure, concentrated upon stirring up the 4WD issue in four country electorates -- Wannon, held by Malcolm Fraser; Richmond, held by Doug Anthony;  New England, held by Ian Sinclair;  and Gippsland, held by Peter Nixon. ⁽²¹³⁾  They won, and the farmers' workhorses, given preferred access to the Australian market, soon became Toorak tanks.

With five motor manufacturers, Australia had more than the United States at the time and very inadequate scale economies.  During 1980, the Industries Assistance Commission reported on the protection that the passenger motor vehicle industry should receive after the plan ended in 1984.  It calculated that the regime was costing consumers collectively over $1,000 million dollars annually and individually $3,000 to $3,500 per vehicle.  It followed from these figures that Australians would have been wealthier and would have had more employment had one or all of the five foreign car companies kept its threat to close down its Australian operation.  There was in 1984 and at every stage before and since no likelihood of their doing so en masse.  Parts of the Australian industry, even then, were of world class and could have found buyers with much less than any contemplated level of protection.  Fraser prided himself on world-parity prices for petroleum, and they argued that it was no less logical to have for world-parity prices for cars.

When in 1980 the IAC Report on protection after 1984 became public, General Motors and Ford again threatened to withdraw and engaged in particularly blatant scare-mongering concerning employment.  Dries, who argued the economic benefits from theory and IAC calculations, seriously understated their case.

We, among other failures, failed to make all that they could have made of poor vehicle quality.  Australians were later to become accustomed to Australian vehicles of approximately world class, but in 1980 a Holden or Falcon could be unreliable even when new.  Imported vehicles were admired for their workmanship and safety.  Although there are no data on the deaths that would have been avoided by the better road handling, solid construction and safety features possessed by imported cars of the time, surely the Australian motor vehicle protection policy was responsible for considerably more Australian deaths than was the Vietnam War.  They, however, concentrated upon the less emotive fact that protection robbed car-buyers of $3,000 to $3,500 that they might spend on employment-creating activities.

In November 1980, ten Government backbenchers, including significantly two from the National Party, issued a statement claiming that quotas limiting imports to just 20% of the Australian market breached the GATT rules.  They were correct, but there was no likelihood that the issue would be adjudicated when other nations behaved similarly.

Early in December, the Government caved in to motor industry pressure and announced substantial rejection of the IAC Report.  It put off doing anything about the industry for a further three years, ⁽²¹⁴⁾ by which time Australia was to have a Labor Government.

On the initiative of Wolfgang Kasper, 28 leading economists sent a letter to The Age and The Australian pointing out that the Government, when dealing with IAC Report had the choice of continuing high cost production or of embarking upon a program of pre-announced gradual cuts in protection.  Over and above the obvious consumers' benefits, they argued that employment, even within in the motor industry itself, might increase, as the industry concentrated on manufacturing and exporting the more technically complex components.

By early in 1981 the dry MPs had approached the Automobile Associations, the National Farmers' Federation and the Australian Consumers Association with a view to a concerted campaign.  They gained their first active support from the Mazda importers ⁽²¹⁵⁾ and in due course other car-importing firms also helped with lobbying organisations such as the NRMA and with the money needed to finance the Motor Users Association.  This sprang into being "by popular demand" in July 1981.  It in fact had few members but it did have a Sydney address, a vocal President with National Party connections, Geoffrey Keighly, and about $35,000 for advertising.

The automobile associations, who make so much fuss about the price of petrol, were uninterested in the price of cars.  Not so Professor Milton Friedman, who was visiting at the time and had much to say about the stupidity of deciding to live poor by cosseting uncompetitive industries.

Mitsubishi, encouraged by Brian Jefferies, its Manager of Corporate Strategy, came to their aid.  Shack and John Hyde visited its plant in Adelaide.  Company personnel gave them information on the relative strengths of the car assemblers and of major component manufacturers, some of which, according to Mitsubishi, were as good as any in the world while others' products were of low-quality and highly-priced.  Mitsubishi wanted to replace the 80% share of the Australian market and 85% local content rule with 70% and 75%.  They too contended that without quotas the Japanese manufactures would cease to manufacture in Australia and become importers.  Except for Nissan leaving Melbourne, that did not eventually happen.  Toyota would actually establish a major exporting plant at Altona.

An "export facilitation" program had been announced that would in 1982 allow manufacturers to import components equal to their exports and use these to reduce the 85% local content requirement.  Mitsubishi told them that this rule favoured GMH and asked for their opposition to any increase beyond the proposed 7.5% while quotas continued. ⁽²¹⁶⁾  Mitsubishi was, of course, talking the book of its Japanese owners but that one of the manufacturers should break ranks was significant. ⁽²¹⁷⁾  Mitsubishi made strong public statements condemning the car plan, which the Dries followed up with a small barrage of press releases and letters to ministers.  The next day General Motors representatives told them that any easing of the quotas would be disastrous and that export facilitation should be increased to 15%.  Mitsubishi later briefed the relevant backbench committee.

Spokesmen for the motor manufacturers had a long record of not just exaggeration but of lying on a scale that is uncommon in Australia.  Late in August of 1981, General Motors and the Vehicle Builders Union ran blatantly untruthful advertisements in all the leading papers.  They got wind of them the night before publication and were able to organise an immediate reaction -- telegrams to GMH, press statements from the Australian Automobile Association and the Car Users Association, an adjournment speech, press briefings and radio and TV interviews.  John Hyde gave notice of motion to the House in these terms:  "That this House asserts that while foreign companies such as General Motors are welcome to seek profit in Australia they are not welcome to publish blatantly dishonest advertisements to influence Australia's democratic processes in favour of less-competitive more-favoured positions for themselves". ⁽²¹⁸⁾

We, at least potentially, had the numbers, and John Hyde's motion was therefore debated.  Hyde argued that foreign companies were welcome to exploit Australian market opportunities to mutual advantage as several international mining companies did.  Hyde accepted that they were entitled to take advantage of Australian laws that granted them protection, even though the advantage was probably not mutual.  Foreigners were not welcome, however, to mount essentially political campaigns.  Our democracy was our own business.  Peter Shack followed in similar terms.  Badly advised by an ex-employee of the Parliamentary Library, Chuck Chapman, CEO of General Motors Holden, a nice man but an engineer without a feel for the economy or politics and habituated to the self-serving nonsense that pervaded his industry, invited Shack and Hyde to visit the Holden works in Victoria four days later.  He was unlucky.  Because of prior commitments they both had to travel from WA on the midnight flight and Hyde was feverish with 'flu.  In a filthy frame of mind, when the ex-library employee accused the IAC of dishonesty, Hyde rounded on them repeating the commission's arguments in far blunter language than it was inclined to use. ⁽²¹⁹⁾

They came away with the impression that Chapman, taking his orders from Chicago, had not bothered to understand what the IAC was arguing because it was more comfortable not to know what damage his industry was doing.

In October 1981 a delegation called on Fraser.  Jim Carlton led the debate for the Dries.  He remarked wryly as they departed that he had probably just sacrificed his chances of a ministry.  When Lynch revealed a double standard by not supporting positions he had maintained in private conversation with Dries, he permanently cost himself dry support for his deputy leadership. ⁽²²⁰⁾

In December 1981 the Dries circulated a draft press release criticising the high levels of protection and calling upon the Government to implement the competitive private enterprise approach spelt out in the White Paper on manufacturing industry.  Thirty-three out of a total of 79 backbench MPs signed the statement but not Andrew Peacock who was nowhere to be found.  One more (who had not told his electorate secretary how to contact him) expressed disappointment that he had not been given the opportunity to sign up and Jim Carlton estimated that a further 12 were favourably disposed in private. ⁽²²¹⁾

Michael Cobb, a National Country Party Member, produced a paper which calculated that the average farmer paid around $250 per week to support protected industries -- mainly cars and clothing.  The statement's significance lay less in the calculation than in the fact that Cobb was NCP.

The Government nevertheless proceeded with yet another costly car plan, making only trivial concessions to the case for freer trade.  The export facilitation portion of it was almost certainly in breach of GATT rules and the European Community lodged a formal complaint. ⁽²²²⁾

The Dries had again failed to convince the young old men.  It was reported that Jim Killen, their loquacious Defence Minister with a better command of rhetoric than logic, had convinced Cabinet that the motorcar industry had to be maintained for defence reasons.  John Hyde doesn't believe that Killen could have swayed Cabinet with that argument.  The coming Victorian election was probably of greater moment.  Killen's reported success was, nevertheless, the butt of sarcastic comment about the number of Holden engines required to move a Leopard tank and so on.

The motor debate proved to be the apogee of the Parliamentary Dries' numbers-gathering in the Parliament and it came to very little at the time.  As the election approached backbench courage waned.

Had Andrew Peacock, a Victorian who believed in low protection, signed up he might well have been Prime Minister.  Some Dries, such as Peter Shack, supported him anyway.  Others were equivocal but, when he did not display the courage of his known convictions, they gave up any thought of switching their allegiance to him.  They let their disenchantment be known and Fraser, more sure of their support in a leadership ballot, became less amenable to pressure from them while just as ready to give in to, say, the Tasmanians.  Dry influence in the Parliament waned from about this time.  The debate, in which MPs had played an important although far from exclusive part, however, had gone a long way towards showing how liberalisation would result in productivity gains and jobs growth.

OTHER PROTECTION

Protected industry has many faces.  Before the 1980 election, BHP came to the Government, cap in one hand and a stick in the form of threatened lay-offs firmly in the other.  It demanded guarantees that the steel Australian industry, in effect BHP, should have 85% to 90% of the domestic market reserved.

The Parliamentary Dries contacted steel users mounting what became a fairly standard campaign on behalf of freer markets but one that they conducted without much expectation of success.  When Cabinet substantially refused the demands of what the Dries had referred to as "these beggars in pin-striped suits" they were surprised.  It gave John Hyde the opportunity, that he milked for what he could, to say something complimentary about the Government.  A year later, however, the Government without explanation failed to renew the contract of IAC Commissioner Dick Boyer.  Boyer in a minority report had criticised both made-to-order protection and BHP's attitude.  John Durie, wrote in the Australian Financial Review:

It is believed that Mr Boyer's non-reappointment was directly attributable to pressure on the Government, and in particular on the Prime Minister Mr Fraser, from protectionist lobby groups, who were upset at Mr Boyer's long-held strong free-trade feelings ...

On the same day the AFR editorial supported Durie's contention.  A whispering campaign against Boyer and his minority report had been heard before the decision and John Hyde too agreed with Durie.

During the approach to the 1982 Victorian election a proposal circulated to build 69 trainer aircraft in Victoria.  It was to cost the taxpayer a mere $155 million but, as Peter Robinson (writing in the Australian Financial Review) observed, defence projects rarely came in on budget.  Robinson suggested that the Department of Defence meet the cost of protecting "defence industry" from the defence budget. ⁽²²³⁾  The Parliamentary Dries agreed.

What the Dries did not do was as significant as what they did.  When, in June 1981, the Grants Commission recommended that WA lose $162 million (later amended to $114 million) ⁽²²⁴⁾ in commonwealth grants, the Western Australian Dries announced that they would not join the howls of protest.  Tariffs particularly penalise West Australians but, instead of demanding public-sector compensation for what was essentially a private-sector cost, they called for tariff reduction. ⁽²²⁵⁾  The State later briefly took up the argument. ⁽²²⁶⁾

In January 1979, John Hyde had been a lone voice in favour of a free domestic wheat market.  The Fraser Governments did nothing to repeal the wool reserve price but to their credit they kept a respectably tight rein upon its level.  In Chapter 11 we shall see the consequences of relaxing that rein.

The "General Reference" had been taken from the IAC;  given back to it to avoid responding to Sir John Crawford's Study Group on Structural Adjustment;  had had passenger motor vehicles and textiles clothing and footwear taken from it;  and finally had its recommendation to phase down tariffs rejected out of hand.  By excluding the two most protected sectors the Government had very much reduced the Reference's point.  To reduce tariffs on industries that had least protection, even negative effective protection, might actually have increased economic distortions, reducing living standards.  The final insult was an attempt to deflect criticism from rejection of the recommendations by proposing a "circuit breaker" for worldwide tariff cuts that came to nothing.

The European Common Agriculture Policy (CAP) was and still is particularly damaging to Australian agricultural exports.  During 1977, at a lunch in Brussels with Roy Jenkins the President of the European Commission, Fraser ambushed the European Economic Community (EEC) into accepting a Minister for Special Trade Negotiations from Australia.  As Australia's tariffs averaged 24%, only second to New Zealand among OECD members, while the EEC's averaged only 9%;  this required some gall.

John Howard was appointed to the task.  He took an expert team to Europe.  During six weeks of negotiations with thirty ministers in the European capitals he concentrated upon the effect of European surpluses upon world markets -- an essentially mercantilist argument.  His brief, although a step forward, was, in all the circumstances, a weak one and he achieved little that was immediate.  It is impossible to know what longer term influence he had.  Probably none in Europe, but in Australia the arguments for freer trade were forced upon people's attention.  They were later said to have produced the concrete result of the formation of the Cairns Group of nations during the Uruguay Round of trade negotiations under the auspices of the GATT. ⁽²²⁷⁾  The methods, if not all the arguments employed, were consistent with the dry approach -- namely, to get the essential arguments on the table.

The Fraser Governments did not sell much but they did put the Housing Loans Insurance Corporation, a small pharmaceutical operation and an engine works on the market.  During 1979 the party room had debated the sale of Government-owned Trans Australian Airlines.  The debate was not initiated by recognised Dries who were at the time more interested in competition than in ownership.  The proposal did, however, have clear majority support ⁽²²⁸⁾ but the Government ignored that.  By 1981, at the height of Two-Airline policy struggle, it had become an important feature of the dry proposal.

RACE

During the spring of 1979 Ross McLean, the Member for Perth, came under sustained attack from the League of Rights and another overtly racialist group, the Australian National Alliance, over his defence of immigration and the refugee intake.  Ross, a Dry himself, had the support of other Dries and John Hyde had a hand in organising a defence.  Moreover, Wets and several Labor Party MPs came to his support.  Although race is not an issue that separates Wets from Dries, economic rationalists are sometimes accused, in the context of their opposition to race-based privilege, of being racially prejudiced.  That Perth campaign ought to put paid to that accusation.

A word about the League of Rights is warranted.  It arraigned John Hyde for his support of McLean at a meeting of about forty of John Hyde's constituents.  The evening resolved nothing but it was conducted with civility that contrasted with the incivility of later anti-Hanson protests.  The League of Rights is a nuisance and has a bad record but its views on immigration and bank credit ⁽²²⁹⁾ are in no risk of adoption and, even if they were, they should be met with argument.  Its visible membership from the mid 1970s when Hyde had his first dealings with them tended to be elderly gentlemen who respected life's civilities.

In its early days the Fraser Governments enacted the Northern Territory land rights legislation.  Although several Members and Senators did object to it, John Hyde cannot recall any whom later became prominent Dries doing so.  Native title is not per se an issue upon which dry belief offers guidance.  It is one thing to assert that Governments should respect property rights;  another in this case to decide who holds the relevant rights.  They ought, however, to have baulked at the legislation itself.

The land title recognised by the legislation was so inferior that it could never have raised the living standards of Aborigines.  It could not be sold or mortgaged.  Its ownership was so unclear that it was often uncertain who had the right to speak for particular areas of land.  Neither law nor precedent defined the rights the title conferred.  Sometimes even the physical boundaries of particular titles were in dispute.  Aborigines could barely exploit such a title and it frustrated development.  It should have surprised no one that Aborigines used their capacity to delay development to gain mineral royalties and other benefits.  Any other group would have done the same.  A market of a sort developed but a very inefficient one that was unpredictable and delivered questionable justice.  When in the 1990s native title became a much more widespread issue the same problems were to frustrate any approximation of consensus.

HEALTH EDUCATION AND WELFARE

During the 1970s social welfare payments rose from 21% to 28% of the budget, brought about in part by an ageing population but more by increased eligibility. ⁽²³⁰⁾  During the final stages of the preparation of the 1981 budget, Fred Chaney, the then Minister for Social Security, managed to get some needs-based welfare provisions past Cabinet only to have the issue recommitted by Jim Killen.  They were then abandoned.  John Hyde's diary records that Fraser stuck with Chaney.

In the autumn of 1982 Sir William McMahon resigned the Sydney suburban seat of Lowe.  The consequent by-election caused another foray into dry policy and yet another serious Government retreat.  That it lost the seat hardly mattered since the Coalition still retained a comfortable majority in the Parliament.  The loss in Lowe that did matter was to sustainable welfare policy.  In another context Sir Philip Lynch had called for needs-based welfare.  However, 20% of Lowe's electors were pensioners, many of them wealthy, and Sir Philip was instructed to back off.  He did thoroughly, stating that he had in mind only the long term.  Within a few days Labor followed suit.  Several editorials had supported Lynch's original statement but the Government wanted votes not newspaper support. ⁽²³¹⁾  The episode demonstrated first the Dries' influence and second their inability to come to the effective assistance of allies, especially those who had not warned them.  A by-election had again harmed public policy.

It came to nothing, but late in 1980, Wal Fife, the Education Minister, agreed to John Hyde's request to try to get funding for the blind in voucher form, empowering the recipients to choose the institution that would best service them. ⁽²³²⁾  Had Cabinet accepted the proposal and had it proved successful in practice, it could have become a precedent for education funding more generally.  The Isolated Children's Grant already existed but it was not referred to as the "The Isolated Children's Voucher" and few people appreciated that it had the essential features of voucher funding.

Dries consistently opposed free tertiary education.  However, when they tried to stir up a fight about its regressive nature with university and CAE vice-chancellors and administrators, these were disappointingly reluctant to take them on even in the relative privacy of the meeting. ⁽²³³⁾  Perhaps, confident of support within the Government, they would not demean themselves squabbling with backbenchers.

Healthcare reform was as difficult for the Fraser Governments as it has proved for all Governments before and since.  The Coalition had gone to the 1975 election promising to abolish Medibank but achieved little except (in 1981) making health insurance premiums tax deductible. ⁽²³⁴⁾

Lack of progress was not always the Government's fault.  Toward he end of 1981 Fred Chaney told John Hyde that during an industrial dispute he had approached five firms with compatible equipment to handle his department's social security cheques.  None was prepared to face the union opposition. ⁽²³⁵⁾

THE 1980 ELECTION

Sainsbury, Shack, Carlton and John Hyde had gone to the polls in 1980 thinking it very likely that the Government would lose.  One sunny Canberra morning before the House rose for the election, they discussed the fate of the dry ideal in the event of a Government loss.  They agreed that the public would believe that the ideal, which they were referring to as "liberalism", had been tried and failed and that this perception would be very damaging to the cause.  That they would lay off the Government during the campaign went largely unspoken.  They, however, agreed that, win or lose personally, win or lose the Government which was carrying the burden of the second oil shock, they would use the declarations of their polls to publicise the fact that the economy was in poor condition not because the ideal had failed but because it had not been tried.

The Coalition lost 12 seats but achieved a 23-seat majority.  It did as well as it did by employing the dubious assertion that Labor, which proposed a capital gains tax, intended it on housing.  To shift investment from housing into areas that would contribute directly to GDP, the Dries had advocated just that, but the ALP had not.  If the Coalition's behaviour in 1980 encouraged Labor to behave even worse in the 1993 Fightback election, then the nation paid dearly for that dishonest campaign tactic.

After the election The West Australian reported John Hyde's poll-declaration speech:

"In 1975 we spoke of concentrating welfare on need, yet we have promised $38 million of taxpayers' money for sport.

"We spoke of small Government yet in real terms the latest budget was the biggest ever.

"We spoke of controlling the money supply and for a while we did, but in each of the past two financial years we have grossly exceeded the target.

"We talked of controlling the deficit and in this area some progress has been made.  But five years later the Commonwealth budget deficit is still $1566 million and the total public-sector deficit is almost as big as it ever was."

However, the ALP had advocated even looser management of all these matters, he said.

Mr Wood said that Governments were subject to the laws of arithmetic and the principles of economics and no amount of wishful thinking would make them disappear.

The task of leadership was to encourage the Australian people to accept the world as it was.  For example, this was to accept that in order to provide more for the needy it would be necessary to give less to those not in need or that in order to achieve full employment wage levels would need to fall a little.

"We should not avoid the consequences of cutting unwarranted expenditure or of higher interest rates likely to be associated with responsibly managed money."  Mr Wood said.

"Instead we should explain the consequences of not doing these things.  It is not just that we have not spoken to the people about our economic decisions, but we have refrained from making responsible decisions because we have felt unable to explain them.

"For Australia's sake we need to mend our ways.  After all it is as likely that the swing against us was because people were disappointed with our achievements as it was that they believed that all their demands could be satisfied with Government handouts.  If the first case applies, then the electorate is critical but perceptive and can be led to great achievement.  But if the second is so then Australia is ungovernable." ⁽²³⁶⁾

Today the rhetoric sounds extreme but in 1980 expressions such as "politically impossible" and "you can't take away from the electorate what it has been given" were so much part of the received wisdom that the conclusion that the whole democratic world was determined to vote itself more than it could produce was easy to reach.  That the consequences of democratic profligacy by causing stagflation would ultimately result in loss of the Cold War was feared by Dries -- not only in Australia.

If John Hyde actually said wage levels rather than minimum award wage levels would need to fall a little, he should not have done so.  Hyde had no doubt that following labour market deregulation improved productivity would result in increased real earnings.

Shortly after the election, however, the National Times reported only four backbenchers as calling for lower expenditure with most of those surveyed blaming the conduct of the party's campaign rather than the conduct of Government for the twelve seats lost.  However, Peter Shack, who was not one of the four cited, a few days later used the declaration of his poll in Tangney to declare that one was either an axer or a taxer and that he was an axer.  He said that the "extent of the tax take" and "the ever increasing growth of Government and Government expenditure" had attracted the electorate's criticism.

Eric Robinson, who had been Minister for Finance but was now again on the backbench, freed of the incubus of office, threw his weight in with the Dries by calling for smaller Government and a needs-based welfare system.

After The Age had dismissed John Hyde's Declaration of the Poll speech as of little account, his diary records a conversation with Tony Rutherford:

I will have to raise the anti if I am to be heard.  I will run a big risk of just isolating myself!  It will be interesting to see if I can refrain from annoying people when it is pointless. ⁽²³⁷⁾

Couched in first person singular the entry now sounds too self-important but the problem was real enough and it affected all Dries.

Much later the Federal Executive of the Liberal Party issued a statement that had occurred to it "spontaneously" to the effect that "loyalty was a prerequisite" and promising that it would "not tolerate irresponsible and mischievous activities".  John Hyde does not recall discussing this directive at any dry meeting.  However, the press records that Hyde self-indulgently referred to "party management by resort to the fuhrer principle".  The injunction, although clearly directed at us, was not, save for responding to press questions, even acknowledged.

OUTSIDE THE PARLIAMENT

Although the influence of Dries on the Coalition backbench had peaked by the first half of 1982, in the wider community the ideal was gaining ground along with change in the international Zeitgeist.  The Federal Platform of the Liberal Party, released in May 1982 but written earlier in the year, was unquestionably a dry document advocating a minimum of Government interference in the economy, the maximum degree of competition and a gradual lowering of protection levels. ⁽²³⁸⁾

Five leading mining companies, MIM, Western Mining, CRA, Renisons and Cliffs (the Gang of Five) prepared a submission to the IAC calling for lower tariffs.  The submission also called for the abolition of the industry's own benefits which John Hyde's diary records as "one in the eye" for BHP and CSR. ⁽²³⁹⁾  This was a break¬through.  The mining industry, despite its obvious interest as exporters, had traditionally remained silent on the tariff.  It was said that this was because of the influence of BHP, which had a steel division to protect.  The National Farmer reported that Fraser was "intensely annoyed". ⁽²⁴⁰⁾

Before the decision on the General Reference, the Retailers Association, the National Farmers' Federation, the Australian Federation of Consumers Organisations, MIM, Western Mining, CRA and Renisons had jointly lobbied the Government to reduce protection. ⁽²⁴¹⁾

When the Government excluded the textiles, clothing and footwear and motor cars from the General Inquiry, the National Farmer's Federation had launched a blistering attack on "the tariff farce".  The NFF, risking division in its own ranks from the protected dairy, citrus, tobacco and dried-fruit sectors, embarked on a campaign to quantify the cost of protection for their farmer constituents.  Its calculation was to have lasting impact.

At the time all of these organisations failed, apparently totally, but not many years later a Labor Government was to do all they asked and more.  One, perhaps the only, immediate effect of their protests and submissions was to give solace to the Dries in Parliament, who were under attack from sections of the business community.  A panel of businessmen interviewed by Four Corners at the ALP conference asserted that the ALP had a much better appreciation of business than did some sections of the Liberal Party, the so-called Dries, ⁽²⁴²⁾ an assertion that was to prove mocking.  When it came, the reform was brought about by committed politicians but made possible by a changed political climate that was achieved by the sum of many efforts.  For good or ill, for personal or public gain, people who care about public policy do change it by changing public opinion.

THE RESOURCES BOOM

During the third Fraser Ministry, Federal and State politicians, Liberal and Labor, regaled Australians with accounts of the wealth that was sure to flow from development of Australia's veritable Aladdin's cave of minerals -- an impending resources boom.  Many of the promised projects were never to eventuate and others not for a very long time.

John Hyde recalls a parliamentarians' briefing in 1980 by Herman Khan of the American Hudson Institute, during which worldwide Government budgetary restraint was advocated.  Chris Hurford suggested that because of the wealth of our mineral industry this stricture did not apply to us.  He elicited the response that Australia's minerals would keep Australia asleep for just long enough for recovery to be impossible.  Hurford might today take some pride in the fact that he was later to be a member of the Government that did most to wake them up.

In the meantime, however, irresponsible wishful thinking was to reek some havoc.  The impending resources boom was an excuse not only for loose fiscal management but also for borrowing for infrastructure by the States and a union-driven wage hike.  In a highly protected, over-regulated, sclerotic economy, a hefty dose of cost inflation was inevitable and they got one.  Nominal wages rose 14% in 1981 and 13% in 1982, ⁽²⁴³⁾ eliminating the marginally viable minerals projects and investment in other sectors besides.  The AMWSU chose this time to push for a 35-hour week without commensurate reduction in weekly earnings.  Those circumstances combined with a global economic downturn to cause unemployment to rise to around 9% during the early 1980s and pushed the current account deficit to 5.8% of GDP by 1982/83.  Mining's share of the Gross Domestic Product of most countries including Australia went into sharp decline from 1985, earlier in Asia. ⁽²⁴⁴⁾  The foreign debt incurred by these extravagances remains today.

The tragedy caused by the resource-boom hype served to instruct some soon-to-be-elected Labor people not only of the dangers lurking in economic fairyland but also of hype in general.  The ALP platform still promised central planning but, as Peter Walsh noted, very few people read it and a majority on the Federal executive of the party would not have agreed with it.

COUNTDOWN TO THE 1983 ELECTION

During the course of the last Fraser Government John Hyde referred to Australians becoming "The poor white trash of Asia" and Australia as "the land of Circe".  (Hyde used "poor white trash" before Lee Kwan Yew and I wonder if he also gleaned the expression from Gone with the Wind.)  Toward the end of 1981, when the Peacock challenge to Fraser was thought to be at its height, the Willoughby electorate council of the Liberal Party in NSW had asked Hyde to address it.  First declaring his preference for Fraser, Hyde launched into a criticism of the Government's lack of commitment to anything.  By backbench measures, Hyde received huge press coverage and at least Ministers Howard, McKellar and Lynch told him that they agreed.

By then the Parliamentary Dries played a game that they would never have had the courage or the stamina to play had it not been for the Crossroads Group that gave them confidence that they were not just cranks.  It was not that they feared retribution because only those of them who expected promotion had anything to lose.  Rather, they feared making serious mistakes, suffered the dispirit that comes of losing one battle after another and the regret that so many of their colleagues, their electorate committees and their party officials wished that they would stop being awkward.  Their right to speak their minds was, however, respected by everybody.

As early as December 1981 John Hyde's diary records:

Since the likelihood of losing Moore increases I must do everything I can to insure that the cause of liberalism (the philosophy not the party) continues after the election.  It needs leadership.  It must not be blamed for the party's losses.  It needs some adherents in the ALP. ⁽²⁴⁵⁾

In July 1982 inflation was galloping at an annual rate of 10.7%, the worst for five years and four percentage points above the OECD average. ⁽²⁴⁶⁾  The economy was in recession and "no-change projections" indicated a deficit well in excess of $2 billion. ⁽²⁴⁷⁾  Australian Governments were borrowing on official account to offset the trade deficit that was not being offset by private capital inflow. ⁽²⁴⁸⁾  The world economy was in poor shape.  On top of that, with the election approaching, the Government wanted tax cuts and was reluctant to face up to the necessary expenditure discipline.  From some time early in 1982 John Howard, who was meticulous about Cabinet proprieties, had become increasingly offside with his Prime Minister. ⁽²⁴⁹⁾

The capacity to improve the economy by monetary means had passed.  Much of the Parliamentary Dries' effort before the 1982 budget was, therefore, devoted to encouraging the Government to cut spending irrespective of the electoral consequences.  Fraser actually promised John Hyde that this strategy would be given due consideration.

By the time of the budget, Howard had been placed in an extraordinarily difficult position.  It had become apparent to the backbench that fiscal management had been taken out of his and Treasury's hands by a Cabinet determined to "buy the election".  He could have resigned in protest but, if he had removed his voice from Cabinet not only would he have been blamed for the forthcoming inevitable defeat, the budget would have been even worse.  John Hyde's opinion, which he voiced, was that he should not resign.  It is a measure of Howard's exceptional honour that no stories have ever been circulated explaining his behaviour concerning the 1982 budget.

Fraser, wanting to keep the option of an early election open, had brought in a budget offering income-tax cuts without significant reductions in expenditure or the introduction of an alternative tax.  As might be expected, Dries in the Parliament, the universities and even the civil service, where a change of Government was anticipated, drew attention to its irresponsibility.

There had been little attempt to restrain expenditure with every sizeable cut vetoed by some Cabinet interest.  The budgeted deficit was $1.6 billion but worse, the underlying figuring seemed inconsistent with Statement No 2 written as always by Treasury.  The projected no-change deficit in 1983-84 was rumoured to be about $5 billion. ⁽²⁵⁰⁾  As it turned out, even that figure was conservative.  It short, the budget was about as bad as the leaks had suggested it might be and at the usual post budget party it was plain that Treasury officials did not like it.  One, David Morgan, later the CEO of Westpac, encouraged by some alcohol, told John Hyde to "put up or shut up".  Hyde thinks he eventually established that Morgan had no wish that he shut up but he could not establish how Morgan expected him to put up.

The 1982 budget saw chickens hatched during seven years of poor fiscal management come home to roost.  Faced with a worldwide recession, a stimulatory budget, had it followed a period of budget surpluses and public debt reduction and had inflation been low, would have been appropriate.  The Government was denied responsible recourse to that option by its previous profligacy.  For the previous four or five years Treasury officers had warned backbench committees of this day and presumably they had been no less blunt to Cabinet.

Bad though the budget was, the Government added further post-budget expenditure.  A 50% subsidy was offered for fodder fed to livestock in drought-affected areas. ⁽²⁵¹⁾  This subsidised not just the retention of young breeding stock but of all stock.  It raised the price of fodder but production had to wait upon the next season.  It rewarded most the big fodder producers and those stockowners that had made least provision for bad times.  It kept livestock in wool production that was not economic had the full value of the fodder been debited to the enterprise.  In short, it was a typical National Country Party scheme.

Peacock was on the backbench and challenging Fraser's leadership.  Making matters worse politically, the first half of the year had been dominated by endless counting of the numbers culminating in a party-room ballot on 8 April:  Fraser 54 beat Peacock 27.  The leadership challenge had divided Dries, Wets and the save-our-seats (SOS) brigade.  Although John Hyde voted for Fraser, a few days before he did so he had hand-delivered to him an extremely condemnatory account of his stewardship and on the day before the party room ballot he had discussed it paragraph by paragraph in a studiously civil manner with me.  John Hyde's diary also records:

Later by chance I had dinner with him at Peter Lee's [a restaurant] in some Leagues Club.  Where [four names] fawned all over him.  I actually felt sorry for the bastard.  The company of sycophants must be an awful moral hazard. ⁽²⁵²⁾

Leaders suffer a peculiar loneliness.  The further they climb the greasy pole of office the more they hear of their virtues until even the most level-headed believe what they hear.  Emperors, born into the job, literally went mad from flattery.  When, shortly after the budget, the Government made the decision on steel imports discussed above, Dries seized upon the opportunity to speak favourably of one Government economic measure with all the enthusiasm and absence of hope that drowning men have for straws. ⁽²⁵³⁾

The loss of seventeen seats in a Victorian State election provoked a Coalition party-room debate in Canberra.  It was the setting for the best interjection John Hyde heard in eight years.  Individual MPs had called for handouts to the country, the city, the old, the young, manufacturing industry, farmers, women and many more.  Nobody added it all up but they had together spent a considerable portion of the GDP when Ross McLean interjected:  "Malcolm, why don't we try good Government?  It might be popular".  Not everyone thought the sally funny and it was far too late for good or bad Government to save us.

By the end of the year, the economy was in recession and unemployment was heading for 10%.  The budget, which had not been honestly cast, was already over the top by a further $1.6 billion. ⁽²⁵⁴⁾  A diary note as early as September, not anticipating the Hawke coup, had recorded:

Hayden will preside over an economic debacle.

The atmosphere was to remain one of chaos and bitterness until the House rose for Christmas.

THE END

On 3 February 1983, Fraser advised the Governor General to dissolve both Houses of the Parliament a year before the Government's term was up and Bill Hayden stood down as Opposition leader in favour of Bob Hawke.  On 2 March, Fraser refused to allow Howard to admit that the budget deficit was by then projected to be $6 billion.  On 5 March, one of Australia's less satisfactory Governments came to its anticipated end giving Labor a 25-seat majority.  What was to follow, however, took everybody, not least the Dries, by surprise.

---

ENDNOTES

184.  David Barnett, John Howard, Viking Press, 1997, p 45

185.  Ian Viner, personal communication

186.  David Barnett, John Howard, Viking Press, 1997, p 159

187.  Wolfgang Kasper, The Destruction and Creation of Jobs, AIPP, 1985 p 11

188.  Alfred E, Kahn, The Fortune Encyclopedia of Economics, 1993, p379

189.  ibid, p379

190.  John Hyde's diary, 24 October 1979.

191.  John Hyde's diary, 4 February 1980

192.  ibid, 28 February 1980

193.  ibid, 18 September 1980

194.  John Hyde's diary, 4 November 1980

195.  John Hyde's diary, 26 November 1980

196.  Recorded in John Hyde's diary under, 25 April 1980, but the date is probably not correct

197.  John Hyde's diary, 2 April 1981

198.  ibid, 29 April 1981

199.  John Hyde's diary, 27 April 1981

200.  David Barnett wrote that John Hyde thought he could influence 30 votes.  Even counting those Hyde might have influenced negatively, at no stage did nearly so many people let his opinion influence how they voted.

201.  John Hyde's diary, 4 May 1981

202.  ibid, 12 August 1981

203.  ibid, 2 December 1981

204.  Snape, Gropp and Luttrell, Australian Trade Policy 1965-1997, Allen & Unwin, 1998, pp. 463-5

205.  John Hyde's diary, 23 April 1979.

206.  David Barnett, John Howard, Viking Press, 1997, p 55

207.  Snape, Gropp and Luttrell, Australian Trade Policy 1965-1997, Allen & Unwin, 1998, p. 127

208.  John Hyde's diary, 19 August 1980

209.  ibid, 7 February 1981

210.  John Hyde's diary, 21 October 1980

211.  Snape, Gropp and Luttrell, Australian Trade Policy 1965-1997, Allen & Unwin, 1998, p. 121

212.  David Barnett, John Howard, Viking Press, 1997, p 43

213.  John Hyde's diary, 25 February 1980

214.  John Hyde's diary, 3 December 1980

215.  ibid, 3 March 1981

216.  John Hyde's diary, 17 November 1981

217.  ibid, 20 July 1981

218.  ibid, 27 August 1981

219.  John Hyde's diary, 30 August 1981

220.  ibid, 28 October 1981

221.  Jim Calton's Blue Book, p 66, Australian Business, 21 January 1982 and John Hyde's diary, 7 December 1981

222.  John Hyde's diary, 10 December, 1981

223.  The Australian Financial Review, 7 December 1981

224.  John Hyde's diary, 9 June 1982

225.  The Daily News, 11 June 1981

226.  John Hyde's diary, 17 & 19 June 1982

227.  David Barnett, John Howard, Viking Press, 1997, pp 57-59

228.  John Hyde's diary, 12 September 1979

229.  The League supports Douglas Credit which interprets the banks' combined ability to create credit as ripping off the community.

230.  David Barnett, John Howard, Viking Press, 1997, p 114

231.  John Hyde's diary, 7 March 1982

232.  ibid, 4 December 1980

233.  ibid, 29 October 1981

234.  David Barnett, John Howard, Viking Press, 1997, p 138

235.  John Hyde's diary, 17 December 1981

236.  The West Australian, 23 October 1980

237.  John Hyde's diary, 28 October 1980

238.  Laurie Oaks, The Age, 6 August 1982

239.  John Hyde's diary, 19 January 1982

240.  The National Farmer, 25 February, 1982

241.  John Hyde's diary, 6 July 1982

242.  John Hyde's diary, 7 July 1982

243.  Peter Walsh, Confessions of a failed Finance Minister, Random House, 1995, p 54

244.  Productivity Commission Research Paper, Aspects of Structural Change, 1998, p xiv

245.  John Hyde's diary, 15 December 1981

246.  David Barnett, John Howard, Viking Press, 1997, p 221

247.  ibid, p 217

248.  John Hyde's diary, 29 July, 2 August 1982

249.  David Barnett, John Howard, Viking Press, 1997, p 178

250.  John Hyde's diary, 23 September 1982

251.  Peter Walsh, Confessions of a failed Finance Minister, Random House, 1995, p 67

252.  John Hyde's diary, 7 April 1982

253.  ibid, 26 August 1982

254.  David Barnett, John Howard, Viking Press, 1997, p 227