CHAPTER 11
The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins all of them imaginary'.
H.L. Mencken, 1923
Under Hawke's Prime Ministership, reforms affected most aspects of Government. None, however, gave the Parliamentary Dries who had sat behind Fraser more satisfaction than airline deregulation.
TRANSPORT
In 1986, the Government commissioned the Independent Review of Economic Regulation of Domestic Aviation, the May Report. It showed that TAA was 5% less efficient than Ansett when neither company had much incentive to achieve economic efficiency. It might reasonably be concluded that the 5% was due to public ownership and its attendant employment rules alone. May put five alternatives to the Government, which opted for the most radical: termination of the Two Airlines Policy from 1990. The domestic market was, however, to remain protected from competition by international carriers. This, with the sale of TAA, was essentially the policy that 6 years before Ansett's two spokesmen, Alex Carmichael and Graham McMahon, had told them Ansett would accept.
Uncompetitive airlines, protected by the Two-Airline Agreement, had bred a militant, monopolistic pilots' union, representing pilots who flew only about half the hours that American pilots flew. In 1989 they struck for even better terms of employment. Hawke, to most people's surprise, used the Air Force and foreign pilots and aircraft to break the strike. His action raised as many questions about his association with the chairman of Ansett Airlines, Sir Peter Abeles, as about industrial relations.
Airline deregulation and Hawke's handling of this strike were both hugely symbolic. Before the 1983 election, a nominally liberal Government had been afraid to repeal the Two-Airline Agreement; but before the 1987 election, a nominally socialist Government was promising just that and the Liberals too were committed to repeal. It was a victory for patient argument and a demonstration that fundamental ideas can prevail over interests.
Peter Forsyth, who had worked so hard for deregulation, among other things helping to draft the terms of reference for the Holcroft Inquiry, had turned his attention from the need to deregulate to the way deregulation can be made to work. The Australian Institute for Public Policy published his paper on the problems that might arise as the Government deregulated. Notably, he warned of a potential market imperfection that was to emerge -- the ability of start-up airlines to find terminal space at key airports. (302)
After Compass Airlines began operations Australians temporarily enjoyed much less expensive air travel and air travel increased, but at the end of 1991 Compass collapsed.
John Hyde had been in London the morning after Laker Airlines had collapsed, and was not, therefore, as surprised as some by the public support for Compass. The roads outside the Palace of Westminster back to Trafalgar Square had been packed with demonstrators, some in Laker Airways uniforms. The demonstrators were both expressing support for the airline and demanding that the Government bale it out.
That morning John Hyde sat in the gallery of the Commons during Prime Minister's Question Time. A Labour MP, who apparently had not quite understood the mood of the crowd outside, asked Thatcher what she thought of the market now. As Hyde recalls the scene, Opposition MPs were jeering and behaving as badly as Members of our House of Representatives on a bad day. Mrs T. walked to the dispatch box looking as pained as only she could look. Her reply ran something like this:
"The Honourable Member will be aware ..."
Row and calls to order.
"The Honourable Member will be aware that I am something of a fan of Sir Freddy".
More noise.
"I, nonetheless, can assure him that I do not intend to put a penny of his money at risk".
Laughter that somehow managed to convey relief from the Tory benches.
Goodness knows what they expected.
The Prime Minister's response was the right one, and the Australian Government's response to the Compass collapse was equally correct. The rightness of the Australian decision was not altered by the earlier decision to waive payment of monies due by Ansett to the Government during the pilot's dispute. With other peoples' money, two wrongs never make a right.
Australian coastal shipping was almost totally protected from international competition and the unions dominated the wharves. The IAC reported in 1988, recommending competition for both the ships and the waterfront. The relative inefficiency of Australian sea-freight was recognised but instead of allowing foreign flagged ships to carry freight between Australian ports and eliminating the barriers that prevented stevedores from operating outside the industrial awards, the Government instead chose yet another round of corporatist tripartite negotiations. The maritime unions had more clout than the pilots.
AGRICULTURE
Agriculture Minister, John Kerin, became responsible for the monopoly marketing boards, grain-handling authorities, sugar mills and milk factories run by highly-organised rural lobbies. Before the 1980s, most farmers had never experienced anything else and, getting most of their information from the boards and lobbies, sincerely believed that the monopolies prevented them from being ripped off. Kerin ultimately got into political trouble with the wool industry but he was a courageous reformer who tried to teach farmers that their exceptional on-farm efficiency was being dissipated by the inefficient handling, transport and marketing systems to which they were so wedded.
Service and manufacturing industries that sold principally on the domestic market, were able to use anti-competitive regulations to generate economic rents paid by Australian consumers. Agriculture, on the other hand, selling mainly in international markets, could not control its selling prices, and therefore the excess costs generated by the monopolies were passed to their profits and incomes. The principal beneficiaries of rural socialism were not farmers but the staff of the various "authorities" and the farmer politicians who enjoyed much status and a little power. Kerin, an agricultural economist, was snowed less easily by self-serving nonsense than were farmers.
Among its dry provisions, the May 1988 economic statement ended sugar quotas and announced that the local content scheme for tobacco leaf would end in 1993.
Less arcane than the arrangements for milk, wheat will serve to illustrate the delights of "orderly marketing". Wheatgrowers were compelled to sell to the Australian Wheat Board (AWB) alone. The States had ceded control over the right to sell and price wheat on the domestic market to the AWB in return for legislation that compelled the AWB to use only "Authorised Receivers", which were the monopoly bulk-handling authorities (BHAs) operating under State legislation. In most states, wheatgrowers were also compelled to use another monopoly, the State railways.
Despite at least 20 previous royal commissions, inquiries and reports, Kerin commissioned yet another under Jim McColl into grain storage, handling and transport. McColl estimated that the potential savings from more competition in handling and transport alone were at least $8 per tonne while the Australian Bureau of Agriculture and Resource Economics (ABARE) estimated savings of $9. Denis Hussey writing for AIPP had predicted savings of $10 per tonne. These estimates were at a time when the average farm-gate price for wheat was only about $100 per tonne.
Most growers believed that if the AWB were denied its monopoly, wheat prices might return to depressed 1930s levels. Wheat prices in inflation-adjusted terms were, however, already at 1930's levels. Dries did not advocate doing away with either the AWB or the BHAs, but they asked that both face competition that would give individual growers choice.
Despite vehement opposition, Kerin deregulated the domestic wheat market, starting with the 1989 harvest. The AWB retained its monopoly over exports. As is the way of agriculture, the monopoly was clothed in a euphemism, the "single desk".
Kerin had at times been a brave voice in the Labor Party. He should, however, have been able to rely on the support of those champions of free enterprise, the Federal Opposition. Not so: the National Party supported retention of the AWB monopoly.
Dairy products received high levels of protection via even more complex regulations. Also against fierce opposition, Kerin began winding down the two-price arrangement by which the farmers "milked" housewives whenever the latter purchased "whole milk". The Victorian dairy farmers were deregulated, following "arbitration" of domestic milk prices, during a Victorian State election. The arbitration was conducted by Justice Robinson of the Commonwealth Arbitration Commission who was advised by Mike Taylor, who later was to head the Commonwealth Department of Agriculture, and David Trebeck. His ruling replaced 1200 individual prices and margins fixed every six months with a single farm-gate price with everything else between the farmer and consumer "free". That provided the opportunity and the incentive to ship milk interstate eventually undermining regulation elsewhere.
Kerin deregulated dried fruits and sugar.
The Uruguay Round of tariff negotiations, which required that price support mechanisms be consistent with GATT rules, helped him to accelerate deregulation.
During Kerin's ministry but on its own initiative, the National Farmers' Federation, declaring that "Governments should be less amenable to the pressure of sectional interests who will benefit from regulation", mounted an effective campaign for deregulation. It calculated that trade barriers were costing the average farm $7000 annually. NFF President, Ian McLachlan declared to farmers in front of Parliament House:
Unlike our competitors in the US and Europe, we don't want to be subsidised to produce and subsidised to export.
We are not after short-term handouts from this or any other Government.
We haven't got them now [a false claim in the cases of dairying and tobacco] and we don't want them in the future.
From a Canberra-based industry lobby whose own hierarchy derived power and status from the regulated systems and whose own constituency had yet to be convinced of the wisdom of rural deregulation, these statements displayed a remarkable appreciation of the national interest and reality. They contrasted with, for instance, a declaration, by Doug Anthony, by then retired from Parliament, that "we are competing against subsidised farmers in Europe; we must have the same".
The wool industry was, however, a sadder tale. Wool was sold by auction but the Wool Corporation, since the early 1970s, purchased lots that did not meet its "reserve price". This finally, after a longer interval than free-market growers had predicted, became unsustainable because a huge stock of unsold wool had piled up. The saga has administrative, economic and moral lessons but fortunately Australians seldom display quite such pigheadedness, arrogance and disregard for reality as did this industry's ruling class. Among its tragic features was the political injury it inflicted upon a better than average minister.
About twenty years before the debacle John Hyde had attended a growers' meeting at which Mr Bill (later Sir William) Gunn explained how he was going to make wool "too expensive for woolgrowers to buy". Although some present drew his attention to the possibility that wool could be made too expensive for woolgrowers to sell, he would have none of it. Unlike with wheat and sugar, people with a collectivist turn of mind did not then dominate the wool industry. In 1965, a considerable majority of growers had rejected acquisition in a referendum at which growers with as few as 300 sheep voted equally with those whose incomes depended on wool. Nevertheless, in 1969 the Australian Wool Board (that preceded the Corporation) induced the Government to allow a non-statutory company with powers to engage in "supply management". This was defined as the passing-in of lots that did not achieve a satisfactory price on the day, the valuations having been assessed by recent market levels. There was to be no stockpiling of wool.
At this point the industry experienced a price slump and a drought. A sub-committee of the Wool Board proposed a single marketing authority to set reserve prices. Understandably the Minister for Primary Industry was a little nervous and he referred the proposal to Sir John Crawford for appraisal. Crawford accepted it in principle but observed "... the Government whose financial support is necessary, does need to be assured that the authority is behaving rationally and conservatively". Sir John seemed to have had few illusions about the risks or the people who might manage the scheme!
In 1970, despite by then two referendums in which a majority of growers opposed such a scheme, the conservative Government decided to set up the Australian Wool Commission with powers to operate a conservative reserve price with a flexible reserve. But a year later the industry's good and great were calling for authority to control marketing of the clip including powers of acquisition. In March 1972 the new Whitlam Government received a submission asking for powers, among others, "to acquire and determine prices, including export prices, for all wool". That proved to be too socialist for Mr Whitlam, whose Government was "unable to commit itself to the principle of acquisition without supporting detail". In June 1974, 264 pages of supporting detail landed on the Government's desks.
These recommended that the Corporation (AWC) manage the supply of virtually the entire Australian clip and determine the rate and method by which the wool would be sold -- in effect, acquisition. This proposal was also too socialist for Whitlam. Instead, starting in 1974-75, he gave the industry leaders power to set a reserve price for the duration of a season, backed by a 5% levy of gross proceeds. The price could be adjusted only upwards, a policy one might get away with while inflation was at Whitlamesque levels, but not when money was more stable.
By incurring debt for which those still in the industry would ultimately be responsible, woolgrowers were compelled to purchase their own wool and store it for resale. Each could have kept his wool in his own shed and borrowed against it, had he wished. As the Corporation took the wool off the market, it reduced supply and thereby raised the average price. As it put the stored wool back on the market it depressed the price. The procedure could not much increase growers' average prices (303) but it ironed out some fluctuations. Growers' incomes were, however, influenced more by the seasons than by short-run changes in price.
Since the reserve price was set in Australian dollars and most buyers were foreign, the reserve price could do little to stabilise buyers' prices, which were influenced by the exchange rate. Refusal to sell wool to willing buyers must have given some market share to synthetics manufacturers and to wool growers in other countries.
Because Australia produced most of the world's fine wool it may have been that reduced supply would have achieved a greater than proportional price rise -- that is, monopolists' rents. However, because no attempt was made to control supply, it was unlikely that the particular reserve price scheme could in the long run have benefited Australian growers. Nevertheless, until the debacle, the cost to growers, according to ABARE, had been only a few hundred millions of dollars over many years. The industry could have lived with that, although there was no good reason why it should. The danger that the reserve price would be set badly wrong was always present.
Bob Richardson who was the senior AWC economist at the time of the collapse of the reserve price wrote in 2001:
With financial deregulation and the fluctuation of the Australian dollar, the risk that the price would be set too high was greatly heightened. In 1984 an internal review of the scheme by AWC economists led to the conclusion that the floor must be set more conservatively ... Rejection of the advice set the AWC economists on a collision course with the AWC Board. Subsequently over the two years to 1987 and 1988, the floor was raised 70% from 508 to 870 cents. The probability of collapse converged on 1 [ie. certainty]; only its timing remained uncertain.
This 70% increase in the floor price created a supply response ... Production rose 19%.
On the demand side ... this forced wool yarn prices to levels at which there were strong incentives for substitution of blends for pure wool. (304)
In 1987, Minister Kerin set the scene for final disaster by withdrawing his own authority from the setting of the reserve. The reserve was about 30% above trend prices and Minister Kerin should have over-ruled the Corporation. He had the authority but that would have been politically difficult and he gambled. Over the final two years of trying to maintain the reserve, the Wool Corporation spent $2 billion of growers' funds held in the "Market Support Fund" and a further $3 billion borrowed with a Government guarantee. Richardson estimated that the up front cost to taxpayers of the collapse of the reserve price scheme "probably approached A$1 billion". When, far too late and after stating that the reserve price would be maintained, Kerin eventually had to say "no more", industry politicians pretended to wool growers that the wool reserve could have been maintained if only the Federal Government had not intervened. They were cowardly and dishonest; the debacle was primarily of the Commission's doing, and done over the opposition of its own economists.
Governments of both political colours had resisted the industry lobby but they were weak. The wool reserve had all the principal features of wetness -- wishful thinking, benefits for a minuscule group at the expense of the majority, failure to face facts even when they were well known, and diseconomy. It was, however, not in this case overturned by a prolonged campaign. Rather it collapsed. The episode will, no doubt, long feature in Economics-One. It should also feature in Politics-One, but probably won't.
EDUCATION
Employment, Education and Training Minister, John Dawkins abolished CAEs teaching practical skills and turned them into universities. He is still reviled in academic circles for the damage he did universities by compromising their independence and forcing them to pursue production -- an arbitrary centrally-planned increase in student intake -- rather than excellence. It is difficult to separate the legitimate complaint from self-interested promotion by academics.
His reforms, if that is what they were, followed a green paper that sought autonomy for the institutions but proposed more effective Government control over enrolments and "education profiles". The conflict between academic freedom and taxpayer accountability had intruded into most of the study but it had not been faced. Stories of university profligacy were rife and the Minister, who on the whole had a healthy respect for taxpayers' money, was reluctant to leave unaccountable institutions to choose between, say, applied women's studies, ancient history and mechanical engineering. The hybrid, a taxpayer-funded institution that is autonomous, is impossible to achieve.
The Green Paper had called for 42% more students by 2001, more Aborigines, and of course more women. (As women already outnumbered men at universities the concern had become "under-representation" in certain faculties.) However, the numbers of dollars that passed through a university's bank account, and the numbers of students, academics, women and members of racial groups that pass through its portals, were not measures of knowledge. The lowering of entrance and pass standards to increase numbers may have reduced national productivity.
Faced with a choice between accountability and academic freedom, the minister chose more accountability. Most Dries viewed some Mickey Mouse courses with disdain and nearly all were irritated by the economic nonsense employed by academics in search of more money. They nevertheless tended to keep out of the debate. So long as universities were funded primarily by the taxpayer and ministers took their responsibilities seriously, meaningful institutional autonomy would remain illusory.
Viewed with hindsight, Dawkin's university reforms were not necessarily economically rational. Such things as economics has to say about the trade-off between quality and volume were not sufficiently instructive in the case.
Labor under Dawkins' influence did however take a very important step toward equity in tertiary education funding and consumer sovereignty that, if taken far enough, would discipline universities while granting them genuine independence. He proposed the "administration charge" in 1986. He also permitted universities to enrol full-fee-paying foreign students. Education became a significant export industry when, from 1986 to 1988, the numbers of these students increased from 4,500 to 22,000. (305)
Following the Wran Report, the Government introduced the HEC Scheme. It required only those students who later earned substantial incomes to repay only 20% of the cost of their education. Without a blush for the traditions of scholarship, university students and academics, assaulted us with balderdash wrapped in jargon. A horticulturist told us a graduate tax would adversely affect the balance of payments -- why do experts in the physical sciences feel free to rewrite the social sciences without reading them? An associate professor of education asserted, without offering evidence, that a graduate tax would be hard to administer -- he would have been wise to consult his colleagues in economics and politics. Guild presidents told us that asking the wealthiest 37% of society to pay for a modest portion of its higher education was inequitable. Philosophers, sociologists, economists and political scientists have destroyed forests writing about "equity", but had failed to educate student politicians in the concept. Philosophers, chemists and pathologists told us that education was a "public good" but deigned not to ask the economists what the term meant. Students did what they do well -- held rowdy and illiberal protests.
The Opposition did not support the graduate tax on the ground that it was an inferior policy to its own. It was, but the Howard Governments did not implement the superior policy. The principal fault with the graduate tax is that it is minuscule: a 20% fee deferred for, say, 10 years, interest free, has a present value equivalent to about an 8% fee.
The Wran Committee proposals were not very courageous. But by correctly describing the nature of education they exposed the economic rents that attach to free tertiary education and went a little way to righting a considerable inequity.
MEDIA
A dry position on regulation and taxpayer subsidy favouring some suppliers of entertainment, information and culture is little different in principle from the dry position on the production and exchange of any other valued commodity. Just as Dries trust consumers to choose from among internationally traded goods, they trust them to select from the world's ideas and cultural traits. Far from being afraid of foreign cultures and ideas, they welcome their availability in the expectation that diversity and choice will enrich Australian life. Not to trust Australians to choose wisely, even if American or some other programs became more widely available than Australian, is elitist, xenophobic and the ultimate cultural cringe.
Foreign ownership presents no special problems but, since restricting the range of ideas is likely to cause even greater loss of wellbeing than restricting the range of physical goods, media concentration does. The pro-competitive provisions of the Trade Practices Act ought to be applied as much to media as to anything else. Because unbiased reporting of domestic events and policy is a necessary condition of a liberal democracy, the fact that television and radio stations are beholden to Australian Governments that grant licences restricting competition ought to concern the public.
Obviously, none of the restrictions on foreign ownership of media outlets, the rationing of the airwaves to favour existing owners, the public ownership of the ABC and SBS, and the large core of publicly-funded spin doctors who work for ministers satisfies dry criteria. Like people who have preferred access to the markets for goods, those with preferred access to the markets for ideas are concentrated vested interests and, in their case, with an exceptional capacity to defend their privileges. Most politicians believe that the media has the power to determine any close poll. Just by being there, they threaten Governments and Oppositions and none will take the action in this area that would be the equivalent of reducing tariffs or deregulating the dairy industry.
Having regulated the industry beyond the point necessary to maintain property rights in the electronic spectrum, Governments cannot now avoid choosing between policies that favour one or other of the media moguls over others. They are inevitably accused of favouring those most likely to favour them. Keating's gloat in 1987 to executives of the Fairfax press "I've hurt you more than you hurt me" (306) illustrates the situation.
When the Hawke Government changed the media ownership rules to allow any one television owner to reach 60% of the viewing audience but restricted ownership by newspaper owners, this resulted in greater media concentration than before and was said to favour Kerry Packer. (307) There was food for thought in a newspaper picture of Prime Minister Hawke with his arms around both Kerry Packer and Alan Bond and even more in their endorsement of him. A case can be made that it would have been dereliction of the tycoons' duty to their shareholders not to support the Government that maintained the monopoly value of TV licences, and in the courts of princes, where success depends upon the favour of the presumptuous, flattery is coin. When the flattery can be delivered in colour into every home, democratic politicians must be particularly tempted to purchase it, particularly when they pay with taxpayers' or advertisers' dollars. When political support may be bought with a licence or other benefit the cost of which is hidden from those who pay, temptation must be nearly irresistible.
The Hawke Government's media policy was very soggy. It must be admitted, however, that Dries gave media deregulation less attention than its importance warranted. The Internet and other technology, however, are now doing for choice what political argument has not.
PRIVATISATION
Almost immediately after it was elected, the Hawke Government faced demands for funds from Qantas and TAA. Walsh told the Cabinet that, if they could not pay market rates for their capital, then the Government should "flog" them. Qantas and TAA got their "capital injection" that time, but this may have been the first consideration of privatisation by the Hawke Government. (308)
Following a visit to Australian in 1985 by Madsen Pirie of the London based Adam Smith Institute that had championed privatisation in Britain, Hawke and Co. had gained considerable political mileage from campaigning against privatisation. Nevertheless, by 1987, the Cabinet favoured floating 49% of both Qantas and TAA. Hawke said Labor's spending priorities had to be welfare, education and health rather than capital injections for Government-owned businesses. Caucus would not listen then (309) and Qantas was not privatised until 1992.
The Belconnen Shopping Mall was sold in 1985-86. In 1986 a large portion of the grounds of the Tokyo embassy was sold (despite Department of Foreign Affairs attempts to stop it) in a deal that netted Australia a new chancery and $660 million change. The mortgages held by the Defence Services Housing Loans Corporation were sold to private lenders.
In 1990, with the State Bank of Victoria and the left-wing Kirner Government in equally serious trouble, Keating organised the Commonwealth Bank to take-over the State Bank. He financed the deal by floating 30% of the latter. Opponents of privatisation had only the rescue of a small Victorian bank to alleviate their discomfort -- Kirner was beyond rescue.
The IAC estimated that competitive reform of telecommunications would save at least 15% of users' costs, or $1,050 million per year. Partial deregulation of the sector began in 1988 with the adoption of the Davidson Committee's 1982 recommendation to introduce competition for "add-on" activities but Labor baulked at privatising Telecom. The case most often heard against its privatisation was that a public monopoly was needed to cross-subsidise uneconomic rural services. Monopoly also permitted overmanning and expensive work practices. Most people in rural towns were not subsidised, but farmers and graziers were. Farmers and Telecom's employees could have been subsidised much more efficiently from the budget but then the charity would have been visible. Farmers had terrified one side of politics and the union the other. Nevertheless, in 1990 the Government ended Telecom's monopoly of the provision of handsets and in 1991 a duopoly for wired telephone was established, to last until 1997 when open competition would be allowed. In 1992 Optus won the tender to become the second carrier.
ENVIRONMENT
Environmental policy was not among the Hawke Governments' successes. Driven by political motives and subservient to the organised environmental movement, their worst decisions imposed high economic costs and destroyed jobs with little benefit for the physical environment.
The Fraser Government had banned exploration and mining in Stage I of Kakadu National Park within which there is much that is unusual and extraordinarily beautiful. In 1983, the Hawke Government proclaimed Stage II and extended the bans. It did this although Stage II had almost none of the environmental significance of Stage I. In the run-down to the 1987 election Hawke extended Kakadu by proclaiming Stage III, an area aptly described by Gareth Evans as "clapped-out buffalo country".
In that election, elements of the environmental lobby played clever politics. Philip Toyne of the Australian Conservation Foundation and Jonathan West of the Wilderness Society campaigned in eleven seats on the slogan "Vote for the Forests". They issued a how-to-vote card calling upon electors to vote ALP in a different order from the ALP card. It was, therefore, possible to establish that 12.5% of the ALP's preferred vote in the eleven electorates had followed the Green ticket. Toyne and West claimed to have delivered Labor seven seats. (310) It would not have mattered to the dry cause that they had enhanced their bargaining coin had they pursued the sort of environmental policies advocated in, for instance, AIPP's Reconciling Economics and the Environment, which was then still four years from publication. Those Green protagonists, however, seemed to Dries to be more intent on socialising the economy than protecting the environment. They might, for instance, have addressed the absence of adequate property rights in water that was causing so much waste of a scarce resource, turned their attention to salinity or establishing sustainable rules for the harvesting of natural timber. Instead they pressed the Government to impose bans on economic activity that had left-wing appeal but less environmental benefit than other policies they might have concentrated on.
They convinced Graham Richardson, who was reputed to be a skilled numbers man, that the Green vote could again deliver Government in 1990. From the time that Richardson was made Environment Minister in 1987, environmental administration was directed to middle class voters far removed from the consequences of decisions.
Wood pulping uses the forest waste from saw logging. The effect of it upon logging is disputed but, as the demand for saw logs is tied to housing and there are as yet few close substitutes for timber, the demand for saw logs must be relatively inelastic. The main effect of not processing the waste should be, therefore, to raise the price of timber rather than to reduce the number of trees cut. Greens, nevertheless, object particularly strongly to pulp mills. North Broken Hill and Noranda Canada had planned to build one at Wesley Vale in the depressed region of Northern Tasmania. Under pressure from conservationists and reports from the CSIRO and the Bureau of Rural Resources that cast doubt upon the safety of proposed waste disposal, the Government granted approval only if the project partners met environmental constraints that at least Noranda was not prepared to meet. (311) In that case, politics and science combined to frustrate the project.
That was not the case when the Government, in 1991, banned mining at the Coronation Hill gold and platinum mine in Kakadu Stage III. The mine had obtained the necessary environmental impact clearance and Hawke had written to BHP assuring the company that there would be no policy change. Richardson had even told the Green activists that in the circumstances the mine should go ahead. Hawke, intent on gaining Green preferences, nevertheless, overruled Richardson. (312) Putting his authority on the line in Cabinet, he insisted that the mine be banned, disgusting the dry ministers, Walsh, Button, Dawkins, Kerin, Evans, Cook and Collins. The Government thereby signalled to investors that the word of Australian Governments was not to be trusted and that they should do as they do in third world countries, factor sovereign risk into their budgets.
The environmentalists behaved little better than the Government. It should have been important to them that the environmental-impact assessment procedures were not discredited. Instead green leaders needlessly gave those people who believe that Australia is paying too high a price for environmentalism a stick with which to beat impact assessments. It had to be asked to what drum they marched.
Richardson also contributed to forestry becoming a running sore. The decision to declare the South West of Tasmania a World Heritage area had already denied a large area of forest to the timber industry but at Richardson's request the Cabinet closed more timber mills elsewhere. Despite Labor's traditions, the jobs of low-paid timber workers, some in areas where unemployment was around 20%, were of little moment beside middle class urban votes. Peter Walsh recalls that Peter Cook, the Resources Minister:
would reach an agreement with the State Governments (Queensland excepted), under which areas would be locked away from timber cutting, but others would be available. He would be undermined by Richardson seeking larger quarantined areas, buffer zones, offers of compensation and job creation schemes for the retrenched timber workers. ...
While eroding the Government's tax base by closing down industry, Richardson was simultaneously adding to Government expenditure outside the budget process with bids for his compensation offers. ... His portfolio had a higher proportion of completely discretionary expenditure than any other did. (313)
The Hawke Government's management of the greenhouse issue does not cover it in glory either. No Government can avoid making decisions based on information that is less than wholly reliable. Hawke's dilemma in 1989 was not exceptional in that regard.
There was then little doubt that atmospheric carbon dioxide levels had been considerably increased by human activity. Whether temperature had in fact risen in consequence was not certain, but the weight of particularly official opinion was that it had, albeit, slightly and mainly at night. Estimates of the magnitude and speed of global warming have been drastically reduced since then, but even in 1989 the perceived problem was at least decades away. There had been little debate where atmospheric science and economics overlapped. Rising temperatures would probably have beneficial effects in, say, Greenland and Russia and harmful effects in, say, the Southern Sahara but nobody had credibly estimated the balance.
Few doubted that coercive measures and/or targeted use of taxation and subsidy could reduce levels of greenhouse gas emission. But the heavy weight of opinion among economists, including the Government's own economic advisers, was then and still is that regulatory or tax-and-subsidy measures to reduce greenhouse emissions would also reduce economic growth.
The Government faced another not uncommon problem, free riding. If warming was a problem, then it was a global problem. China, India and the rest of the rapidly developing world, however, would be required to do nothing about it. Demands for greenhouse action came most strongly from Europe, which would gain some competitive advantage by reducing the growth potential of other developed nations. Nevertheless, beat up or looming crisis, an Australian Government that was less cynically disingenuous than some in other nations had to contend with international demands that it do something. Threats of international sanctions, if it did not, were half-credible.
Faced with uncertainty regarding an untoward event, rational managers first adopt such "no regrets" strategies as are available. Beyond those, the costs and benefits of alternative strategies are assessed and weighted by their likelihood and the decision-maker's preference for risk. Problematic costs are postponed until they become necessary. Without the benefit of sophisticated techniques we do this sort of thing every day. Since catastrophic weather changes are predicted only when our babies are approaching retirement, to allocate a decade or so to learning what we should do while expanding the envelope of the "no regrets" strategies was rational.
In what it actually did, this approximated the Government's approach -- as it was in other countries. The greatest damage was done by hyperbole. Graham Richardson regaled the electorate with stories of polar ice caps melting, cyclones and droughts. Not all environmental concerns are imaginary but a number have proved so and laymen have difficulty deciding where to direct their concerns. The Hawke Governments that turned to the market for solutions to several other problems did not do so in the case of the environmental problems, nevertheless, the most certain injury that it did in this area was to the trust that sustains the social environment.
INDUSTRIAL RELATIONS
The regulated and uncompetitive labour market was inconsistent with other policies the Government adopted but, because of Labor's financial, personal and traditional relationship with the unions, labour relations reform was difficult. Five months after Hawke came to office a national wage case ruling that was equivalent to a fully indexed increase ended Fraser's wage pause. At a disadvantage in its dealings with the ACTU, the Government began weakly.
Despite the Accord, Hawke faced a maritime strike. When an Australian vessel, the Allunga, faced with costs it could not manage, pulled out of trade with the US West Coast, the maritime unions refused to handle American container shipping. The Columbus Line gained an injunction relying on the additions to Section 45 of the Trade Practices Act, but the unions extended their bans to all foreign ships. The Government allowed the union to win and there was no follow up.
Hawke prevailed on the building employers to withdraw deregistration procedures against the Builders Labourers Federation that would have allowed other unions to "poach" its members. (314)
The Hancock Report in May 1985, (315) made several uncontentious recommendations to improve the conduct of the industrial relations system but, with one paragraph, it contributed, I assume unwittingly, to the demand for substantial reform. The report rejected penalties on unions or unionists for failing to comply with Industrial Relations Commission orders on the ground that organised labour was too powerful to be forced to comply. The report described unions as "centres of power" replacing the powerlessness of individual workers with collective strength. With remarkable candour Hancock wrote, "It is a mistaken view of a pluralist society that every subject is equally dominated by the might of the state and its arms of enforcement".
Although he rejected equality of all before the law, one of the most fundamental tenets of a civilised, peaceful society, he did not exaggerate. Since the Clarry O'Shea case in 1969, the Arbitration Commission and the State industrial tribunals had been so terrified of being revealed as paper tigers that they had bent over backwards to appease defiant unions, thereby reinforcing the belief in union omnipotence. Hancock had diligently reported the public's wish for sanctions for breaches of industrial laws but nevertheless recommended against employing them. Not long after Hancock's matter-of-fact observation, its truth was underlined when the ACTU forced the Government to back down on its budget speech undertaking to discount wages for the currency depreciation. Proponents of IR reform delighted in quoting Hancock in every convenient context.
Unacceptable to liberal democrats as his recommendation to tolerate competing centres of power beyond the law may have been, his analysis of the situation was persuasive: the trade unions could not easily be brought within the authority of the courts. As things were, to do so might ultimately require the army. Blood, almost certainly that of relatively innocent parties, would be shed and martyrs created. John Hyde quoted Hancock with relish but he had reached the same conclusion in his Blue Book -- he thought unions were effectively above the law.
It was at this point that Hawke took the unexpected action to break the pilots strike. I do not think a conservative Government would have got away with it so lightly. By seeking resolution outside the arbitration system Hawke contributed something to making the once unthinkable thinkable. There were, nevertheless, no radical breaks-through in Australian industrial relations, such as in the United Kingdom and New Zealand. The background against which such public policy change as was achieved was, however, coloured by several other industrial disputes that demonstrated that unions were not quite as far above the law as some of them believed. These included the Wide Combs dispute, The Live Sheep Dispute, Mudginberri, Dollar Sweets, Robe River, SPC, South-East Queensland Electricity Board and APPM.
Some of New Zealand's best shearers, many of them Maoris, extended their season by shearing in Australian wool sheds. By re-introducing the wide (92mm) comb to Australia, banned in 1927 by the employers, they sped up shearing by some 20-30%, increasing shearers' incomes and reducing shearing costs. By resorting to industrial action and spasmodic violence with unpleasant racial undertones, the Australian Workers Union tried and failed to stop use of the 92mm comb. This, even though some AWU members used them in the American West during the Australian off season.
When in 1978 the Australasian Meat Industry Employees Union had tried to prevent the export of live sheep to the Middle East, farmers' organisations had successfully organised hundreds of farmers to load them. A remark made by Ian McLachlan at that time passed into folklore: "Industrial relations used to be regarded as complex until we simplified them somewhat."
The Mudginberi abattoir in the Northern Territory processed buffalo meat for export. The owner, Jay Pendarvis, reached an agreement with his staff to abandon the productivity-limiting tally system and registered the agreement with the Arbitration Commission. The Australasian Meat Industry Employees Union, nevertheless, picketed the works and Commonwealth meat inspectors refused to cross the picket, denying the abattoir its capacity to export. In due course the ACTU backed the AMIEU. (316) The Government had a considerable problem. It sought to retain the centralised system but here was the ACTU, its Accord partner, defying the Arbitration Commission and the Federal Court. What is more, there were 450 tonnes of meat in cold store rapidly losing value. The National Farmers' Federation backed Pendarvis and took the dispute to the Federal Court. This found the AMIEU in breach of the Trade Practices Act, imposing substantial damages for the breach and then, when these were not paid, further fines for contempt. Eventually the cost to the AMIEU was $1.5 million of members' hard earned funds with nothing to show for it. The tally system was eventually abolished.
During 1984, Dollar Sweets, a firm of confectioners, took common law action against union picketers who were hindering those employees wishing to work and wilfully damaging its property. The firm's lawyers, Peter Costello and Michael Kroger, gained an interlocutory injunction against the union from the Victorian Supreme Court and eventually $175,000 damages for their client. This episode was important because it demonstrated that the common law through the ordinary courts could be efficacious against some types of union behaviour and also because it brought the young Peter Costello, now Federal Treasurer and Deputy Liberal Party Leader, to the notice of Dries everywhere.
Charles Copeman, the Chairman of Peko-Wallsend initiated a widely-publicised crackdown on restrictive work practices at the Robe River Iron Australia (RRIA) mine in WA. In May 1990, Human Rights and Equal Opportunities Chief Commissioner, Sir Ronald Wilson, finding in a case of wrongful dismissal of an employee who was offside with the unions, had had these things to say:
The role of the unions in [RRIA's] operations is of critical importance in the resolution of the complaint. At all material times, it was the policy [of RRIA] to maintain production at all costs, even the costs of surrendering to the unions in all but name its managerial responsibility for the workplace. In practice the unions were supreme.
It is submitted ... that I should declare ... that [RRIA] has engaged in conduct rendered unlawful by the Act. ... But in July 1986, shortly after the dismissal of the complainant, the respondent successfully challenged the supremacy of the unions and assumed a proper responsibility for the workplace. For this reason, I do not believe it is appropriate to make such a declaration.
Following the ending of many restrictive work practices, RRIA's productivity gains exceeded 200%.
During 1990 the SPC cannery in Victoria's Goulburn Valley was faced with closure. Its loss, in an area with high unemployment, would have been serious, not only for employees but also the fruit growers. SPC's management went to its employees with a request for labour cost savings of $2.5 million to save the company. Management and SPC shop stewards came up with a plan that included the removal of 17½% leave loadings, and the loss of rostered days off and extra payment for weekend work. Within hours of the deal struck with their shop stewards being announced, the unions declared it illegal. The Federal Minister for Industrial Relations, Senator Peter Cook, quickly called a meeting with the Company and restructured the deal in a more politically and industrially acceptable way and the Industrial Relations Commission put its seal upon it.
During a protracted dispute, the South East Queensland Electricity Board successfully negotiated productivity-enhancing contracts with employees and sub-contractors, despite the opposition of the union that traditionally covered the linesmen and maintenance workers involved.
The management of Australian Pulp and Paper Manufactures, which like Robe River Iron was then a subsidiary of North Broken Hill, declared that several practices that were not part of relevant awards would cease. The award itself, employees' 25% over-award payments, existing superannuation arrangements and a 35-hour week were not threatened. The dispute was about union power. The company executives were prepared to talk with their employees in the presence of union officials but not with union officials instead of employees. The company got all it sought in productivity improvement but conceded to the union the right to throw in the towel on behalf of the employees. Both sides claimed victory.
In contrast, by the second half of the 1990s the climate had changed somewhat. The West Australian Government was not successful when it tried to let stevedoring for Stateships to the cheapest tenderer, which employed non-union labour. It gave in at the behest of business interests, allowing the Maritime Union of Australia to maintain the long-standing closed shop.
If these cases showed nothing else they taught that the centralised fixing of employment conditions by distant tribunals was often at the expense of the employees at the worksites.
Despite these successes and others during the Hawke years, only a modest dent was made in the capacity of union monopolies to impose work conditions that caused unemployment and denied otherwise achievable productivity gains. Policy-makers had only one real option, that of removing, by small degrees if necessary, the circumstances that caused unions to be, as Hancock had written, "centres of power" that could not be "equally dominated by the might of the state and its arms of enforcement".
There were calls for no-holds-barred confrontation -- a re-run of the shearers' strike toward the end of the nineteenth century -- but these were not made by Dries for two reasons. First, victory would have been far from assured, and, second, most of them felt that violence was too likely.
Most Dries thought that union privileges should be removed by steps too small to inspire a general strike or alienate public opinion. This had been the successful approach of the second Thatcher Government. Workers could be given the right to opt out of unions and awards. Access to the protection of the common law and trade practices law could be made easier. Shop or company unions could be encouraged and industry unions that cover all direct competitors could be discouraged by removing the "conveniently belong" clause from the Act. People with an interest in economic efficiency could be appointed to the Industrial Relations Commission. General laws protecting workers' rights against employers, unions and awards, might replace industrial law. Debate might be conducted in proper human rights terms that would deny the moral high ground to unions that opposed freedom of association.
Most importantly, pressure should be placed on labour market participants by liberating product and other factor markets. A sentence from an address by Senator Chaney to the HR Nicholls Society indicated that the Opposition, and probably key members of the Government as well, understood the inevitable consequences for trade union power of economic deregulation. Chaney said: "From a public policy stance, deregulation of the product market is probably one of the best incentives to good [labour force] management".
By the late 1980s the central plank of the Liberal's industrial relations policy had become the right of individual workers and their bosses to opt out by agreement from industrial awards. Opting out would on many but not all work-sites have needed courage on the part of the individual worker but it would have been difficult for the unions to turn it into a major confrontation. To the extent that the Government could enforce the law, individual workers were protected from dismissal by the principles outlined by Justice Wilson at Robe River. Since it was anticipated that many workers at many work-sites would happily reach agreements that would offer them more pay for higher productivity, it was anticipated that union membership and the power of which Hancock had warned would decline.
The Government moved initially in the opposite direction. It augmented the influence of the ACTU and the biggest unions within it with the apparent intention of preserving and strengthening the industrial relations structure while enhancing the influence of its more responsible elements. It offered cooperation among the powerful under a corporatist vision. Mussolini had, after all, got his trains to run on time.
In 1988, Ralph Willis, the Industrial Relations Minister, introduced amendments to the law to combine small unions into super unions, subsidising their amalgamations with $2 million. This extended denial of free association.
There were probably some short-term benefits from appeasement of the unions, but sharing power with them in corporatist deals had a poor record. When the Wilson and Callaghan Governments in the UK had tried it, their social contract ended in the infamous "winter of discontent" of 1978. In contrast, by 1988, Margaret Thatcher was enjoying a measure of union cooperation that, had it been granted to Callaghan, might have denied her office. She had obviously gained many unionists' votes.
The Hawke years did, however, introduce "enterprise bargaining" if more in name than substance. In October 1990, the Industrial Relations Commission announced guidelines that stipulated that the agreements must:
- not reduce ordinary time earnings,
- not reduce paid annual leave,
- not increase working hours,
- not reduce long service leave,
- base wage increases upon productivity increases,
- have a term during which no further increases (except their own national wage case decisions) were negotiated, and
- be negotiated by a single negotiating unit at each enterprise.
The stipulations excluded most means by which employees could improve their terms of employment and each agreement had to be approved by the Commission. (317)
It was not much but it was something: some uneconomic work practices could now be exchanged for increased pay. What is more, even though Labor's legislation did not really reflect the concept, it gave credibility to the term.
THE 1980s EXCESSES
The 1980s saw loose monetary policy and a worldwide recovery from the 1970s stagflation in many countries. In Australia the world-wide expansion coincided with deregulation and together the circumstances combined to encourage a borrowing spree by corporations that financed hostile take-overs, sometimes conducted with less than due regard to the rights of creditors and minority shareholders. The umpires joined the play. State Governments, stupidly in the cases of Victoria and South Australia, and more reprehensibly in the case of Western Australia, became major speculators.
Toward the end of the decade, the excesses led inexorably to several spectacular business collapses. Until the first defaults, Australian borrowers had been considered internationally as reasonably good risks, but then other reckless Australian entrepreneurs were quickly caught out and so were some State Governments.
Australia experienced a cost of deregulation that is hard to avoid. People not experienced in free market disciplines tend not to develop the technical, prudential and moral attributes upon which markets depend. Most of the public- and private-sector paper entrepreneurs were gamblers and a few, having first engaged in giddy wishful thinking, then engaged in skullduggery. Some have since graced Australian gaols or places beyond the reach of extradition. Shareholders and trade creditors were cheated at an exceptional rate and, although the problem fixed itself, Dries were temporarily on the defensive. Irrationally, because we had experienced such events before, financial deregulation was blamed for the perceived collapse in corporate morality rather than credited with uncovering sins the auditors had missed. Where the internal institutions of society are deficient, well-intentioned decrees, that is external institutions, are seldom enough.
However, I write with hindsight. Although by the late 1980s most prominent Dries had formally recognised the role that institutions imbedded in the culture have in sustaining markets, none that I am aware of anticipated that their weakness would, for instance, allow Westpac, ANZ and most of the minor banks to get themselves into such serious trouble. These lent imprudently to gamblers. Not for the first time, Dries had failed to appreciate all that their theory ought to have taught them.
Although they were not at first taken seriously, I think Dries made a better fist of describing what was happening in the public sector.
An episode that they did criticise as it evolved became a modest part of what became known as WA Inc. It will serve as an example of behaviours and attitudes that were then quite prevalent. In October 1983 the joint venturers in the Argyle Diamond Project made a $50 million compensation payment to the WA Government in return for release from an obligation to build a townsite. At a time when 5% of the Argyle Diamond project could have been purchased for $23 million invested in Ashton Diamonds, the Government purchased a 5% stake from Bond Corporation for $42 million. It then formed the WA Diamond Trust that purchased the stake for $45 million. Next, the Trust issued 65 million one-dollar units. 60 million of these were sold to public subscribers and 5 million to the WA Development Corporation.
$23 million worth of assets was turned into $65 million by taxpayer subsidy (the trust escaped Federal tax) and a State Government guarantee of an 8% return for 7 years, thus turning a speculative venture into one that was gilt-edged because State taxpayers had been saddled with the risk.
In newspaper columns and in Parliament, Dries pointed to the moral equivalence of non-existent tax cuts and Blue Sky NL's non-prospective mineral leases and much else. What is more, they drew responses. WA Labor Minister David Parker, NSW Liberal Minister Terry Metherell and Federal Labor Minister Graham Richardson each were to make excuses that in effect claimed that ethics are situational and that politicians cannot be expected to always be truthful and keep trust.
If the Parker/Metherell/Richardson defence is allowed, then fault lies with the political system itself. Company directors and executives may be prosecuted for misleading shareholders and misapplying shareholders' funds but the Cabinet of the WA Government when it applied $408 million of tax-payers' money to propping up Rothwells could be punished only by loss of office. The extent of WA Inc. was revealed by a subsequent Royal Commission, but the most serious breaches of the Government's trusteeship of its citizens' interests were not, so far as was established, illegal. From the dry perspective, the most important lesson was how ineffective legal processes were in bringing Governments to book. The institutions that best prevented political corruption were political but slow.
Rothwells' chairman, Lawrie Connell, would in time tell the WA Inc. Royal Commission that he gave over $1,000,000 to the Australian Labor Party. He stated: "The Premier was fairly blunt. ... [My] business was healthy and that, in no small part, was the result of the Government having a favourable attitude towards me and, if that was to continue, I'd be expected to contribute". There was, however, never any likelihood of a prosecution that might have led such a statement in evidence.
The dry position was not that justice or revenge should be sought after the events but that Governments should, by avoiding commerce, get themselves out of the way of temptation and concentrate on maintaining the rules.
Ravel's definition, in Chapter I, of political corruption was a broad one: "Being corrupt means somehow misapplying political or administrative power, whether directly or indirectly, outside its proper sphere, for one's own financial or material advantage or in order to distribute the gains among one's friends, colleagues or supporters". Businessmen who must deal with administrations that breach their responsibilities are not always innocent, but they do face an unclear moral situation. When they receive benefits from a Government, whether or not they pay large sums of money to a political party or its Ministers' "slush funds", they can argue that to refuse the Government's favours while others accept them would be to place themselves at a commercial disadvantage. If, at the time of WA Inc, many businessmen saw their favours as little different from the tariffs, tax breaks and licenses from which business had always benefited, they were approximately correct. Indeed the principal relevant difference was only that the beneficiaries were more narrowly defined. They stopped asking, "Is it right?" to ask instead only, "Is it legal?"
Victoria and South Australia produced less morally dubious parallels of WA Inc that were, nevertheless, serious for their budgets and economically costly. The Victorian Labor Government got itself into serious trouble with the State Bank and its subsidiary Tricontinental. The South Australian Labor Government of the time got that State's finances into trouble via its equity in the State Bank which lent unwisely to friends of the Government. In Queensland, the National Party Government was found by the Fitzgerald Inquiry to have been in bed with a bunch of preferred entrepreneurs known colloquially as "The White Shoe Brigade". The costs to Queensland's taxpayers were, however, comparatively minor.
Sir William Cole, who during his public-sector career had been Secretary to the Departments of Finance and Defence but who was then working with the Australian Institute for Public Policy, used the opportunity afforded by a Giblin Lecture to explain why the public sector needs disciplines that would impose too much inefficiency to be tolerated in the private sector. He argued that when buying and selling in competitive markets, businesses are accountable to both their customers and their shareholders. This form of accountability makes them efficient in the economic sense, however the market, which depends on voluntary transactions within stable rules, cannot discipline Governments that enforce involuntary transactions and can change rules. Politicians' lusts for power, money and votes must be disciplined in other ways. Sir William observed, "efficiency, important though it is, cannot be an overriding objective in a public sector operating within our system of Government". That is, of course the underlying reason why Governments should be kept out of commerce.
The most remarkable feature of the State Government Inc. episodes was how little they have served to warn future Governments. These almost totally failed to appreciate that WA Inc etc were but extreme manifestations of their own tendency to give commercial favours in return for political favours.
THE RECESSION WE HAD TO HAVE
On Tuesday 20 October 1987 the Australian stock market fell 24.3%. By any account that was a spectacular fall but the All Ordinaries index was, nevertheless, back only to where it had been in February.
Our Government (and most others) wisely did very little, while the Reserve Bank monitored liquidity levels. Fearing recession, the Bank increased the money supply by more than the amount that, with hindsight, it deemed wise and by 1988, property prices were soaring. It then again tightened money and so began what Keating was to describe as "the recession we had to have". Central bankers manage money and interest better than politicians but their art remains an imprecise one. In the event, the real Australian economy was probably much the better for the recession as Keating, perhaps unwisely, told Parliament it would be. (318) And this time recent budget discipline, unlike the situation in 1982, permitted an expansionary response.
As the economy headed into recession, the current account was not as benign as the budget. During the first half of 1990 the world economy, which had been expanding satisfactorily for the previous eight years, came off the boil and commodity prices fell by 6.3%, further exacerbating Australia's precarious balance of payments situation. By 1989, Australia's foreign liabilities were being compared with those of Mexico and Brazil.
Centralised awards prevented adequate labour productivity gains and, as usual, the Arbitration Commission had awarded wage settlements that could not be afforded. Unemployment, which had fallen from 10.2% in 1982-83, was still 6.7% of the workforce in mid 1990 and rising again. The economy lacked the means to share the fall in living standards that was now the inevitable consequence of adverse terms of trade. A high price was about to be paid for the Government's Faustian pact with the ACTU. Australia had appeared at the bottom of a table showing the growth of labour productivity in OECD nations (319) and wage settlements were greater than the regulated labour market's capacity to raise productivity. The 1990 OECD survey of Australia was particularly critical of the productivity of public utilities where labour productivity was less than half that of the OECD average and capital productivity was little better. It said that "The pattern of multi-enterprise awards continues to impede change and limit adaptability, and it reduces the scope for productivity improvement".
In some respects the Government deserved better: it had, after all, done some of the most important things to produce a strong economy but these had not yet had time to raise productivity. In another regard it deserved the problem it faced: it had done almost nothing to reform labour markets.
Australian public opinion had, however, been changed radically. The Business Council staged a so-called Debt Summit. At it, Ivan Deveson of Nissan, drawing on a submission by the automotive manufacturers to the Industry Commission, (320) called for labour market and Government utility reform to precede tariff reduction lest businesses that ought to survive go broke. He argued that the Government could do more to accelerate cost-reducing reforms over which producers had no influence. The BCA called for voluntary enterprise bargaining. Deveson was able to show that the ongoing and pre-announced tariff cuts were squeezing car industry profits. No longer able to pass excess costs on to customers, managements would risk stoppages to negotiate better work practices and employees became interested in changing work habits when they knew that their job security was affected. The Federal Government was already addressing the reform of some public utilities but the important electricity supplies, railways, ports, schools and hospitals were in the hands of the States.
Cynics might argue that Deveson's attempt to tie tariff reform to labour market reform was an attempt to delay it forever. They would be unfair. He was making a fair point, namely, that firms such as Nissan could get by with a lot less protection if they were not forced to accept a productivity-destroying industrial system and costs imposed by regulation elsewhere in the economy. His speech might fairly be seen as a call for what was later known as "National Competition Policy" and to have a spokesman from the industry that was responsible for about 1/5 of all measured consumer subsidy, accept that tariff reduction must occur was progress indeed.
The BCA, like the ACTU when the Accord was new, had found a formula that the CEOs of companies that did not wish to face competition could live with. For a short while the BCA became a force for economic reform.
During 1991, John Prescott the CEO of BHP, (321) echoing the car industry submission to the Industry Commission, said, "I believe that there is little fundamental opposition from the manufacturing sector to the reduction or removal of tariffs. However, there is a genuine concern that tariff reform has occurred in isolation from other much needed micro-economic reform. ... If we are going to deregulate the market for manufactured or traded goods, then we must also deregulate the market for inputs into the manufacturing process. That means more labour market deregulation and more liberalisation of markets for other supplies to manufacturing. In particular we must deregulate the service inputs into manufacturing, including transport and power." This was a remarkable statement from that source.
Following Labor's win over the Peacock-led Coalition in March 1990, Peter Walsh retired to the backbench. From there he delivered attacked the Accord by saying that there should be no wage increases and no tax cuts. (322) The ABC introduced his comments as "more venom" but his comment was by then but conventional economic wisdom that would have strengthened the Government's hand for much-needed action.
Business confidence, profits and investment declined sharply. Unemployment rose to 11% by the end of 1992. Gross Domestic Product shrank by nearly 1% during 1990-91, and the budgeted surplus of $8.1 billion came in at only $1.9 billion. The Hawke Government had the responsible option of easing fiscal policy by increasing expenditure but much of it was, as is usually the case with Keynesian stimuli, of low quality, yielding sub¬average economic benefits.
Keating was correct: it was a recession we had to have, but he would have been more honest if he had traced its major causes back to the Accord. With spreading price stability around the world and better monetary management at home, the 1990 recession drove inflation from the economy. It did not return when business again prospered and unemployment again trended downward.
At this time Keating mounted his first (unsuccessful) challenge to Hawke and for a short while John Kerin replaced him as Treasurer.
HAWKE, GREINER AND FEDERALISM
In the 1890s, Australians had led the world in developing a democracy that spread power widely, but a political-intellectual clerisy had since captured its institutions. Confident of their own superior vision for the nation, better to wield their influence, these had encouraged the executives to dominate the Parliaments and the Commonwealth the States. The public had expressed its disapproval of both tendencies -- of the latter one by consistently voting down referendums that overtly transferred power to Canberra. However, few of the transfers of power had been put to the people. Section 96 of the Constitution allows the Commonwealth to grant financial assistance to any State on such terms and conditions as it thinks fit. Those terms and conditions and control of the major tax bases caused, as much as allowed, Canberra to drag the States in directions that it wished to travel. Further, the Commonwealth tested its powers to limits that the High Court upheld beyond the point that most people wanted. Especially in the outlying states, the public was unhappy with the situation, but from the days when they believed in socialism the Labor politicians -- many of whom were still Utopians at heart -- had inherited a preference for centralism. As late as 1993 Hawke had claimed that "Federalism is an anachronism". (323)
State/Federal fiscal imbalance and unnecessary lack of clarity concerning the division of powers were barriers to quality Government and therefore featured on dry agendas. John Hyde had complained in his "Blue Book" about too much quarrelling over authority and money, confusing overlap, buck-passing and too little direct electoral influence over expenditures. Peter Walsh, in Confessions of a Failed Finance Minister, complained of the mindless obstruction of all populist State politicians and the disloyalty of Western Australian Labor politicians to reforms initiated by the Hawke Government. (324) Liberals in the Federal Parliament during the Fraser years had been no less bitter about the behaviour of State Liberal politicians and the bitterness was reciprocated. State politicians complained of self-serving intrusion into areas of State responsibility and parsimonious redistribution of tax monies.
Whitlam had tried to address the problem by imposing a form of centralism. Fraser had tried to address it by allowing the States to tax at their preferred rates an income tax base administered by the Commonwealth only to be frustrated by the spurious charge that he was proposing "double taxation". Despite this history, Bob Hawke and NSW Premier, Nick Greiner cooperated to address fiscal imbalance. Walsh describes their initiative as a fuzzy one that skirted around the fundamental issue of State income tax, adding that "Whatever chance it had of achieving something worthwhile disappeared when Keating sabotaged it in the second half of 1991". (325) So far as it had gone, the initiative was indeed fuzzy. However, since the issue had plagued the nation since shortly after Federation and each arm of Government at both political and administrative levels distrusted the other, some initial fuzziness was no doubt an aid to even continuing the "peace talks".
Keating won leadership of the Labor Party from Hawke by espousing Whitlamite centralism that repudiated the Hawke-Greiner initiative to restore fiscal balance to the federal system -- a significant dry loss. Hawke and Greiner may have failed for reasons other than Keating's intervention but, by straddling party and State/Commonwealth interests and prejudices, they had given themselves the prospect of avoiding pitfalls of the past. If Keating understood the importance to the nation of what was being attempted, his sabotage was self-serving political bastardry justified in his own mind, no doubt, by his enmity for Hawke.
THE SCORE
Having published Mandate to Govern in February 1987 the AIPP published a checklist of policies adopted or least under the serious consideration of the major parties. By June with an election campaign under way it read:
Since Mandate was published in February, both major political parties have adopted some of the policies it recommends, or near enough to make little difference. AIPP is not trying to claim all the credit; others, inside and outside Parliament, are pressing for similar policies and economic necessity reduces the Government's room to manoeuvre. The list is necessarily incomplete as new policies are being announced daily. It is also often hard to tell what is formed policy, what is intention, and what has merely being seriously considered.
| Recommendation | ALP | Lib |
| ABC Sponsorship | √ | √ |
| Abolish Department of Housing and Construction | √ | |
| Cut spending on luxuries like sport, recreation, arts | √ | |
| Cut State Grants and borrowing | √ | √ |
| End Commonwealth Employment Program | √ | √ |
| End Two Airline Policy | √ | √ |
| Issue more TV licenses | √ | √ |
| Means test family allowance | √ | √ |
| Modest work for dole scheme | √ | |
| Raise age for unemployment benefit and tighten administration | √ | √ |
| Repudiate Dibb Report's isolationism | √ | √ |
| Scrutinise public sector for savings | √ | √ |
| Sell airports or air terminals | √ | √ |
| Sell Australian Airlines | √ | √ |
| Sell Medibank Private | √ | |
| Sell Navy dockyard | √ | |
| Sell Qantas | 49 per cent | |
| Skip pension indexation if necessary | ? | |
| Tertiary fees | √ | √ |
| Wind up Medicare | √ |
The staff at AIPP, nevertheless, did not realise how much the reforms they had fought for and were already in place would enhance freedom and productivity in the longer run. The wide-eyed wonder of many Dries, not least John Hyde, at the extent of the success of their own policies must be one of the more amusing aspects of this saga.
More than seven years and a change of Government later, the Two Airline Policy was gone. Deregulation of the financial markets was a huge "win" for economic rationalism granted by a Labor Government. Even though motor car and textile protection would yet do great injury, trade barriers were coming down steadily. Dairy industry protection had been reduced and sugar, eggs and dried fruit were being deregulated somewhat. Labor had privatised some assets and had made privatisation bi-partisan and, therefore, respectable. Even in the labour market some progress was made and senior echelons of the union movement accepted in public what they had long understood in private, namely the close relationship between employment, productivity and wages.
Fiscal management had been drier than in the wildest hopes of Fraser's backbench. The Commonwealth budget deficit had been turned to a surplus of sufficient size to offset State and Local Government borrowings. There had been a modest shift toward needs-based welfare with the introduction of means tests and reduced benefits for young people. Fees, of a sort, have been introduced for tertiary education.
Unlike voters, money market operators, immigrants, emigrants and investors are not rationally ignorant of Government policies. With tariff reduction, the easing of foreign investment guidelines, relatively liberal immigration policies and the floating currency, the Australian economy and Australian society more generally had been much opened up to the rest of the globe.
It seemed at the beginning of the 1990s as if political party allegiance had become irrelevant. It was not to prove so with political leadership. On 19 December 1991 Keating, who had been Hawke's ally and often the principal architect of reform, replaced him as Prime Minister. Although Dries at a distance from Labor politics held high hopes, Keating, the Prime Minister, would not fulfil the promise of Keating, the Treasurer.
ENDNOTES
302. Peter Forsyth, Free to Fly, AIPP, 1987
303. If price elasticities were greater at times of low prices than at times of high prices and the Corporation could at the time pick high and low points, then some gain in average prices would have been effected.
304. Bob Richadson, The Australian Journal of Agricultural and Resource Economics, 45:1 p 102
305. Snape, Gropp and Luttrell, Australian Trade Policy 1965-1997, Allen & Unwin, 1998, p. 296
306. Edna Carew, Keating -- A Biography, Allen & Unwin, 1998, p 179
307. ibid, p 182
308. Peter Walsh, Confessions of a Failed Finance Minister, Random House, 1995, p 108
309. Paul Kelly, The End of Certainty, Allen & Unwin, 1992, p 391
310. David Barnett, John Howard, Viking Press, 1997, p. 467
311. Paul Kelly, The End of Certainty, Allen & Unwin, 1992, pp 529-531
312. Graham Richardson, Whatever it Takes, Bantam Books, 1994, p 259
313. Peter Walsh, Confessions of a Failed Finance Minister, Random House, 1995, p 207
314. David Barnett, John Howard, Viking Press, 1997, pp 269, 270
315. Chaired by Professor Keith Hancock
316. David Barnett, John Howard, Viking Press, 1997, p 333
317. David Barnett, John Howard, Viking Press, 1997, p 587
318. David Barnett, John Howard, Viking Press, 1997, p 482
319. ibid, p 560
320. Federal Chamber of Automotive Industry, Study on Automotive Competitiveness, Submission to the Industry Commission, 1990.
321. Australia's largest company with a long record of resisting tariff reduction and labour market reform.
322. David Barnett, John Howard, Viking Press, 1997, p 572
323. SBS, Dateline, 11 June, 1993
324. Peter Walsh, Confessions of a Failed Finance Minister, Random House, 1995, p 87
325. Peter Walsh, Confessions of a Failed Finance Minister, Random House, 1995, p 237
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