The Howard Years

CHAPTER 15

The danger is that Australians will think too soon that they have changed enough.

The Garnaut Report

HOWARD

John Howard, who entered the Federal Parliament in 1974, rose rapidly to the Treasurership.  Although outnumbered in the Fraser Cabinet, he had been dry during the motor car dispute, had initiated the Campbell reforms, had tried to achieve General Reductions in Protection and had defended fiscal rectitude.  Unlike many ministers, he had not been prepared to curry favour with the backbench by leaking Cabinet information, and the Dries had been dependent on others to learn how he had argued in Cabinet.  It was an honourable record.

Nevertheless, his dry credentials were never without blemish.  To reach even his best policy prescriptions, he sometimes employed mercantilist arguments.  David Barnett cites a speech he had made in 1976 in which he "articulated the free trade principles which were to guide him for the next twenty years".  Barnett is wrong:  clarity of economic thinking is not among Howard's virtues.  Howard had told the Commercial Law Association that "This Government is firmly committed to a free enterprise economy.  It considers its role is to promote a satisfactory economic environment, to protect free market forces, encourage economic development and efficiency and where necessary proscribe unfair practices".  Although they all then thought that it was more committed than it proved to be, it was already becoming evident that Fraser's Government was committed to nothing of the sort. Howard is naturally truthful and I doubt he understood the implications of his rhetoric.

He was not consistently mercantilist.  When Treasurer he had generally employed non-mercantilist arguments but then he had the benefit of ABARE ⁽⁴³⁹⁾ or Treasury briefs and may not have understood all that these implied.  More significantly, the Opposition during the Hawke years, both when Howard led it and when he did not, mostly avoided mercantilism.

However, to the disappointment of Dries, Howard's Government was to rely almost exclusively upon mercantilist rhetoric.  For instance it lambasted the US administration for restricting imports of Australian lamb on the grounds that the Americans were "unfair" to efficient Australian lamb producers rather than to American consumers.  Americans were as likely to be concerned about Australian farmers as Australians are to be concerned about automobile workers in Detroit.

Some of his ministers have been even more blatantly mercantilist.  On Channel Nine's The Sunday Program Laurie Oakes neatly trapped Howard's inexperienced Trade Minister, Mark Vaile, into the clear implication that he believed that Australian tariff reductions had been made to benefit foreigners.

Howard is conservative in the Burkean mould, valuing those institutions that have proven track records.  He has a suburban lawyer's sense of justice.  He thinks of "the law", not so much as the means by which people are rendered passive, productive and good, but as the means by which they are protected from injustice.  He has a Tory's sense of equity that obliges the fortunate to assist the less fortunate.  He has a keen sense of national identity.  He has a conservative's respect for the family.  He prefers one law for all -- one class of citizenship.  These beliefs put him, with most Australians, slightly to the conservative side of liberal-conservative thought.

His background is Methodism, short on ritual and long on the core virtues of truth, courage, prudence and acceptance of personal responsibility.  Howard sees a better nation toward which he is destined to struggle but never to reach.  Although he covers the arrogance of those accustomed to authority with much better manners than most, he is not a particularly humble man.

He is often disorganised, is not particularly well read in the policy areas he embraces, and is not a good judge of other's characters.  He is not a dissembler, is so incapable of using flattery effectively that I once thought him careless of precious egos, but perhaps he just disliked them.  Experience tells us that he has a sophisticated feel for legal and political issues but not for economic issues. I doubt the rigour of his dryness and believe that his Governments significantly abandoned public duty for political expediency but nevertheless retain a view I formed of him long ago, namely, that he is a better than ordinarily honourable man.

When he had been acting Treasurer, an enormous promotion he had acquired when Malcolm Fraser was hounding Phil Lynch, John Hyde heard him defend Lynch when it would have been very easy to say nothing.  When the bottom of the harbour retrospective tax legislation debate was raging, Howard proposed but failed to carry an amendment to the Bill that would have limited taxpayers' losses to their gains made as a result of subsequent illegal disposal of the company.  The criticism that that legislation attracted was a serious barrier among Western Australians to his leadership ambitions, but Hyde had never heard of him trying to shift responsibility.  When, against his and Treasury advice, Cabinet approved the 1982 budget, he considered resignation but, even after the 1983 election was duly lost, he has never to Hyde's knowledge sought to distance himself from that Cabinet decision.  Such fidelity is unusual.

The most persistent layman's criticism of John Howard has been that he lacks charisma and he is awkward and a relatively poor communicator.  Many who can recall the 1940s have a somewhat jaundiced view of charismatic leaders. On the whole those who are not good at shouting into microphones seem safer.

LEADER OF THE OPPOSITION

Howard bided his time as Downer's standing collapsed and organised it so that he was elected unopposed or, as he put it, "drafted".  This time, Howard, was not deliberately undermined by his own party members and certainly not by Downer.

Howard still had to deal with Liberal Wets but Macphee was gone.  David Barnett had this to say of them:

The Wets, as the left wing of the Liberal Party, had an appeal to the media, whose members misunderstand their fundamental nature.  When their views are close to those of the ALP, it is not so much from principle as from timidity.  When the going gets tough, the Wets wet themselves.

The Wets are politically correct.  They worry when the media is critical.  They believe what they read in newspapers ... [For them] the art of politics is to find out what people want and then to deliver it, so they can hold their seats.

Although Barnett is unfair to some Wets who were wet from conviction, such as the late Alan Missen, Peter Baume, Robert Hill and Chris Puplick, the observation is true of very many MPs who are wet in the original Thatcher sense of not facing facts and leaking to The Guardian or its Australian equivalent The Age. Howard now offered these their best and last prospect of holding their seats.  All leftists are, of course, not Wets.

It was, however, a more pragmatic, more cynical, Howard that led the Opposition. In possession of a leaked budget working paper, he asked the Government if it was considering several of the various possible "cuts". Budget cutting was necessary and his action was blatant scare-mongering and not conducive to good Government.  It is a measure of the shallowness of media commentary that he was mostly praised for newfound "pragmatism" that was, in fact, departure from the high standards he had generally maintained. ⁽⁴⁴⁰⁾

When the Government introduced the Land Fund Bill offering $1.5 billion to Aboriginal Land Councils to buy farmland, the Coalition sought to amend it to allow title to be held by individual aborigines.  In so doing it acknowledged the minimum requirements of a market economy -- secure private property rights -- and treated Aborigines as adults able to manage their own affairs -- as fully-responsible equal citizens.  The amendment would have meant that Aborigines could sell or mortgage their properties.  Threatened with a double dissolution election fought around this bill and the race issue, Howard backed off. That too was pragmatic although this time the stakes had been raised so high that I am disinclined to criticise.

Howard was no longer prepared to take the public into his confidence, refusing to release Coalition policy until an election was called.  Again, after the Hewson experience, it is hard to blame him but the policies and ensuing debate could no longer contribute to public understanding and that was a serious dry loss.  When the election was called, Howard released a policy a day -- a flood of paper that nobody absorbed.

Tax reform had already been abandoned. Wage flexibility had also been abandoned when Howard announced that Workplace Agreements would be limited by the promise that "no one will be worse off".  As the campaign progressed the Coalition promised to retain other anti-competitive features of the economy.  Most seriously, election advertisements proclaimed the retention of the unfair, hugely costly, much-rorted Medicare.  Howard, who had once earned the sobriquet "Honest John", was determined to be as wet as he had to be to win.

David Barnett offers this account of the dampening of John Howard:

The man of conviction who in 1987 was determined to implement a free market reform agenda, even if it meant he got only one term, now considered he had an obligation to the party that had entrusted him with the task of leading it back to Government. ...

Michael Barnard, a Melbourne journalist who was for many years the sole conservative voice on The Age, deplored Howard's "skirting around issues on which he had previously offered clearly articulated convictions". He was saddened, he wrote, by Howard's "apparent conversion from a sometimes spirited defender of uncomfortable principles to today's soothing Valium Man."  Said Barnard:  "He has blurred his conservative contours, at a time when conservatism can be described as the true progressive force of politics." ⁽⁴⁴¹⁾

Barnard was not alone in his disappointment.  However, mindful of their champion's defeat at the last election and Keating's failure as Prime Minister to live up to the promise he had shown as Treasurer, Dries mostly shut up.

Barnard's use of "conservatism" was confusing. It is true that Howard was in many things conservative, but the principles that Barnard claimed he had failed to defend were liberal.  Standing language upon its head is the oldest political ploy.  The Age had so successfully played it, that had Barnard chosen to give "conservative" its dictionary meaning he may well have confused his readers.  He preferred instead the oxymoron, "a progressive conservative".

THE HEADLAND SPEECHES AND CIVIL SOCIETY

During the preceding year Howard had made four so-called Headland Speeches.  Although saying little about what a Howard Government would do, they conveyed Howard's guiding values, a not wholly consistent mix of conservatism and liberalism.

These speeches contained nothing as memorable as Menzies' "Forgotten People" or Chifley's "Light on the Hill". I submit, nevertheless, that they were the stuff of leadership and more than sufficiently inspirational.  They also revealed the tenor of the Government that Australians should expect if Howard became Prime Minister.  They were, of course, not blueprints for Government.

In the first (and best) of these he promised to rebuild "a proper sense of trust and confidence between the people and their Government".  Although he did not use the term, he undertook to do several things which, when taken together, can be interpreted as a promise to rebuild Australian "civil society" through the range of meanings of that term and especially the spontaneous non-political order intended by Locke.  The speech had been made against a background of growing bitterness in politics and the politicisation of an increasing number of aspects of human interaction.  By the standards of most countries, Australians were, of course, still relatively at peace with themselves, but they were, nevertheless, divided to a degree to which they were not accustomed.  In time, the divisions would cause votes to be cast for the One Nation Party.  The citizens of most nations might say, "Lucky Australia", but many beside Howard had seen the divisions developing and wished to avoid them.

Believing that respect for Government was weak, Howard promised to "clean up Government and clean up parliament itself".  In due course he attempted this sincerely but badly, bringing in standards for ministers that forbade trivial pecuniary conflicts of interest but did nothing about the conflict of interest that most often turns Governments from the public interest, namely their interest in holding marginal seats.  The civility of the Parliament certainly improved with the change of Government but that probably owed more to the absence of Paul Keating than to the changes Howard made to Question Time and to more even-handed Speakership.

Howard declared, "I would rather promise half of what people might want and honour 100% of it than commit myself to everything and deliver half of it" and he deplored "cynical election campaigns based on fear, or the big scare, or the massive lie".  Although he did not live up to all of his relatively modest election promises, his first term came nearer to doing so than did any Government in at least the past thirty years.

Of Government, Howard promised:

Under us, the views of all particular interests will be assessed against the national interest and the sentiments of mainstream Australia.

For the past 12 years Labor has governed essentially by proxy through interest groups. Identification with a powerful interest group has been seen as the vehicle through which Government largesse is delivered. ...

In the process our sense of community has been severely damaged.

Our goal will be to reverse this trend.

Shorn of the politically-inspired swipe at Labor, which by 1995 it had come to deserve, that promise went to the heart of what was, and still is, most wrong with Australian politics.  Departure from those standards, not the issues covered by the ministerial code or even minor peculation, is of the essence of political corruption.

He was, however, in time, to dispense Government largesse to people associated with motor manufacturers, textile, clothing and footwear companies, media outlets, his brother's company, the Housing Industry Association, and so on.  In every case, I am confident that he knew that he did wrong and excused himself with the knowledge that he followed in the footsteps of every Prime Minister.

Howard stated explicitly that he was obliged to offer leadership rather than to compel, but with drug and gun control was to be unusually coercive.  He described scepticism about what Governments can achieve as "healthy" and reaffirmed his commitment "to restraining the role of Government in people's lives". He obviously saw the need for Government to make room for civil society and it was a theme to which he returned in his later speeches.  He promised "responsiveness" but he then went on to say "it shouldn't be used as an excuse for abrogating leadership".

Although it was not a theme of the Headland Speeches, they made evident that he understood pluralism. His attitude came through in this comment:  "... bureaucracy of the new class is a world apart from the myriad of spontaneous community-based organisations ...".  His preference for pluralism was later evident in his initial decision to let Hanson talk herself out.  Had he had his way, she may never have been other than a small-time demagogue.

He returned at several points to a sentiment evident in this quotation:  "I have in mind a united community, not an aggregation of separate interest groups ..."  He did not until toward the end of his second term forsake its pursuit but he then became a vote-buying politician who pandered to those interest groups.

Early in Howard's first term I wrote:

The first draft of the first Headland speech was probably written by somebody other than Howard, who also had a feel for the civil order.  It, nevertheless, has Howard's own stamp reflected in, among other things, several departures from the logical order of argument.  Howard is no rationalist and, therefore, some inconsistencies were only to be expected.  Rather, his strong preference for the civil order is ingrained, almost instinctive.  His instinctive rather than rational approach is nowhere better exemplified than in his reaction to the Port Arthur massacre and to firearm ownership.  On balance, I think the Australian civil society is safer with matters that way.  The important thing is that our Prime Minister should know when he departs from civic virtue.

Howard spoke of five pillars of reform underpinning the Australian economy -- financial deregulation, tariff reduction, labour market reform, fiscal consolidation, and tax reform.  His record may be simply stated.  The first pillar was already sound, the second he weakened, and the last three he strengthened somewhat.

FIRST TERM CAUTION

By when the Coalition won the 1996 election in a landslide but not with a majority in the Senate the liberal reforming zeal had substantially abated world wide.  In Australia, the Coalition had by then abandoned so many policies that it did not have a mandate for good Government.  Since the Senate treated with contempt such mandate as it did have, on industrial relations for instance, that may not have mattered as much as I believed at the time.  Not long after relinquishing Opposition Leadership, Alexander Downer, responding to the familiar assertion that the Opposition should stop criticising and say what it would do had retorted, "That's a bit rich.  We did just that and lost an election".  He said, moreover, that those who really wanted to know what the Opposition thought should be done should re-read the nearly 700 pages of Fightback. Except for the GST, it still stood, he said.

By the election date, however, it did not stand.  Howard had significantly shifted his mission from enhancing freedom to winning office and his loyalty from the nation to the Liberal Party.  The Crossroads Group had been wound up and, although the Society of Modest Members continued to hold periodic meetings and circulate copies of relevant short articles, contact with the think tanks and the ideas world generally had declined.  Austin Holmes was dead and Wolfgang Kasper and David Trebeck were no longer offering regular advice to loosely organised groups of politicians determined to improve the quality of Government.  The change was not only in the politicians.  Those outside the parliament had had to concede that they had set back the cause by demanding of Hewson more than he could deliver and everybody had become more cautious. With sufficient accomplished to avert disaster, the Zeitgeist had changed to one with less enthusiasm for reform, and the 1970s and 1980s Dries had not been sufficiently successful in recruiting younger men and women to the crusade.

Howard began in a leisurely fashion that contrasted most obviously with Kennett's and Stockdale's rush to reform in Victoria but also with Douglas and Richardson in New Zealand, Thatcher, Reagan and even Greiner.  It was as if, disheartened by the Fightback experience, the Coalition had this time not only not announced its plans it not even made them.  It drifted, as it had drifted after the 1975 election.

Treasury officials greeted the incoming Government with the usual written account of the state of the economy.  It laid emphasis upon the budget deficit, an economic problem that Howard had not promised to ignore.

Government and especially the Commonwealth Government, has been a major contributor to the decline in savings, which has been the key cause of our current account deficit problems.  Moving the budget back to sustained structural surplus is therefore fundamental to restoring saving to a point where we can fund the investment we need to sustain higher growth rates without periodic Current Account Deficit problems.

Despite the deficit and unemployment, Keating had passed the economy to Howard in far better shape than Hawke had received it from Fraser thirteen years before. ⁽⁴⁴²⁾  Tariff reductions, deregulations and privatisations were beginning to produce better annual productivity gains.  Australians were in a better position to take advantage of "the investment we need to sustain higher growth rates" than it had been for at least several decades -- the Productivity Commission was later to argue that it was in a better position than it had ever been. ⁽⁴⁴³⁾

From the start Howard displayed excessive caution and was to learn that it incurred two costs.  Much-wanted rewards were delayed and he quickly found his leadership credentials questioned.

On coming to office Howard had had Professor Bob Officer chair the National Commission of Audit as Officer had done for Kennett in Victoria.  Unlike the Victorian Audit, this did not reveal a crisis because there wasn't one.  It did however place on credible record examples of expenditures and tax concessions "captured" by vested interests and Government business activities and services that could have been more efficiently undertaken by the private sector.  It suggested means to effect improvement of the division of finances and responsibilities between the Commonwealth and the States that would have reduced overlap, inefficiency, buck-passing and wrangling. It listed some common-sense approaches to efficient administration with examples of where these were honoured in the breach.  It repeated warnings made by others of the budget pressures that would arise from the ageing population and urged early action. It raised some tough issues such as the effect of wide access to social security benefits upon savings.  It showed that the Commonwealth's total liabilities exceeded its assets by $74 billion, over half a year's revenues.  In addition, it noted some $174 billion in contingent liabilities.

I have little doubt that the Commission of Audit Report was dismissed by the majority of the senior echelons of Commonwealth civil service as something that they could have provided better.  They would, however, have confused "better" with "in-greater-detail". The Victorian Commission of Audit had served two purposes:  it had helped the Government to "hit the ground running" and it had provided authoritative justification for the Government's actions. Howard and Costello failed almost totally to use their Report for the second purpose.  Rather than confront the issues it raised, they, so it was said, filed it between sheets of asbestos.  Where was the leader who had once believed in open evaluation of economic issues, had been responsible for commissioning the seminal Campbell Report and had declared that he wanted to be a reforming Prime Minister?

The Government did, however, in 1997, begin a process that required Commonwealth departments in consultation with the Industry Commission to prepare Regulation Impact Statements.  These were intended to give Government decision-makers an even-handed assessment of all the viable options including non-regulatory ones.  Most importantly, the Statements were to be tabled in the Parliament with the relevant Bill or disallowable regulation -- another step towards accountable decision-making;  another barrier to capture of the Government by vested interests.  However, the Productivity Commission would report that in 2000/2001 only 60% of the impact statements for the "more significant" regulatory proposals were adequate. ⁽⁴⁴⁴⁾  The suspicion that the adequacy of the impact statements for the more reprehensible regulatory proposals might be near zero is compelling.

Although Howard's critics often did not allow sufficiently for democratic processes, they were not just carping.  The strategies for making the most important reforms politically possible were absent from a "first-term report" with which Howard indulged himself.  This Report was an essentially political exercise.  There is nothing wrong with that but it compared unfavourably with the Headland speeches and the "agenda for next year", far from being as it claimed "clear", was singularly obscure.  The section of the Report Card dealing with export performance was mercantilist in tenor.  Had Howard forgotten the strategies he employed to make financial deregulation politically acceptable or was the Report someone else's a bright idea that he barely checked?

Unlike Fraser in his first two terms, Howard had not had the numbers in the Senate.  Unlike Hawke, he had not had an Opposition that would support economic reform.  But, unlike Keating, he had had the possibility of wooing two independents to give him the necessary Senate numbers.  During the election campaign the Coalition had promised to eschew major tax reform, retain Medicare, and had watered down labour market reform.  There, nevertheless, was still ample room for a Government that had the will to reform to do so.  Had Howard, while his Government's popularity and mandate were still strong, made it clear that he was prepared to take both Houses to a double dissolution election, the Labor Party if not the Democrats in the Senate might have been more accommodating.

If they move promptly, new Governments can effect reforms that will bear political fruit before the next election. Howard squandered his opportunity upon gun laws and opposition to the campaign to make Australia a republic.  These were sidetracks that would not much affect the lives of our children.

FOREIGN DEBT AND THE DOLLAR

When Howard was elected in 1996 the national net external debt was $193 thousand million (146% of GDP).  This was up from $78.4 thousand million (82% of GDP) when Keating had delivered his Banana Republic warning, and it reached $300 thousand million (190% of GDP) by 2000.  Australia had a small trade surplus but a current account deficit adding inexorably to foreign liabilities.  Most of the difference between the trade account and the current account comprised interest payments and dividends due because of the liabilities that had financed previous current account deficits.

Attitudes to these had, however, changed radically from when John Stone had delivered his Shann Memorial Lecture and when Keating and Walsh had warned of sliding into Third World economic status.  It was now generally believed that the reforms of the 1980s had so improved Australian productivity that we could now afford to import large licks of foreign capital -- the counterpart of the current account deficit.  The debt to foreigners was now almost all private and the risk of default would be carried by foreign lenders not Australian taxpayers.  It remained the case that we would serve our children better if we saved more, but why should Australia forego development beyond the capacity of our own savings?

As has already been recorded, Dries were not agreed about the balance of the dangers and advantages of foreign debt.  The supply-side reforms had increased the capacity of investors to earn high returns and therefore reduced the risk that the interest burden would at a future time reduce living standards or that non-performing loans would damage our reputation to the point where further borrowings were impossible.  Nevertheless, the change of sentiment was remarkable.  If we had been too fearful of foreign liabilities in the 1980s, were we too sanguine in the 1990s?  In the event of economic downturn might we not find the cost of servicing it (or of default) high?

When Howard was elected, the A$ was worth US$0.78 (TWI:  56.8) ⁽⁴⁴⁵⁾  At the time of the Banana Republic interview it had been US$0.72c (TWI:  60.7).  By mid 2001 it hovered near the US50 cent mark (TWI:  near 50).  Since inflation was well in hand, the low value of the dollar was not inherently bad, but to what extent was it a measure of an economy still in need of major reform, and in which reform had almost ceased and looked as though it might be reversed?  Not just economic but also political fundamentals influence markets.

THE BUDGET

When the Coalition came to office, the 1995-96 budget year was well advanced and it was an open secret that the budgeted surplus of $3.4 billion was badly awry.  It was in fact over $8 billion out -- a $5 billion deficit. During the campaign, an argument developed about disclosure of the forward estimates so that the Coalition could build its own tax and expenditure commitments from the correct starting point.  Keating claimed that these did not exist -- only a slight variant of the circumstance in 1982.  So long as Keating persisted in his refusal to release up-to-date figures, Howard based his promises upon the assumption that the latest official figures honestly represented the budget's situation.  The whole performance was Gilbertian.

In its first year, the Government legislated the Charter of Budget Honesty to prevent as much rubbery figuring again.  Capital sales revenues were removed from the budget balance and Governments were required to ensure that voters were acquainted with the up-to-date budget situation prior to an election.  Although a few wondered aloud if it was wise to deny an incoming Government an excuse for breaking irresponsible undertakings, Dries generally applauded. In 1994 New Zealand had carried the Fiscal Responsibility Act to similar effect.

Budget management was the first Howard Government's outstanding success -- a success somewhat squandered by the second.  Inheriting a budget that was substantially in the red at the point in the business cycle when it should have been that much in the black, it promised, if the economy continued at a reasonable pace, to eliminate the budget deficit over the life of the parliament.  Four billion was cut from the first budget deficit -- now calculated in a manner that excluded asset sales -- and the forward projections showed the 1997-98 budget in substantial surplus.  In fact the Government did much better, achieving headline surpluses of $16,468 billion in 1997-98, $12.7 billion in 1998-99 and a massive $22.2 billion in 1999-2000.  More relevant "underlying surpluses" of $1.2, $5.6 and $12.7 billion were achieved.

Costello's "tough" first budget promised savings of only $7.2 billion over two years and forecast a 0.1% increase in real expenditure.  A 9.5% cut to the ABC's budget received more ABC news and current affairs time than did the state of the macro economy and troubles in Jakarta and Chechnya combined.  Some Aborigines, disappointed with their subvention, charged the Government with racism.  Some unionists looted the foyer of Parliament House and injured a policewoman.  Despite these orchestrated howls of protest, fiscal responsibility was well received by the wider public.  Indeed, because of the howls of protest, the Government was given credit for more than it achieved.  Newspoll recorded that only 12% of people were sufficiently impressed by the special pleading, rallies and the riots to think it was a bad budget, despite 32% believing that they personally would be worse off.

By 2000, in line with the strictures of the Charter of Budget Honesty, Australians were assessing budgets in terms of their "underlying" figures, that is with capital sales excluded.  The 1999/00 underlying surplus of $12.6 billion was achieved despite the Timor conflict and the tax cuts and compensation measures associated with the tax reform package.  Fiscal rectitude but not small Government had been maintained.  Taking the GST and some off budget levies into account, taxation reached an all-time record proportion of GDP.

THE FINANCIAL SYSTEM

Dries had long argued that central banks should be made independent of politics and given the one task of maintaining a currency that delivered stable average prices.  The Government affirmed the Reserve Bank's independence and required it to manage monetary policy to meet an inflationary target of 2% to 3% but, faced with a recalcitrant Senate, did not enact this in legislation leaving doubts about the future.

It commissioned leading businessman, Stan Wallis, to take "a stocktake of the results arising from the financial deregulation since the early 1980s".  Wallis recommended removal of the blanket restrictions on foreign takeovers of major financial institutions.  The Government did so but with the qualification that large-scale transfers of ownership would be deemed "contrary to the national interest".  Had the Big Four banks again been as incompetent as, say, Westpac and ANZ had been during the 1980s, they were not to fall into foreign hands nor their managements and boards be faced with the discipline of potential takeover.  Howard's reforming zeal was ebbing.

INDUSTRIAL RELATIONS

When Howard came to office, ample international evidence already demonstrated that unemployment could be reduced by making labour markets flexible. ⁽⁴⁴⁶⁾  New Zealand, following passage of its Employment Contracts Act, had brought unemployment down from 10.9% to 6.4%.  The United Kingdom, following Thatcher's reforms, had reduced its unemployment from 11.1% to 5.8% while unemployment in the rest of Europe had stuck at around 10%.  Unemployment in the United States, which had always had relatively flexible labour markets, was half that of most Western countries.

Analysis of labour markets had moved markedly toward the liberal tradition with most analysts attributing differences in unemployment to differences in labour-market law.  Even British Labour Prime Minister, Tony Blair, and German Social Democrat Chancellor, Gerhardt Schroeder, were soon to call for flexible labour markets. (Schroeder didn't actually do anything to make them flexible.)  The New Zealand Employment Contracts Act had been popular. A survey by the MRL Research Group had shown with an accuracy of plus or minus 3% that:

• 76% of New Zealand employees were satisfied with their terms and conditions of employment with 20% dissatisfied.
• 41% approved of the Employment Contracts Act while 24% disapproved, the remainder having no view.
• 37% believed it had had a positive effect on employment, 23% that it made no difference and 17% a negative impact.
• 54% believed it had benefited the economy, 18% no difference, and 10% a negative impact.

Generally held opinion was thus not an important barrier to labour market reform.

However, as the Hancock Report had warned, the principal vested interest was powerful.  Before the 1996 Australian election, ACTU secretary Bill Kelty had threatened Australians with all-out industrial war if the Coalition were elected.  He said further that he would arrange wage claims of 20% to 30% and warned that the peak union council had already started planning a wages campaign for double digit pay rises.  Politicians have quailed before smaller and less well-organised minorities.

Labour relations had, however, long been central to Howard's reformist credentials and as recently as 1992 he had announced an industrial relations policy that provided for:

• removal of restrictions on working hours;
• an end to compulsory arbitration;
• termination of awards except where the parties agree to be bound by them;  and
• voluntary membership of organisations.  This last would be made effective by ending closed shops and abolishing union preference clauses, minimum numbers of union members, and the "conveniently belong" provisions of awards that protect existing unions from effective competition.

He had watered this down during the 1996 campaign by promising that law would disallow workplace agreements that contracted a lower hourly pay rate than the relevant award.  Dries were extremely unhappy with this compromise.  However, the right to negotiate away wasteful employment conditions for higher remuneration remained and, chastened by the fate of Fightback, most of them held their tongues and stilled their pens.

Following the election, Kelty failed to deliver the promised industrial mayhem but there was, nevertheless, no chance of getting more reform than had been in the policy that the Coalition had taken to the people.  It was to achieve much less.  Peter Reith carried the Workplace Relations Bill -- a complicated document of over 300 pages -- in the House of Representatives, but Labor in the Senate opposed it.  To secure its passage he needed the support of the Democrats.

In spite of the Coalition's standing being very high, a fact underlined by a by-election in Lindsay, the Government, choosing to negotiate with the Democrats led by Cheryl Kernot, conceded much of its remaining job liberalisation program.  Negotiation saw the passage in November 1996 of legislation that reduced the reach of the 3200 Federal awards to 20 allowable matters.  The legislation provided for "workplace agreements" that would be voluntarily entered, that is individual or group contracts between employees and employers to cover all other matters.  HR Nicholls Society members dubbed it the Reith-Kernot Act.

Cheryl Kernot announced that she did not believe the legislation as amended would reduce unemployment. ⁽⁴⁴⁷⁾  Reith did not agree with her, but many Dries thought that, because the unemployed were largely prevented from competing by offering lower employment costs, she might be right.  Nevertheless, to the extent that his legislation functioned as intended, involuntary unemployment would in theory be reduced.  Dries generally had thought the Government MPs wimps and many said so.  This was an issue of such moment that another election was warranted.

The ACTU had got what it wanted most, retention of the "conveniently belong" clauses ensuring the continuing monopoly status of the registered trade unions.  The Democrats' hypocrisy had been quite startling.  They were given to protesting the sanctity of UN treaties and the "conveniently belong" clause of our industrial law conflicted with Article 20 (2) of the Universal Declaration of Human Rights that affirms that "Nobody may be compelled to belong to an organisation".  Further, since the Coalition had gone to the people with a clear industrial relations policy and the Democrats had campaigned with the slogan "Keep the Bastards Honest", the public might have expected the minor party to insist that the Government not deviate from its announced policy.  It was presumably from shame that the Democrats later abandoned the slogan.

Workplace Agreements were to prove more effective than the Dries that Reith had consulted thought they could be.  The subsequent fall in unemployment almost certainly had a structural element that should be credited to his legislation.  The Government had, in the face of a recalcitrant Senate, tried.  Its failure was of a different character from, for instance, its capitulation to the motor and textile companies and media barons.

The Government proceeded to negotiate individual agency agreements to cover its own employees and to sign workplace agreements with them.  It tried to reform the unfair dismissal laws, which caused employers to be reluctant to offer employment lest they be prevented from dismissing unsatisfactory employees.

Peter Reith later attempted a second wave of industrial legislation he called More Jobs Better Pay. (The title was perhaps a bit too Smart Alec).  Labor and Democrat Senators, who claimed to believe that it would cause incomes to become less equal, rejected it.  Even if their contention were true of those already employed, many unemployed people would have found jobs with incomes much higher than the unemployment benefit.  The defeat of the legislation had more to do with the preservation of trade union power, than income equality.  Again Howard and Reith had tried.

The Australian waterfront was bedevilled by two monopolies -- that of the Maritime Union of Australia (MUA) which exercises rigid control over the supply of labour and that of the stevedoring companies Patrick and P&O Ports that controlled the supply of services to ships.  The one is maintained by the Federal award system;  the other by an MUA-dominated closed shop and by State Governments that have leased the available wharf space for long terms to just two stevedoring companies.

When Peter Reith acquired responsibility for reform on the waterfront his standing had been dented by his failure to achieve New Zealand-style industrial relations reform more generally.  On the waterfront too, what New Zealand had already done set the standard.  Whereas it cost A$19 per tonne to load newsprint at Devonport and A$32 in Sydney, it cost only NZ$4 per tonne to load at Tauranga -- an extreme but relevant case.

The difficulty of ending the MUA monopoly was made evident by the MUA's success with the aid of the International Transport Federation, in first bringing Freeport Mining to heel when that company had tried to employ non-union labour in Cairns, and then bringing the State of Dubai to heel when it tried to train Australian wharf labourers for Patrick Partners.  It was a measure of public and media attitudes that there was barely a word of sympathy for the men who had invested their time in attempting to gain the necessary skills to enter legitimate employment.

The MUA was not, moreover, the only monopoly in need of Reith's attention.  To achieve what New Zealand had achieved, he needed effective competition between ports and among stevedores.  In Australia, work-place agreements provided employees and employers with the theoretical means to avoid the MUA monopoly, but the incentives to use them were inadequate.

Some modest progress was already in train.  State Governments were reforming their port authorities. Unnecessary staff were being reduced;  non-core functions were being contracted out or privatised;  and, in Victoria, the ports at Geelong and Portland had been privatised.  It was hoped that competition from Geelong, Portland and Westernport would have the same salutary effect on the Port of Melbourne that, following Thatcher's reforms, Felixstowe had had on the Port of London.  Adelaide was keen to capture Victorian trade or at least hold what it had.  Kwinana, if privatised or corporatised, could have given Fremantle a much-needed hurry-up.  The standard-gauge rail link to Fisherman Islands would help the more competitive port of Brisbane compete with Sydney. Newcastle could certainly have taken cargo from Sydney.  Tasmania had the choice of several ports. Only when whole ports may lose custom, do managements, stevedores, tugs and warehouses enjoying natural or unnatural monopolies have incentives to offer users cheaper handling and quicker turn-round.

The long, complex and bitter dispute conducted by the National Farmers' Federation and Patrick on the one hand and the MUA on the other at Webb Dock in the Port of Melbourne need not concern us here.  It is sufficient to note that such a play was possible, there were people with the guts to conduct it, and that at its end the water¬front was still inefficient and unjust but less so.  Private players had achieved such reform as was achieved but Reith had made their play possible and encouraged it.  Productivity at some terminals was doubled but the MUA retained control.

In 1995, the Industry Commission had criticised the practice of protecting the Australian coastal trade from vessels plying internationally.  Although the Coalition in Opposition had favoured ending cabotage protection, in Government it failed to do so. ⁽⁴⁴⁸⁾

Tired of belting his head against a wall Peter Reith retreated to the Defence Portfolio and then in 2001 announced his retirement.  Later, the HR Nichols Society, an organisation not noted for charitable acceptance of Ministerial failure, appreciatively voted thanks to Reith with a speech that concluded:

And on any fair view, Peter Reith stands head and shoulders above those who had gone before.  He has been the best Minister of the last 50 years.  We will miss him.

PROTECTION

David Barnett wrote that the Treasury brief to the new Government "estimated that reform to the electricity and gas industries, to telecommunications, to waterfront and shipping, to the railways, to the provision of water, and to the 'unincorporated sector' (mostly the professions), could add 3% to GDP". ⁽⁴⁴⁹⁾  Barnett does not tell us over what time, but Treasury was acquainting the incoming Government with some of its more important obligations.

Howard, however, appointed John Moore, who was at heart a mercantilist and one of the Gang of Five who had once thrust the political knife into his back, to the industry portfolio.  Why?

The Industry Commission, the Economic Planning Advisory Commission and the Bureau of Industry Economics were combined into the Productivity Commission.  Although I was inherently suspicious of any attempt to meddle with the Industry Commission, when he was in Opposition, Howard had mentioned to me that he was contemplating this and I could think of no objection.  In the event, the arrangement seems to have worked well, addressing not just border protection but also barriers to economic freedom within the nation.

The Government abolished the sugar tariff but backed down to vested interests when it extended the shipbuilding bounty.  Although not in itself very significant, the decision augured ill for micro-economic reform in general.  So it was to prove with the big issues, textiles, clothing and footwear and motor vehicles.  Howard, who had made much of his concern for small businesses, did not, when he had the opportunity, lift the burden of over-priced vehicles from them -- he increased it.  Neither did he lift the burden of over-priced textiles, clothing and footwear from his "battlers" -- he increased that too.

In August 1996, Moore pre-empted a Cabinet decision by telling Channel Nine's Sunday program that Australia's schedule of tariff cuts and other trade reforms should to be linked to reciprocal tariff reductions and better market access from our main trading partners.  He further complained that Australia had reduced its tariff barriers faster than some South-East Asian trading partners had and said that the motor industry should be a special case exempted from the APEC targets.

Moore should have known that tariff and other trade reforms were not favours granted to other nations but the advantage of an efficient economy rendered to Australians.  Surely he knew that excepting one of our industries would virtually ensure that APEC would fail.  His actions and reversion to the mercantilist rhetoric of a former time were redolent of McEwenism.

Nothing in Howard's first Prime Ministership appalled Dries more than the sight of him flanked by the gleeful executives of the car companies following his rejection of the Industry Commission's 1997 report on the motor industry.  It was so reminiscent of Hawke flanked by Packer and Bond at the time of the equally unethical television carve-up that the Liberals had rightly condemned.

In June 1997 the Industry Commission completed its final report on the automotive industry.  Labor had reduced the tariff on cars from 57.5% to 22.5% reducing to 15% by 2000, still three times the protection available to other protected industries.  The interim report released six months before had recommended that the tariff continue to be reduced at the rate of 2.5% per year until it reached 5%.  The Government nevertheless struck a corporatist deal with the car companies to allow the current regime to continue to 2000 but freeze the tariff at 15% from then until 2005 with reduction to 10% at that date.  The deal promised a review in 2005 that would "take into account ... APEC commitments and progress on market access". ⁽⁴⁵⁰⁾  If its rhetoric was believable, Cabinet had returned to pre-Hawke and pre-Hewson mercantilist mindset.  Australians were to be denied the big advantages of using their own resources efficiently unless other countries gave us the much more modest advantage of market access.

On the other hand, if Government Whip Neil Andrew's reply to me explaining his refusal to circulate my particularly bitchy note on the topic to Government MPs is to be believed, the reason was simply political funk.  (Andrew held Bert Kelly's seat of Wakefield.)  Dry MPs, who included many of Howard's personal backers, had won the issue in the party room and then been double-crossed when Howard gave in to the car companies.  I argued in the Courier Mail and the Sunday Times that they should feel free to call for a division in the House or Senate as others had done over airline deregulation.  Because Labor would have voted with the Government, they would not have won it;  but when usually loyal supporters defy the whips Prime Ministers are wont to notice.  Howard, when he had been Fraser's Treasurer, (with the overt support of only Durack and Chaney) had led the charge in Cabinet to achieve a more liberal motor vehicle policy.  Bitterly I misquoted Browning:

Just for a handful of votes he left us,

Just for a riband to stick in his coat.

My reply to Andrew reflected my frame of mind:

Dear Neil,

It is very proper that you should decline to circulate my letter. Your defence of the motor car decision is not as well based, however.

Yes, the "political dynamics" had changed dramatically.  It had changed so dramatically that not even the MTIA is now prepared to advocate protection.  The Opposition behaved badly.  Kennett behaved badly.  Olson behaved worse.  What's new?  As for the press:  it is now quite rightly portraying the Government as piss-weak.

Australia should not be governed by the Premiers of two States, the Opposition or certainly not by four foreign-owned companies.  Howard has, therefore, changed the political dynamics for the worse.  Now that everyone knows that this Government can be prevailed upon by vested interests, the Prime Minister has before him the task of re-establishing his authority.

You will I am sure make an excellent whip.  Congratulations, you have already progressed further than many have.

Best wishes,

Although Howard was to try hard with tax reform, I do not believe he did re-establish his authority until 2001.

In short order, he had blocked foreign doctors, reduced immigration and extended the highly selective tax on motor car imports.  To claim credit for investment by Toyota, which had decided to put a new assembly-for¬export plant at Altona before Howard came to office, the Prime Minister employed the same mercantilist arguments for which he had shortly before condemned Pauline Hanson.  His xenophobia invited and received comparison with her xenophobia.  His worst sin, however, was that of re-establishing the client state whereby a fearful and unprincipled Government dispenses privileges to those clients capable of threatening or bribing it.  The ground gained against clientism under the Hawke administrations was being squandered and the liberal principle of equal treatment in law degraded by political opportunism.

The Government's record was not improved by the textile, clothing and footwear industry decision.  Contrary to Industry Commission advice, the Government allowed the tariff to fall to 17.5% by 2000 but froze it at that level until 2005 when it would be reviewed in the light of the APEC commitment to free trade by 2010.

The Howard Governments also rejected recommendations of the Productivity Commission and the National Competition Council when protecting chemists, newsagents, pork producers, digital television and Australia Post's monopoly from competition.  Although Howard was shifting gently toward one class of Australian in matters of race and employment he was again creating privileged groups within industry.  Justification was again being found in mercantilist arguments based upon what other nations did.  Australia was again prepared to cut off its nose to spite its face.  Dry argument had lost ground since the heady days of Hawke's March 1991 "Garnaut Response" and Fightback.

The Howard Government stalled upon implementation of the Bogor Agreement to reduce tariffs under APEC auspices stating that it will not go further without "clear evidence that [other countries] ... address what interests us". ⁽⁴⁵¹⁾  Again it was the lapse into mercantilist thought that was the most worrying.  The Government seemed not to understand that the nations that had prospered were not those with broad-based consumption taxes, beneficial as those may be, but those with open economies.  Nevertheless, during the 1990s, as a consequence of a program of phased reductions, protection continued downwards, so that between 1991-92 and 2000-01 manufacturing effective-rate protection was reduced from 14 per cent to 5 per cent, and agricultural from 12 per cent to 6 per cent in 1999-2000.  Despite Howard's backsliding, by 2001, Australian levels of protection were a whisker less than those of the United States ⁽⁴⁵²⁾ -- a remarkable achievement that had to be credited to Hawke and Keating. Of course, as we are a smaller economy than the US with less opportunity for internal trade, our trade barriers still do us greater injury than US barriers do to the US citizen.

Labor too had meanwhile abandoned its free-trade stance, adopting policies that were as mercantilist as those of the Government, if not more so. When in the 1996 budget the Government tried to end the bounty paid to computer manufacturers its legislation was defeated in the Senate.

When the Howard Government removed protection from compact discs Australia's future did not turn on the decision, but Dries greeted it with relief.  Howard, who had rolled over much too readily to vested interests in the shipbuilding, motor, textile, nursing home, and medical industries, had at last taken on a highly articulate vested interest.  In its second term, mindful of the need for Australian producers to stay abreast of technologies employed by foreign competitors, it also did what it could to resist attempts to have genetically-modified organisms banned.

GREENHOUSE

At the 1988 Toronto Conference, when greenhouse worries had greatest momentum, human activity was estimated to cause average temperatures to rise by 3.0° C by 2030.  By the Kyoto Conference in 1997 the estimate had become 0.8° C.  The new estimate did not rule out a serious long-term problem but it did not indicate a crisis -- there would be time to react if necessary.  Satellite measurements show atmospheric temperatures to have risen by only 0.06 degrees in the 22 years to 2001. ⁽⁴⁵³⁾

The Framework Convention on Climate Change (FCCC) Article 4.2 had called upon all developed nations to limit man-made emissions of green-house gasses "taking into account the differences of these parties' starting points and approaches, economic structures and resource bases, the need to maintain strong and sustainable economic growth, available technologies and other individual circumstances".  The convention was non-binding but it had considerable moral force.  When the world "leaders" met in Kyoto, on pain of achieving nothing, they were compelled to evaluate proposals that were mutually exclusive and self-serving.

The Europeans had dreamed up the "EU Bubble".  It obliged the European Union to reduce green-house emissions only as a whole, allowing Portugal, Spain and Greece to increase emissions by taking advantage of Britain's conversion from coal to North Sea Gas for economic reasons and Germany's closure of dirty and inefficient East German industry.  If across-the-board greenhouse gas reductions were enforced upon developed nations and Europe were allowed its "bubble", then, without comparable cost to itself, Europe would become a relatively more attractive place in which to invest than the United States, Japan or Australasia. It will not concern Europeans if in future they must buy aluminium from, say, India instead of Australia.

Before the Kyoto Conference, drawing on the work it had done on the consequences of trade barriers, the Australian Bureau of Agricultural and Resource Economics estimated the net present value of the welfare losses to several countries of adopting the proposal on the table. It estimated that Australians would lose A$9-10,000 each spread over several years and that, because we are large exporters of energy intensive products, among all countries, we would fare worst.  No Government would deliberately impose welfare losses of that order on its people and the Australian Government, at times standing alone against hysteria, negotiated a better deal for Australia than that on offer.  Nevertheless, like most other Western nations, Australia may yet meet the "targets" only by resort to sophistry.

It so happens that organisations such as Greenpeace get most of their funds from within the European Union member states.  It so happens that Greenpeace has not yet addressed such environmental problems as the groundwater pollution that results from the heavy use of fertilisers that the Common Agricultural Policy encourages.  Maybe it also so happens that these things are entirely coincidental.  The Australian Government was obliged to make sure that we were not being taken for a ride.

PRIVATISATION

Howard continued Labor's practice of privatising public assets and with the sale of one third of Telstra many Australians became shareholders for the first time.  $8.5 billion of the proceeds were used to retire debt and $1.5 billion became a fund for environmental good-works including the restoration of farmland -- to bribe the Green movement and environmentally-minded Senators.  The politicians knew well enough that farmers and environmentalists with their snouts in a trough containing $1.5 billion would gorge themselves and be none too careful about spillage.  However, by what criterion can it be said that a more efficient Telstra, less debt, some environmental gain and the hope of votes was not an adequate trade-off?  I think many Dries were privately horrified by the prospect of the waste of much of the $1.5 billion, but what could they say? -- not that telecommunications, which are 5% of GDP with much of it in Telstra's hands, did not need the continuing market discipline that only privatisation could offer.

When legislation to sell one third of the telecommunications giant passed the Senate with the support of two independents, Dries gave two cheers.  They would have preferred the commercial giant to be broken into potentially competitive elements before sale.  Such was union influence in the Senate that it is doubtful whether the Government could have achieved this.  That is, unless, along with something more popular such as labour market reform, it had been prepared to make the issue grounds for a Double Dissolution election.

The Telecommunications Act 1997 removed many of the privileges enjoyed by carriers making them subject to general competition law. Of particular importance, it ended arrangements by which only two players were permitted to offer fixed-line communications and only three to offer mobile telephony.  Although, because of the dominance of Telstra, Australians would not for the foreseeable future enjoy an adequately competitive market, the customer was much better served than before the deregulation.  The Productivity Commission informs us:

Over the same period, prices have fallen for all services -- particularly the most competitive services, such as long distance and mobile services. ⁽⁴⁵⁴⁾

Telstra employees would not today enter a farm to destroy three trees that had been preserved for two generations, and I would not today wait eight weeks for a city phone connection.

In 1999 the Government sold a further 17% of Telstra by public subscription but, faced with hysteria in the bush, nervousness in the National Party and Opposition in the Senate, it could not reduce public ownership below 50%.

David Kemp privatised the Commonwealth Employment Service in 1998 replacing it with the Job Network system by which competing private and public-sector contractors matched jobs to applicants.  This was a complex and innovative exercise without overseas precedent and much was made of the new system's teething problems.  Nevertheless, improved success in placing job-applicants soon became impossible to deny truthfully.  Whether it was as successful in creating "social capital" as Minister Tony Abbott was to claim cannot be measured, but it did involve local communities in successful activity.  Three years and a changed Minister later, Abbott had the confidence to assert "The Government has no intention of re-regulating employment services, telling Job Network members how to run their programs or moving away from payment by results." ⁽⁴⁵⁵⁾

MUTUAL OBLIGATION

The Howard Government's want of resolve when faced with the special pleading of business interests contrasted with its approach to welfare.  Its Mutual Obligation policy was in concept and design like the UK Labour Government's New Deal program which had been influenced by Clinton's welfare reforms.  These in turn seem to have been informed by a 1987 Report, The New Consensus on Family and Welfare, published by the American Enterprise Institute. ⁽⁴⁵⁶⁾  This begun by asking why some people climbed out of poverty and found that those who left poverty were people who had had the benefit of families, churches and other voluntary organisations that encouraged without compelling such tried-and-tested means of self-improvement as acceptance of personal responsibility and integrity.  It advocated trying to develop the ideals of self-reliance and community;  and it drew for its imagery of cooperation and personal effort upon American pioneering history that is not unlike our own. ⁽⁴⁵⁷⁾  Howard was probably also influenced by a CIS discussion of behavioural poverty, The Welfare State:  Foundation and Alternatives, published in 1989. ⁽⁴⁵⁸⁾

Mutual Obligation was directed at both rules and culture.  The "obligation" intended was clearly "moral obligation" and it bound both the Government and the welfare recipient.  It was "leadership" that accorded with popular notions of the "fair go" and commanded about 80% public support.

The nature, if not the quantum, of the more immediate economic costs of the welfare state was pretty much agreed.  Access to welfare induces people not to work.  High taxes arguably discourage activity and they certainly encourage people to devote considerable resources to tax avoidance.  By providing alternative insurance against old age, unemployment and sickness, welfare discourages saving.  These costs were, however, borne because we did not wish anyone -- at least not anyone within sight and mind -- to live a miserable existence for want of physical resources.

By the time that Howard came to office Labor had attempted to target the affordable budget upon those most in need with asset tests, tighter administrative rules and reduced eligibility for teenagers.  It had, however, yielded to sectional pressure, to provide publicly-funded childcare and healthcare for those who could afford to pay.

Welfare systems are inherently difficult to design.  In 1999 a single person could receive unemployment benefit of just over $400 per fortnight, and a married man with two children just over $800 per fortnight.  The latter was very little, if at all, better off in cash after taking work.  For both, the hassle of working could outweigh the deprivations of not working.  Unemployment was high but employers struggled to find entry-level staff.  Tony Abbott, addressing the CIS in 2000 said:

Why might a generous welfare safety net designed to help people on the dole coupled with wage restraint designed to boost jobs turn out to make unemployment worse?  Because for many people working has become more trouble than its worth. ⁽⁴⁵⁹⁾

Nevertheless, but for the increasing evidence that the welfare state was not actually reducing the sum of human misery and probably adding to it, the economic costs would have been borne with only marginal adjustments.  When the Aboriginal activist, Noel Pearson, courageously explained how "passive welfare" was destroying indigenous communities he spoke for all communities.

You put any group of people in a condition of overwhelming reliance upon passive welfare support and within three decades you will get the same social results that my people in the Cape York Peninsula currently endure. ⁽⁴⁶⁰⁾

That the welfare state had been associated with increased unemployment, drug dependency, youth suicide and children without contact with their fathers was beyond reasonable question.  That it is the significant cause of the increase of these ills defies proof, but circumstantial evidence that it does is powerful.  By the 1990s, many studies, some employing huge databases, had alerted the Western World to the growth of a "welfare underclass". Welfare is never easy politics.  With sufficient hindsight nothing may reflect greater credit on Howard's Prime Ministership than his attempt to confront its difficulties, but the task is almost entirely before the nation.

Cases are made that welfare would be more justly, humanely and efficiently distributed with fewer perverse side effects if left entirely to private, voluntary charity.  This policy position is, however, too scary to have much immediate relevance -- nobody wants to run the risk of children starving because he has misjudged the efficacy of such a system.  Therefore, despite wide disagreement about how, at what level and for whom it should be maintained, the need for Government provision of a welfare "safety net" has near universal acceptance. Nevertheless, the warnings of the libertarians about its consequences deserved an earlier hearing.

By the 1990s, concern that the welfare safety net was encouraging the very problems it was intended to alleviate had begun to influence welfare reform in the US, the UK and elsewhere.  Frank Field, who had been Social Security Minister in the Blair Government in Britain, drew attention to the effect of welfare on honesty.  He called for a more personal, less statist approach based on mutual aid, reminding us that compassion should not be measured by the size of the social security budget but by the opportunities created for the poor.  He argued that attempts to dispense social assistance that did not go with the grain of human nature and did not work with the desire to improve our conditions and ourselves were bound to end in failure.  He echoed Adam Smith.

In Australia, Howard and Ministers David Kemp, Tony Abbott and Jocelyn Newman began to go with Field's grain of human nature. Welfare dependency had increased while real-terms welfare expenditure had increased almost fivefold since 1960. Australians had become so "unhealthy" that 3% of the population relied on disability pensions -- a proportion that was increasing by about .01% annually.  The incidence of "serious crime" had risen two-and-a-half times since the 1960s.  Father absent families and drug dependency had both increased.  The unemployment rate was three times higher than at the end of the 1960s.  And Aboriginal health and life expectancy had barely improved.

The rise and rise of a complaining class, nurturing grievances and courting the status of victims, would also have concerned any thoughtful and conscientious leaders. What had happened to pride in shrugging off life's vicissitudes?  Were the children of the souls who had pioneered and defended the nation more inclined than their parents to blame others for the consequences of their own greed, selfishness, stupidity, carelessness or laziness?  What was happening to a nation where "battler" had ceased to be a term of honour reserved for those who refused to be dominated by adversity?

The Ministers clearly suspected that these changes were associated with cultural changes that had de¬emphasised personal responsibility and, although rarely quoting the overseas studies that lent considerable weight to the assertion, they said so.  Thus they began the long task of changing attitudes to dependency, directing their arguments to those who should give as well as to those who take.

There is more to the story, but it is the case that when new social mores and aggressive political correctness had denied the legitimacy of moral judgements against the feckless and the grasping, Australians had then passed to the Government their moral duty to less well-placed people, particularly strangers. A vicious circle was thus entered.  Communities -- the "little platoons" commended by Edmund Burke and recently in Australia by the CIS -- withered and alienation akin to that of which Marx had warned grew.  It was, however, not the alienation of the workers but of those whom Government planners had excluded from the capitalist system.  With the decline of small communities, society lost not just the best providers of "welfare" but also the best upholders of the institutions that make social interaction possible.

Howard sought a welfare system that had fewer untoward side effects while still giving access to the genuinely needy.  Hope lay with the little platoons but how were they to be activated without going all the way with the libertarians?  Although other national and sub-national Governments were concurrently addressing the same problem there was, as yet, no policy blueprint.  To go with the grain of human nature, administration needed to be more discriminating, and to discriminate with the grain of variable circumstances it needed to be more personal and more flexible.  However, Governments that compromise impersonal and inflexible rules -- equality before the law -- invite their own corruption.  Small social organisations had to be given (given back) authority but within what framework of over-arching rules?  Dries, to this point, had been better at identifying the difficulties than the solutions.  Some mistakes were inevitable.

The Government was not long in finding evidence of how weak the felt obligation to deal honestly with its rules had become.  When it established Job Network to assist the unemployed, 260,000 "job-seekers" failed to link with a Job Network member.  When 18 to 24 year olds on unemployment benefits for six months or more were required to undertake structured activity as a condition of staying on benefits, fewer young people registered as unemployed and the program had to be scaled back from 130,000 to 80,000.  At one point, of 42,000 who had signed an agreement to undertake an activity, less than 28,000 were found to be actually doing it. ⁽⁴⁶¹⁾  Tony Abbott had this to say:

This isn't really the jobseekers' fault.  They are victims of a culture of entitlement which came into existence at roughly the same time unemployment became entrenched.  For most of the 80s and 90s, the interaction of static real wages in many low-skill occupations coupled with indexed welfare benefits plus the debilitating experience of long-term unemployment itself helped to create an unemployment sub-culture of people who want to work -- but only on their own terms. ⁽⁴⁶²⁾

With ease that was thought impossible when the Fraser Government had toyed with work-for-the-dole, the Howard Government faced down opposition.  Predictably, it was accused of "punishing the victim" but 91% of the population supported this policy. ⁽⁴⁶³⁾  Further, it was virtually without complaint that eligibility criteria for the unemployment benefit were further tightened, saving the taxpayer about $50 million per week. As unemployment became less attractive, its level fell.  There were, of course, other reasons for its decline, industrial relations law reform and economic growth, but welfare reform had contributed.

The Government commissioned Patrick McClure, CEO of Mission Australia, to report upon and recommend further reform.  In August 2000, noting that 40% of people on unemployment benefit in September 1995 were again on benefit in June 1999, ⁽⁴⁶⁴⁾ McClure reported against five objectives:  individualised service delivery, simpler income support, better financial incentives and assistance, "mutual obligation", and the need to foster social partnerships.

His report was throughout a discussion of mutual obligation.  It called on the Government to develop a model for mutual obligations that:

• Emphasised the expectation that welfare recipients undertake some form of economic or social participation, consistent with their individual capacities and life circumstances.
• Incorporated both a set of broad expectations and a set of minimum requirements (reflected in legislation), which should be developed with consultation to ensure expectations and requirements reflect community norms and values.
• Is implemented in a way that maximises voluntary compliance and provides that alternative approaches to sanctions are considered before financial penalties are imposed.

The need for attitudinal change -- the building of a "participation society" -- was implicit in the recommendation to develop an overarching framework that incorporated the respective roles of Government, business, communities and individuals.  McClure recommended policy changes to reduce the disincentives people face in seeking employment, some of them with high initial budgetary cost.

The Report was unusually well received by all political parties.  If somebody will "run with it", it should afford the opportunity for a significant shift in the parameters of public debate.  Alternatively, if ordinary shame-feeling people are told that their own anti-social behaviour is not their own fault, they will be prone to welcome easy absolution from personal responsibility.  Howard and his Ministers were attempting to lead opinion, that is to build society's "internal institutions" but, as the 2001 election approached, their enthusiasm waned. Leadership is not, however, a task for politicians alone and in Abbott's words again "an entrenched entitlement mentality could take years to shift". ⁽⁴⁶⁵⁾  The Government began the first of the necessary legislative changes in 2001.

ABORIGINES

Howard's often expressed belief in national unity, stated in his Headland Speeches as "a united community, not an aggregation of separate interest groups", was bound to run foul of Aboriginal demands for the collective rights that some sought to enshrine in a treaty.  Guided in detail by Aboriginal affairs minister, John Heron, his Government, eschewed "symbolic gestures" to concentrate on the individual rights and needs of Aborigines, many of whom lived in appalling conditions in communities destroyed by alcohol, petrol sniffing, graft and domestic violence.  This essentially liberal agenda was not welcomed by some Aboriginal elites who vilified Howard.  Nevertheless, by 2002, a change in the attitudes of some of these had been effected.  Several Aboriginal leaders are on record reflecting aspects the change.  John Ah Kit, an Aboriginal Minister in the Northern Territory Government, is illustrative:

It is "almost impossible to find a functioning Aboriginal community" in the Territory.

And asked about a Government plan to address Aboriginal welfare:

It is [Howard's] agenda and our agenda is obviously about collective rights.  There is a chasm there that is pretty wide, but we would like to keep the dialogue going.

The task of actually reducing the violence and welfare dependency among Aborigines is even further from accomplishment than it is in the wider community, but the Government has won some Aboriginal support for the principles of "mutual obligation" and the McClure Report.  In place of the language of victimhood, some Aboriginal leaders are employing that of responsibility and several more are calling for the writ of the rule of law to run within Aboriginal communities.  Of course the jury is out and will remain so for long to come, but the attitudinal change is potentially momentous.  In bringing others to it Heron and Howard led, and those courageous Aborigines who saw wisdom in what they advocated and gave it such public support as they thought due were also leaders.

Many of the Aboriginal issues that bedevilled the Howard Governments, such as the demand that he apologise to Aborigines on behalf of the Australian people, were symbolic, but native title was both material and substantial.  Before introducing the Native Title Act 1993, Keating had made a deal with some prominent Aboriginal Australians limiting the area subject to Aboriginal land claims to about 38% of the national land area and excluding pastoral leases.  When the Wik judgement by four to three increased the area potentially subject to native title to 78% of the continent, aboriginal claimants lodged claims as though the deal had not been struck.  They were, of course, under neither legal nor moral obligation to be bound by "representatives" who had had no authority to commit them.  The 78% was almost exclusively that part of Australia with least market value but important to the mining and pastoral industries.

Aboriginal spokesmen had conceded validation of pastoral leases issued after 1975 in exchange for a "right to negotiate" on proposed mining tenements or compulsory acquisitions benefiting third parties. This gave native-title holders and potential native-title claimants the power to say credibly, "Cut us in or you'll never start".  Employing a not unreasonable 8% discount rate, an immediate benefit of, say $10 million is worth only $7.8 million if delayed three years.  By 1997, native title application held up over 1700 applications for mining leases in Western Australia alone and larger companies began expending more of their exploration budgets overseas.

It bears repeating that blaming Aborigines for these economic losses is unfair.  Whites are no less prone to use bad law for rent-seeking.  The dead-weight cost associated with protecting the motor industry is of a similar order of magnitude and more difficult to defend as a special case.

With monumental incompetence, the judges had waded into law-making that should have been left to parliamentarians.  Their Honours "discovered" a non-tradeable property right that lacked definition as to both extent and ownership and could not participate in the economy in the normal way to the benefit of either the title-holders or those who wished to trade with them.  The judges who made up the majorities in the Mabo 2 and Wik decisions seem not to have considered even the most basic tenets of property rights theory.  They cannot have considered the failure of the Aboriginal Land Rights (Northern Territory) Act -- the politicians' error -- to provide Aborigines with benefits commensurate with the economic costs.  The judges' law-making attracted criticism of a type more often directed to politicians.  Instead of treating this as a necessary feature of an open society, they demanded that the Attorney General defend them.  Sensibly, he declined.  The cost of not challenging any authority is the likelihood of decisions based on whim, prejudice and wishful thinking. Bagging judges is a public duty for the same reason that bagging politicians is.

Lawyers' inability to understand even fundamental accounting principles is notorious, as is their inability to grasp even fundamental economics but the real problem is the judicial function itself that provides no means for assessing social and economic ramifications.  Law is best made by people better able than are judges to take into account diverse interests, attitudes and constraints, and with stronger incentives to reflect them.  In democracies, parliamentary law-makers gain the appropriate incentive to reflect community aspirations and their authority by being eminently sackable.

Judges, however, made the common law and it is generally agreed to be wise law.  Its genius derives not from individual judges, great as some were, but from a system that allowed bad decisions to be reversed in subsequent parallel cases (and sometimes on appeal) and with a strong tradition by which judges relied on precedent, changing the common law only by successive small increments.  Thus the common law grew as the sum of the incremental application of what Justice Owen Dixon referred to as "strict logic and high technique" over a long time.

But for that strong tradition, the expression "rule of law" would be empty.  The incremental changes that survived to be built upon -- many did not -- were, as Justice Oliver Wendell Holmes (Jnr.) put it, those that were "understood to be convenient".  Like economies and ecosystems, the common law is the consequence of keeping what was convenient and abandoning what was not, but only by such small steps that people (and, in the case of ecosystems, species) could enjoy stable environments.  The High Court judges were bagged for making huge leaps that undermined people's confidence in stable rules by which to invest their time and their capital -- that is, for creating "sovereign risk".

Further, many of the judges' critics supported the liberal view that the law should not recognise rights based on race.  I am, therefore, not persuaded that the majority decision in Mabo 2, that Aborigines have rights that are not available to people of other races, is good law.

Not only did the Mabo decision change the law radically without sound legal reason for doing so, it effectively constitutionalised the change making it impossible for parliaments to reverse or substantially modify it.  Even had it wished to do so, the Howard Government could not extinguish those native-title property-rights that impaired development without the probability of unaffordable compensation claims.

Nevertheless, because the judges had "discovered" a land title that was uncertain, the parliament was faced with clarifying it. The Keating Government had begun that process with the Native Title Act 1993, stating in the Second Reading Speech:

The Governments view [is that] ... under common law, past valid freehold and leasehold grants extinguish native title. There is therefore no obstacle or hindrance to the renewal of pastoral leases in the future ...

The "right to negotiate", however, had caused further problems.

When in December 1996 Their Honours discovered that pastoral leases did not necessarily extinguish native title, Australia could not afford the economic costs and consequent inter-racial rancour that native title was causing.  Howard had no option but to try to find a compromise which, though it might be nobody's ideal, was acceptable to most.

Aspects of his proposal were opposed in the Senate until an acceptable package came to turn on Senator Haradine's vote on "the right to negotiate".  Neither Howard nor Haradine wanted a double-dissolution election during which race would be a prominent issue.  Also, at that time, such an election would almost certainly have seen the election of several One Nation Senators who exploited the uncertainties created by the High Court.  Eventually a compromise was reached that raised the threshold for applicants claiming the right to negotiate, making vexatious or futile claims more difficult to promote, protected primary production on pastoral leases and, provided for more rapid processing.  It was in many ways an unsatisfactory outcome but one that approximated the best that divided opinion could achieve.

EDUCATION AND HEALTH

No Government activity so obviously transfers more wealth from relatively poor people to those who will enjoy high lifetime incomes than does free tertiary education. Bachelor's degrees of any sort must add $20,000 to the annual incomes of those who own them and a medical degree must have a capital value of at least $1 million. In 1996-97 Universities were allowed to charge differential course fees related to the cost of provision ⁽⁴⁶⁶⁾ and the West Committee was charged with developing a comprehensive policy framework for higher education. ⁽⁴⁶⁷⁾  Later, when Education Minister, David Kemp came up with a user-pays-a-little-bit-more policy towards real reform of the universities, the Cabinet submission was leaked.  University students are predictable, but, without a fight, the Howard Government yielded to this privileged minority.

In contrast, however, Kemp achieved significant improvement to the funding of private secondary education by tying the Commonwealth's share of the money going to schools inversely to the wealth of the populations from which they drew their pupils.  This measure falls well short of the dry ideal of a voucher or other per-capita school-funding arrangement that takes account of parental capacity to pay but it goes some way towards increasing parental choice of school for less wealthy families and was within the capacity of the budget.  The reform was significant.

By the end of the 1990s it was becoming evident that private health insurance system was unsustainable.  Its injustices and economic inefficiencies had been known at least since 1975 when Fraser had promised to abolish Medibank.  Nevertheless, community rating and Medicare were supported as supposedly integral parts of a system that guaranteed that nobody would be denied health care for reasons of inability to pay.

The healthy and those without children opted out of the funds to escape community rating that charged them higher premiums than their risk warranted. Then, left with ever-higher proportions of bad risks, the funds had had no option but to increase their premiums, which in turn drove more low-risk people away to the "free" basic health-care offered by Medicare.  People who had privately insured for much of their lives subsidised those who had not.

Against this background, in 1997, the Government increased the Medicare levy for families with incomes over $100,000 p.a. and provided premium cuts or tax rebates for families with incomes under $70,000.  In 1999 at a budgetary cost of around $2 billion it replaced the 1997 means-tested cuts or rebates with a 30% rebate of hospital and ancillary cover regardless of income.  Finally, in 2000 it authorised the funds to surcharge people who joined after the age of 35 encouraging what it somewhat euphemistically called "lifetime health cover".  These measures went some way towards addressing the injustice and it lifted the proportion of the public with private health cover from 31% back to 45% -- the proportion it had been at the beginning of the nineties. ⁽⁴⁶⁸⁾  They did not, however, address the underlying problems of community rating, free not-means-tested access to Medicare, effective restrictions upon the supply of doctors and innovation-stifling regulation.

MEDIA

The media moguls had often enjoyed the favour of Governments.  However, the March 1998 announcement was particularly blatant.  It gave them $600 million worth of broadcast spectrum, 250% more than they needed to introduce digital TV;  put an effective moratorium on new TV entrants until 2007;  and further prevented competition by tying up nearly all the available spectrum for high-definition TV that nobody wanted.  The public that got 3 commercial channels instead of the possibility of about 12.  The decision again reflected the know-all "picking of winners" and commercial favouritism that had gone out of fashion during the 1980s.  The policy was principally run from Howard's office when he took over the politics of the issue from the Communications Minister.

Arthur Phillips used the term "Cultural cringe" in an essay of that title in 1950 and it had entered Australian received wisdom by the 1960s as "an unthinking admiration of everything foreign (especially English) which precluded respect for any excellence that might be found at home". ⁽⁴⁶⁹⁾  In that form it probably never did exist. A quarter a century later, however, fear that the home product was not good enough to compete with everything foreign (especially American) or that the local population was not smart enough to discriminate, ostensibly shaped regulation of the electronic media.  If the Government really believed its own rhetoric, then the corollary that it also believed that Australian viewers should not be permitted to choose their own TV and radio programs was inescapable.  It was not that Australians were being protected from voyeuristic sex and violence which current programs had aplenty.  There was a more prosaic explanation.

The rules that impose 55% local content on commercial television programs and require 80% of advertising to be Australian made are merely another capitulation to organised vested interests -- a form of protectionism.  Quite other rules were required to maintain Australian standards.  These local content rules are no more justifiable than the now discredited and abandoned 85% local content rule that once applied to motor cars.  Nevertheless the Government rejected the Productivity Commission's findings without even waiting for its final report.

There is, however, the prospect that leisure-time viewing will become available from the Internet, undermining both the barriers to entering free-to-air broadcasting and the content rules, thereby bringing these pieces of mercantilism to nought.

TAX REFORM

When the first Howard Government attempted to address a long-standing tax anomaly, its rejection by the States said as much about the sorry state of Federalism as it did about the sorry state of taxation.  State and local Government were exempted from the payment of sales tax. Because they sold their vehicles into a second-hand market dominated by cars upon which sales tax had been paid, the exemption allowed State and local Governments to maintain an excessive fleet of cars at no cost to themselves.  The wealth transfer was actually from private car owners who received reduced prices for their second-hand vehicles but it was too well hidden to be a political issue.  The Treasurer used a Premiers' Conference to ask the States to pay the sales tax but did not offer to compensate them for the loss.  The Federal system was seen at its uncooperative worst when the States ultimately agreed to pay the tax only on the cars purchased for senior public servants.

Howard set out to make tax reform the means by which his Government restored its leadership credentials.  The risk that Australians would look back on the nineties as years of wasted opportunity, when first the Keating and then the Howard Government dropped the reformers' baton handed to them by the Hawke Governments had become real.  A senior bureaucrat had already observed to Peter Walsh that this Government has reached that condition of directionless reaction that took Labor six or seven years to reach. ⁽⁴⁷⁰⁾

Howard's decision, knowing the risks, to run at the 1998 poll on tax reform was high-order political courage -- some said crazy-brave. In June 1997 he took tax reform based upon consumption taxation of goods and services to the party room where David Barnett tells us it was well received. ⁽⁴⁷¹⁾  Not for the first time, the party room, was not dominated by save-our-seats pragmatists but proved as courageous as the ministry.

How the three arms of Government tax the nearly $200 billion that they raise annually is less important than the fact that they do raise it.  Reform of the method of collection was not, therefore, a first league dry issue.  Some Dries opposed it altogether on the ground that no Government should be trusted with access to revenue that was too easy to collect.  Even so, tax reform was not a trivial matter.  The system's shortcomings could be grouped under four heads -- economic inefficiency, unfairness, compliance cost and negation of the federal division of political power.

The so-called "sin taxes" levied on tobacco, alcohol and gambling were off the agenda.  The Treasurer, Peter Costello, had said the Government was "against sin".  Be that as it may, it had no intention of abandoning such inelastic politically-painless tax bases. Howard's proposal called for the abolition of wholesale sales tax, pay¬roll taxes, stamp duties, and the financial transactions taxes (FID and BAD) in favour of a tax levied on the value added to goods and services.  It had most of the features of Hewson's and the New Zealand Goods and Services Tax (GST) and was also referred to as a GST.  It taxed most close substitutes at the same rate and would have greatly reduced economic distortions.

The package also provided for reduced income tax where high marginal rates and a tax base that defied precise definition supported a huge tax-avoidance industry.  Volumes of law, 12 inches thick when bound, cannot prevent it.  Since not everybody has the same capacity or inclination to avoid tax, the situation is unfair.

Effort devoted to tax avoidance is a dead-weight cost.  Economically sub-optimal but tax-friendly expenditure, for instance untaxed housing rather than assets that produce taxed income, is wasteful.  Income tax and inflation sometimes combine to cause the least sophisticated investors with dollar-denominated assets, such as bank deposits, to suffer negative post-tax real returns.  Income tax affects savings both before investment and upon the investment's earnings.  Even though some people believed that this is equitable, it is not smart in a country that has a big and growing savings problem.

Income and corporations taxes also have the disadvantage, especially when as in Australia's case they are amongst the highest in the world, of creating a cost disadvantage for exports and foreign investors.  Many people thought that this too was fair but again it was not smart because we also had a balance of payments and growing foreign debt problem.

The compliance and enforcement costs of the income tax were far larger than most people appreciated.  It had been estimated that to raise an extra dollar of income-tax costs taxpayers between $1.23 and $1.65. ⁽⁴⁷²⁾  In short, income is a far less satisfactory tax base than most people imagine.  Reduction in income-tax rates reduced the rewards to be gained from avoidance and the economic cost of the distortions.

The campaign against a GST mounted at the 1993 election notwithstanding, these problems were well known. Mark Latham, Labor Member for the NSW Federal seat of Werriwa, at the time the Opposition Education spokesman, proposed to avoid them with an expenditure tax. Although theoretically attractive, no country had one and the implementation problems were daunting.

Howard's package gave the revenue from the GST to the States, and thereby the opportunity to manage their expenditures without Commonwealth control via tied grants.  By the 2001 CoAG meeting, however, there was little evidence that they had accepted the responsibility to fund their own enthusiasms.  The GST arrangement, moreover, made it even less likely that the States would compete with each other to cultivate a revenue base by cultivating economic growth.  Competitive federalism still had most of the way to go.

By 1998 it was not as easy to lie to the public on this issue as when Hewson contended with it.  By the narrowest of margins, Howard was re-elected in an election dominated by tax.  He did not, however, have the numbers in the Senate.  Far from accepting that the Government had a mandate, it heavily amended the relatively straightforward system presented to it.  To get the package at all, the Government had been forced to treat with the Democrats who, never long on economic principle, turned it into something of a dog's breakfast. Howard nevertheless regards it as a major achievement and it would be churlish not to allow him his reformist credentials here.

No system can tax the cash (black economy) transactions, but the GST and particularly its accompanying procedures did catch up with much tax avoidance.  As the cash-rich Government approached the 2001 election the worst fears of those who did not trust it with an efficient tax base were realised.

Reform of the business tax system was put to one side while John Ralph, the recently retired CEO of CRA, was commissioned to report upon it.  When the Ralph Report came down, it excited divisions among accountants, lawyers, mining companies and State Governments but not much dry or wet interest.  Neither the IPA nor the CIS addressed the issues raised by it in any detail.  Some recommendations, in particular abolition of Fringe Benefits Tax, seemed wrong in principle causing suspicion that the report was self-serving.  The most important business tax reform, removal of the remaining tariffs, was not addressed.

Fearing that Australia would become a less attractive haven for internationally mobile capital, the Government legislated to reduce the corporate tax rate to 30%, modify depreciation accounting (but not to everyone's liking) and exempt half of capital gains from taxation. The capital gains tax change will, as the Government claimed, improve incentives to save and invest but reopened the opportunity to avoid income tax by diverting income to capital gain.

Other recommendations were deferred.

HANSON'S "ONE NATION"

When at the 1996 election the safe Labor seat of Oxley was won by an independent who had been disendorsed by the Liberal Party for her allegedly racist comments, events with profound consequences were set in train. The Oxley electorate elected Pauline Hanson, with 54.66% of the two-party preferred vote, ⁽⁴⁷³⁾ against a sitting Member, albeit one who had not long held the seat.  Her margin was nearly wide enough under ordinary circumstances to have classified the seat as "safe".

Clearly the chord she struck was a deeply felt one.  Its fundamental tones were opposition to politically correct intolerance and to racial favouritism.  These had been previously identified and when in time she called her party "One Nation" she followed Keating's "One Nation" and Howard's "One Australia".  All three terms were intended to appeal to people who felt that Australians were being needlessly divided one against another.  Rather than address this issue, however, the chattering class elected to accuse her of racism in terms that implied that half the Oxley electorate was racist.  They made a hero of her.

From a dry perspective her election was unfortunate because she was soon espousing much the same xenophobic trade, investment and immigration policies that had once been advocated by the Country Party and that were still the bread and butter of Green and Democrat policy.  She called for controls on foreign investment, high tariffs and dirigiste industry policy, and encouraged the popular misconception that immigration takes Australian jobs.

Hanson became the beneficiary of a huge beat up by people unrepresentative of the Australian mainstream.  One of their lines alleged damage she was doing Australia in Asia, although it had to asked whether Asians were any more interested in the opinions of our minority political leaders than we were of theirs.  Professor Heinze Arndt the doyen of Australian economists and a refugee from National Socialism in Germany wrote to me:

I was in Bangkok last week at a conference of East Asian economists.  The very few who had heard of Pauline Hanson dismissed her as insignificant.  If any damage is being done in Asia by the affair, the fault lies with the media which has blown it out of all proportions.

Following her maiden speech Howard was pilloried for not condemning her and it, yet any Prime Minister would be reluctant to attack a new member's maiden speech, especially when that new member did not enjoy the benefits of colleagues' support within a political party.  Under pressure, he did have the House of Representatives pass what in my parliamentary days was known as "a pious resolution" but he properly chose to ignore her and, had others done likewise, she could never have become a political force.  Instinctively she courted any attack that was clearly unfair, knowing that it gave attention to her views without injuring her politically.  When a backbench MP, John Hyde had done the same.

Her One Nation Party picked up 23% of the vote in the 1997 Queensland state-election, terrifying elements of the National Party.  The Nats would then have reverted to vote-buying and economic intervention had not that good soldier Tim Fischer displayed insouciance that was to prove justified by the 1998 poll.  By 2001, however, both Fischer and insouciance were but memories.

In the meantime, all parties had moved perceptibly toward One Nation's policies.  Howard actually admitted to the Press Club that he would reform only more slowly -- in New Zealand parlance, "take a tea break". As we entered the Third Millennium we were again, like St Augustine (and Malcolm Fraser) praying for virtue but not yet. The wheel had gone a full turn.

THE POLITICAL STANCES OF THE PARTIES

Howard & Co gave little credit to the Hawke Governments' reforms.  To do so would have been truthful and might also have been tactically smart.  There were points to be won for generosity and more than that, since the Coalition in Opposition had not blocked reform but urged more of it, the Beazley Opposition could have been contrasted both with both the Coalition in Opposition and Labor in Government.  Although Labor would undoubtedly be more responsible in Government than in Opposition -- all parties are -- it could not campaign on that promise.  Liberal tacticians' rejection of rhetoric that gave Labor its due was in due course to see the Liberal Party bidding against Labor with policies that a decade before it would not have stooped to proclaim.

Labor too distanced itself from the Hawke reforms advocating environmental and industry policies that turned away from economic freedom.  It too had difficulty in working out what it stood for.  Martin Ferguson complained that the Labor Party had fallen under the influence of "the patter of the Chardonnay set".  Mark Latham tried to do something about Labor's aimlessness by writing a book defining a hill upon which he thought Labor might place its light.  One may disagree with some of its many prescriptions but still applaud a serious attempt to give Labor goals that are consistent with each other, the legitimate interests of the have-nots and the national interest.

The Democrats had sidelined Labor during the GST negotiations.  The possibility of their establishing themselves as a serious political force influencing Governments on behalf of the have-nots was briefly canvassed.  They, however, proved incapable of making the necessarily tough trade offs.  The party lay membership, against the wishes of the majority of Democrat Senators, stripped Meg Lees of party leadership not because she had she had rendered the GST a less satisfactory tax but because she had supported the tax that no party would repeal.  Like most minor parties the Democrats proved content with power without responsibility, which, it has been observed, is the prerogative of harlots.

Hawke's behaviour after he lost the Labor leadership was resented in Labor circles but the fact remains that he led more than ordinarily successful Governments.  One does not have to go all the way with Machiavelli to believe that honouring his icon would have done the nation much good and Labor no harm.  It would have been a small price for Labor to pay for an opportunity to build on a good legacy that offered policy direction and credibility.

During Howard's Governments Labor chose to cosy up to disappointed vested interests and to do that it had to let Howard get away with claiming credit for the long 1990s boom and Australia's immunity from the Asian crisis. Had Labor instead insisted that these benefits arose from earlier reforms, it would have been able to cite explicit statements already made by the Treasury, Reserve Bank and Productivity Commission and in time would be made by the IMF and OECD.  Without the reputation of better economic manager the Liberals' campaign assets become a bit thin.  Had Labor insisted on the credit that was only its due, then the reforms themselves would have been relatively immune from effective denigration.  Labor's tacticians also, however, saw the party's prospects differently, and its retreat from sound economic management has been the legacy.

OF FOXES AND HEDGEHOGS

Early in 2000 John Howard suffered an uncharacteristic lapse.  The National Textiles Company, managed by his brother, Stan, went into liquidation in circumstances that left insufficient funds to pay employees' non-salary entitlements.  Howard used taxpayers' funds to bale out these employees.  Neither John nor Stan behaved in a venal manner but:

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, relations, or supporters. When a minister grants a subvention to an association of dubious utility, even when he observes all the rules in doing so, he is committing an abuse, especially if it turns out that the beneficiaries of the subvention are his personal or political friends. ⁽⁴⁷⁴⁾

Labor supported this misuse of public monies as it had done in the Woodsreef case over 20 years before.

Dries tend to see political Government's prime responsibility as protecting individual liberties, and political leadership as the business of explaining and inspiring.  They believe, therefore, that Prime Ministerial authority ought to be employed to outface the special pleading of trade unions, professional associations, protected industries and all sectional interests.  Leadership is the art of making good politics of good policies.

The British philosopher Isaiah Berlin, looking at the problem of leadership, described political thinkers who come to terms with diversity and who recognise the perils of trying to impose a simple, single over-arching solution to every problem as "foxes", the opposite as "hedgehogs".

The Australian, Tom Switzer, described Howard as a political fox adopting a non-doctrinaire approach to economic policy to achieve about as much reform as was achievable.  He wrote:

Between the late 1970s and the early-to-mid-1990s British Tories and American Republicans were unashamed advocates of competition, deregulation and small Government and after 1983 Australian Liberals followed this general trend. But these days prominent Liberals, Tories and Republicans use adjectives such as comfortable, caring and compassionate to describe a new conservative public policy disposition. ... John Howard (comfortable and relaxed), William Hague (caring conservatism) and George W Bush (compassionate conservatism) are at one in redefining conservative parties in their respective countries.

Switzer described such leaders as true believers in capitalism to the extent that they are committed to private enterprise, but they are also realists who recognise that political limits are imposed on their legislative agendas. To the many Dries who have been less than enchanted with the shift to what he called "the centre" and I believe was "favouritism", he argued:

Doctrinaire conservatives [I would have said, doctrinaire liberals] should not be so critical of their more moderate brethren.  Indeed, it is highly likely that today's conservative leaders can achieve more legislative victories for the free market by adopting a more pragmatic approach towards economic reform, by compromising on some issues such as tariffs (as Howard did) while standing firm on others such as taxes (again as Howard did). ... John Howard has achieved more change and legislative reforms than doctrinaire conservatives could have imagined.

Howard, Hague and Bush were foxes.  On the other side of politics but not the wet-dry divide, Blair and Clinton after his remaking also were foxes.

It is easy to find examples of even those hedgehogs with whom Dries have little quarrel finding leadership of the explaining-and-inspiring sort impossible or, as is more often the case, not worth the authority squandered on an issue that was not critical.  These, nevertheless, did not react like improperly propositioned virgins when presented with politically unpalatable but correct advice. If allowed to mature, the toughest issues can have their day and, if they can't be supported, they should at least be dealt with in terms that do not foreclose options.

In democracies, future reform depends upon the steady flow of informed public advice.  Since opponents cannot cite a preference for vested interests, there is long-term tactical advantage in compelling them to state by what principles they oppose freedom, equity and good policy generally.  The ensuing debate educates.  In contrast policy inconsistency weakens understanding of the nature of good Government.  While logrolling and not confronting argument with argument may sometimes improve today's chances of achieving legislative reform, it sacrifices the understanding needed for tomorrow's.  Competent Dry advocates will woo their opponents by looking for shared values upon which to build understanding (and from which they risk losing their own misconceptions), but they do not, for short-term advantage, leave the field upon which ideals contend. Their opponents will never vacate it.

It is all too easy for foxes to drift from cunning to electoral cupidity.  Politicians might claim with only some justice that it is their job to implement and it is the job of the think tanks and columnists to explain.  The difficulty with that argument is that politicians themselves are very significant conduits for ideas.  At least as they are presently resourced, think tanks cannot match the influence of politicians -- a point John Hyde made to an Atlas Foundation meeting in Vancouver in 1983.

How could a man who was capable of running the GST campaign have been such a policy wimp to that point?  Howard is not primarily a thinker but neither were three of the most effective reformers, Thatcher, Reagan and Kennett.  He had their dogged determination but lacked their faith.  Put another way:  he had the stamina for "conviction politics", if only he had had the conviction. Perhaps what he lacked most was a Sir Keith Joseph, Thatcher's intellectual mentor who by his own admission could never have led the Tories.

Thatcher, Reagan and Kennett did change laws, corporatise and privatise, but entrenched systems have a frustrating resilience and entrenched people take a lot of dislodging.  Even these dedicated reformers, therefore, achieved less immediate change than they intended.  They, however, wrought changes to the cultures of their various jurisdictions that I suspect were beyond their wildest hopes.

Howard faced more legislative frustration than either Thatcher or Kennett, but no more than Reagan did.  Political victories should not be counted only in battles won or lost on the floors of political chambers. Important as these are at the time, they are relatively ephemeral compared with consensus concerning the political culture, the notions of how the good society should govern itself.

Howard lost part of his tax package but won a wider understanding that tax law should be simple, economically neutral and should not favour the clients of good lawyers. It is of no concern to Dries that the consequent improvements may be legislated by future Labor Governments.  Howard was, however, too inconsistent to be a good teacher.

Cars, textiles, broadcasting, universities and money thrown at the rural backlash reveal how susceptible Howard was to special pleading and how little commitment he had to economic freedom and law that did not entrench privilege.  It is the issues with the high potential political costs, such as bringing the budget into sustainable surplus, tax reform, labour market reform, waterfront reform, schools reform, the privatisation of Telstra and "mutual obligation" but not gun control which was popular that I think in time will redound most to his credit.

---

ENDNOTES

439.  Australian Bureau of Agricultural and Resource Economics

440.  David Barnett, John Howard, Viking Press, 1997, p 664

441.  David Barnett, John Howard, Viking Press, 1997, p 719

442.  David Barnett, John Howard, Viking Press, 1997, p 735 says the opposite.

443.  Productivity Commission, Microeconomic reforms and Australian Productivity:  Exploring the Links, Canberra:  Aus Information, 1999, the summary. and Dean Parnham, The New Economy?  A New Look at Australia's Productivity Performance, ProductivityCommission, Staff Research Paper, 1999.

444.  Productivity Commission, Regulation and its Review 2000-01, AusInfo, Canberra

445.  Trade Weighted Index, a measure of the value of our currency against all of our trading partners proportional to the amount of trade with each.

446.  The OECD had published several times on the topic:  eg the 1993 OECD paper, Employment/unemployment Study:  Interim Report by the Secretary-General.

447.  David Barnett, John Howard, Viking Press, 1997, p 768

448.  Snape, Gropp and Luttrell, Australian Trade Policy 1965-1997, Allen & Unwin, 1998, p. 308

449.  David Barnett, John Howard, Viking Press, 1997, p 748

450.  Snape, Gropp and Luttrell, Australian Trade Policy 1965-1997, Allen & Unwin, 1998, p 32

451.  Snape, Gropp and Luttrell, Australian Trade Policy 1965-1997, Allen & Unwin, 1998, p. 469

452.  Charles Bean, Australia's Economic 'Miracle';  a View from the North, Reserve Bank of Australia

453.  Information supplied by The Lavoisier Group Inc.

454.  Productivity Commission, Telecommunications Competition Regulation, Draft Report, 2001, p xxii

455.  The Hon Tony Abbott MP, Job Network:  Where to next?, Speech to the Wesley Mission, 2000

456.  Novak, M et al, The New Consensus on Family and Welfare, Washington:  American Enterprise Institute, 1987.

457.  Green, David, Poverty and Benefit Dependency, New Zealand Business Round Table, 2001

458.  The Welfare State:  Foundations and Alternatives, The proceedings of CIS Conferences held in Wellington and Sydney, November 1987, CIS Policy Forums 7, 1989

459.  Tony Abbott, Mutual Obligation and the Social Fabric, A Bert Kelly Lecture, 3 August 2000

460.  Noel Pearson, The Charles Perkins Memorial Oration and On the Human Right to Misery, Mass Incarceration and Early Death, Quadrant, December 2001, p 9.

461.  The Hon Tony Abbott MP, Beyond the Unemployment Pieties, Speech to CEDA, 1999

462.  ibid

463.  The Hon Tony Abbott MP, Beyond Ideology, Speech to Young Liberals, 2001

464.  The Hon Tony Abbott MP, Against Roonism -- Combating the Culture of Despair, Speech to the Sydney Institute, 2001

465.  The Hon Tony Abbott MP, Mutual Obligation and the Social Fabric, Bert Kelly Lecture to the CIS, 2000

466.  Snape, Gropp and Luttrell, Australian Trade Policy 1965-1997, Allen & Unwin, 1998, p. 296 footnote

467.  ibid, p. 326

468.  The Australian Financial Review, 22 August 2001, p 55

469.  L.J. Hume, Another Look at the Cultural Cringe, Centre for Independent Studies, 1993, p. 1

470.  Peter Walsh, personal communication

471.  David Barnett, John Howard, Viking Press, p 792

472.  Freebairn, Porter and Walsh, Spending and Taxing, Allen & Unwin, 1987, p188

473.  David Barnett, John Howard, Viking Press, 1997, p 732

474.  See Chapter 1