Santamaria's Australia: Australia's Santamaria

Australia at the Crossroads, Reflections of an Outsider
by B.A. Santamaria
Melbourne University Press, 1987

Democracies have the failing of not valuing great individuals.  People of rare and formidable character do not receive their due recognition, much to the cost of the society.  So warned the two men who were arguably the most perceptive French and German social observers of the 19th century, Tocqueville and Nietzsche.

I should perhaps open my account here with an apology.  What is ostensibly a book review will break the conventions of the genre.  Through reading a book of essays, Australia at the Crossroads, I wish to focus rather on the man who wrote them.  These essays tell us far more about him than does his own autobiography, published in 1981 under the title, Against the Tide.  That man is, of course, Mr. B.A. Santamaria.  Given the sectarian passions, with both political and religious strains, that his name has aroused in Australia for four decades I should at the outset declare my own past ties, or lack of them.  In spite of carrying an Irish surname, I have negligible Irish blood, and grew up in an anti-Catholic, atheist, socialist-inclined family which held to a mild version of the "Santamaria as a sinister Machiavellian operator" school of belief.

As far as my own familiarity with Australian thought and letters allows me to judge, Mr. Santamaria is the only intellectual of near the first rank, outside of the natural sciences, that this country has produced.  What is the basis for such an extraordinary claim?  Mr. Santamaria has not given birth to an original theory that has or will influence the course of Western thought.  There is no book to his name of particular distinction, apart from the collection of essays under review, which in the strict sense is a collection of essays rather than a book -- it was not written as a whole, working a set of arguments from beginning to end.

There are three virtues that give Mr. Santamaria's essays their peculiar quality.  The first is judgment.  The accuracy, range and consistency of his judgment has no equal in Australia, and one would have to look far to find it bettered in the Western world.  There is the range, with subjects sf interest including international relations, strategy and defence;  economics, finance, the unions and party politics;  religion, both at the general level of the decline of Christianity in the West, and at the particular level of the parlous condition of Australian Catholicism;  morals, with special reference to changes in the family, the law, and the science of fertility and reproduction.  These are the key subjects of our time, and a part of Mr. Santamaria's judgment is that he has an uncanny sense of what is important.

Another part of his judgment is its consistency.  His view of the world is pretty much what it was as a young man.  It centres on the belief that religion is the indispensable basis of social obligation;  that the main social institution is the stable family, which in turn depends on monogamous marriage and the woman at home -- here is the only human counter to the economically ruinous Welfare State;  that with reference to work and organisation

'the law, economic forces and social convention shall at all costs protect the small and medium unit in production, distribution, exchange, in the size of government, business and administration.'

The main impact, however, of Mr. Santamaria's judgment is that it has proved almost always to be right.  This is as true at the level of general principle as it -- is at the level of detail.  Let me mention a few instances.  He was right in the 1940s that the rapid take-over of trade unions by the Communist Party, which was well advanced, was the greatest threat to Australian democracy.  He was right in the 1960s to see the future implications for Australia's strategic vulnerability were the Americans to lose the war in Vietnam.  He was right in the 1970s to see radical changes in the universities preparing the ground for a massive assault on the traditional values on which Western societies have been predicated.  He is right in the 1980s to see medical research on human embryos as having let a monstrous genie out of a bottle that will be near impossible to check.  He is also right in the 1980s to spell out the social damage that has been done by the new view of the law, pioneered by Mr. Justice Lionel Murphy, as a weapon to reform the social conscience of the community, in contrast to its traditional role of reflecting that conscience.

The second virtue of Mr. Santamaria's intellectual work is the style of argument.  There is a rigour and clarity about first principles, and as in good mathematics each particular problem is worked back to those principles, the constituent elements of the problem having been separated.  A deductive analysis is then applied.  There is through this a masterly command of both structure and detail.  The overall effect is of the systematic analytical force of Euclidean geometry being brought to bear on social and moral issues.

The third virtue is one of tone.  Mr. Santamaria's essays are never carping or strident.  The author is a moralist, but one who does not sink to self-righteous indignation.  The moralism is cool and sober;  there is a balance of the dispassionate observer and the concerned citizen.  The moral conscience that houses the concentrated intellect is never allowed to cry out.

The topics covered in Australia at the Crossroads are ones regularly covered in columns in the newspapers and in articles in journals such as Quadrant.  They are familiar.  In my own case they are topics that I have thought about, on and off, quite a lot.  Yet Mr. Santamaria's essays unfailingly break through the familiarity, the sense that one knows it all and can skim through the stock arguments.  They force one to rethink, to reassess, they force one back on one's assumptions, back on one's calculations.  Moreover, these essays mount a persuasive case for the seriousness of a crisis facing Australia at present, on the economic, cultural and moral fronts.  They address the separate dimensions of such a crisis with an authority that makes them essential reading for anyone concerned about the future of our country.

Australia at the Crossroads is subtitled "Reflections of an Outsider".  I find this injudicious.  A man who has stood in the Outer virtually every Saturday afternoon since the mid-1920s to watch his beloved Carlton Football Club can hardly be taken seriously as an "outsider".  I don't even mention the fact of his singular role in the 20th century of influencing the face of Australian politics.  The Santamaria justification of the subtitle is part in agreement with reviewers who have claimed that his mode of thought belongs to no Australian tradition, and in part because he regards himself as having been "rough on Australia".  If he had been a citizen of any other Western country through this epoch he would have written very similar things -- so much for his second defence.  On the first point, it is true that there is a remorseless analytical quality to his essays, a deductive precision, that might be likened to the French cartesian style.  However, his work lacks the abstraction, the somewhat sterile formalism of that tradition.  Alternatively, there is in the consistent return to first principles, the structured rigour deriving from essentials, something that might be linked to the Jesuit tradition.  Perhaps.  Whatever, these virtues are extremely rare in any intellectual tradition.

The one way in which Mr. Santamaria strikes me as an outsider involves his conservatism.  It is not in the best Anglo-Saxon mould.  Let us compare him with the finest example, Edmund Burke.  Burke's work, whether in books, the letters or the political speeches, does not have this sort of analytical clarity and distinctness.  It is not typified by cool reason operating within a formalised moral and religious framework.  It does not have these strengths, but it does have other ones.  There is a warmth to its feeling for England, for Englishmen and for their customs and prejudices, deeply and firmly rooted in ancient tradition.  Burke at his best is a patriot by example, writing with a devoted and cherishing celebration of his people, their institutions and their past (although in his Irish background he was almost as much a genealogical outsider to England as the Italian Santamaria is to Australia).  It is significant that the weakest essay in Australia at the Crossroads is the first, the one about the thing perhaps closest to Mr. Santamaria's heart (not his head or his spirit), Australian Rules Football.  An Anglo-Saxon conservative would have written more movingly about his sense of loss, less from the citadel of reason, with more dirt on his hands and sentiment in his heart.  Menzies, for instance, in his memoirs, evokes a more touching attachment to his own beloved sport, cricket, and its practitioners.  And he was invited time and again to make the toasts and the speeches at the dinners of the cricketing greats.  Nevertheless, there is more, ultimately speaking, to connect than to contrast here, in the fact that the two great political figures were both lovers of sport -- in the soundness that such attachment indicates,

Dispassionate reason, on the one hand.  On the other, Mr. Santamaria has been a notably unacademic intellectual.  He has put his theory into practice.  Through the Movement that he created he has effected major changes for the better in the working life of Australia.  In this he has been the insider of insiders.  Moreover his extraordinary success indicates a capacity for organisation and a political judgment that would be the envy of the most practical men of the world.  His main achievement was, of course, a series of victories over the Communist Party in the 1940s and 1950s in its move to take over the union movement.  He claims two other successes.  The first was to use DLP pressure to make Liberal Party governments take defence more seriously than they would have otherwise.  I am not competent to assess this claim:  it is a minor achievement compared with the influence over the trade unions.  The second claim was to have played a key role in getting 'State Aid' for independent schools.  Considering that the Catholic schools have rapidly secularised themselves since receiving government grants, and now play a sizeable role in subverting the religious values to which Mr. Santamaria himself subscribes, this can hardly be claimed as a success.  An indirect effect of the Movement, and later its political wing, the DLP, was to keep Sir Robert Menzies in office for 16 years.  I suspect that Australia is a good deal the better for that.

Mr. Santamaria is now 72, if a prodigiously alert and hale 72.  He is a great Australian.  He has spent most of his life regarded by much of this country's establishment as a dark figure, one to be kept at a distance.  This judgment was based on ignorance, was utterly unjust, and it needs to be atoned for.  With the exception of Sir Robert Menzies, no one has done as much since World War I1 to protect that establishment and its interests, and furthermore to contribute to its central obligation of defending the nation's institutions and traditions.  It is time he received due recognition for his services to Australia.  It is time to show some gratitude.

Why Welfare Fails

Losing Ground:  American Social Policy, 1950-1980
by Charles Murray
Basic Books, New York, 1984

Since it appeared three years ago Losing Ground has transformed the welfare debate in America.  But its impact does not stem from its documentation of the failure of the "Great Society" welfare programs which President Johnson guided through Congress in the mid- 1960s.  No one doubts that most social welfare indicators on employment, wages, education, crime and family cohesion -- have either deteriorated or failed to respond as expected to the great increases in social expenditure which started 20 years ago.  What is so controversial about this book is the author's explanation of those failures and the policy reforms which that explanation seems to call for.  Murray argues that most welfare programs for people of working age and their children actually worsen the social problems they are meant to solve.  If the welfare state is ever to do its job, Murray claims, it must be rebuilt virtually from scratch;  both the qualifications for welfare and the way welfare is delivered must be radically reformed.  Losing Ground is being taken so seriously in America that Murray has so far escaped being branded a "racist" even though so many of the American poor are black.

It hardly needs to be stressed that the progress of this debate is of the utmost relevance to all countries which are committed to helping the disadvantaged sections of their populations, especially at a time when many Western countries are finding it increasingly difficult to finance their public spending.  It is especially relevant at the moment to Australia, whose welfare state has recently been the subject of a systematic review by Ms. Bettina Cass, of Sydney University, on behalf of the Department of Social Security.

Murray sets out to explain why poverty and crime, which had been steadily declining through the 1950s, should have begun to increase again in the late 1960s.  His explanation assumes two things:  first, that people respond to incentives, and will work and study only if the incentives to do so are great enough;  and second, that people should be held responsible for their own actions.  Murray argues that both these assumptions, which most people accept, were rejected by the "elite wisdom" which dominates the outlook of the framers of the Great Society programs.  By ignoring incentives, the policy-makers unintentionally created "incentives to fail".  Murray systematically traces the pattern of incentives faced by typical welfare recipients and concludes that many recipients are encouraged to become dependent on welfare.  As he puts it with blunt simplicity:  "Any social transfer increases the net value of being in the condition that prompted the transfer" (page 212).

But this is only part of the explanation, and a minor part at that.  (It is also the least controversial part, since the existence of the "poverty trap" and the "unemployment trap" is becoming widely recognised and documented in countries other than America).  According to Murray, what has done real damage to the social fabric is the attack on the traditional belief that individuals should be held responsible for the consequences of their own actions.  The message that "the system is to blame" was increasingly heard from the late 1960s, at first in response to early evidence of the failure of the new welfare programs, and then as a blanket justification for continuous increases in welfare spending.  As the message reached the poor themselves, it had a number of disastrous effects.  One was to erode many recipients' inner resistance to becoming dependent on welfare, and to convince them that they had a "right" to be looked after by white, middle-class America.  Another was to deprive those poor who genuinely wanted to work their way out of poverty of the status rewards for doing so:  they became virtually invisible to a welfare system which had eliminated the stigma of poverty and convinced itself that it was helping society's "victims".  In the "poverty culture", those who try to maintain the habit of regular work and to remain self-reliant are despised as "chumps".

Not surprisingly, Losing Ground has come in for a great deal of criticism.  Murray has been accused of ignoring changes in the American welfare system in the 1970s which increased the incentives to work.  Much unemployment in the 1970s was caused by economic recession.  There is a much lower rate of illegitimate births in Europe than in America, even though Europe has more generous social welfare programs.  Clearly, local factors will be at work in each country.  In Australia, much youth unemployment can indeed be blamed on a system which provides young people with a largely useless education and then prevents employers from paying them an economic wage.  Similarly in the UK, housing markets have become so rigid as a result of state intervention that many unemployed people are unable to move to regions where there are plenty of job vacancies.  On the other hand, since American labour and housing markets are among the most flexible in the world, a greater proportion of the unemployment in that country is likely to be the product of the causes which Murray cites.

But Murray has to devote at least as much time distancing himself from his admirers as responding to his critics.  Some American "small government" enthusiasts have plundered his book for what they regard as decisive arguments against welfare and for tax cuts.  Yet part of the attraction of Losing Ground is its genuine concern at the failure of the Great Society legislation really to help the poor and disadvantaged.  Murray actually says rather little about how the American welfare system might be improved.  But he believes that a successful system would have to embody two features.  First, it would restore status rewards to individuals who tried to become independent;  and second, it would be administered at state or local levels.  Federal welfare schemes are especially likely to fail, partly because they are remote from the problems they aim to solve, and partly because they offer little scope for experimentation.

Most citizens in modern democracies seem willing to help the disadvantaged through the tax-transfer system.  But some welfare recipients, however "needy", will inevitably learn the wrong lessons:  that there can be freedom without responsibility, that political lobbying brings more rewards than self-help, and that life was meant to be easy.  Quite possibly there is no ultimate solution to this dilemma:  there may be no way of delivering welfare so that all its beneficiaries make proper use of it.  The virtue of Losing Ground is that it forces us to admit, not only that the dilemma exists, but that helping the disadvantaged requires much more than money and good intentions.

A Report on the 40 hour week

INTRODUCTION.

"The 40-hour week" is at present the most important question agitating the industrial community.  But the 40-hour week is of concern not only to industry but to the whole Australian public which consumes the products that industry produces.  Any decision upon it must therefore have regard to its effects not merely upon any one section of the community, but upon the community as a whole.  The 40-hour week is a national issue;  it should be considered from a national viewpoint.  This is the approach to the subject taken in this report.  The effects of the 40-hour week on any particular group, such as employers or employees, have been regarded as relevant to the investigation only insofar as they throw light on the larger issue of the national interest.

Throughout all industrial countries the progressive reduction of hours of work has been one of the most significant and socially desirable advantages made possible by the advance of science and increasing mechanisation and industrialisation.  It has been part of the movement toward a more ample life for the great mass of the people.  Given a sufficiently long period of peace for industry to be able to continue its forward march, it is inevitable that the future will witness further reductions in the hours of labour, and the provision of greater leisure-time for cultural, social and domestic improvement.

In the movement towards reduced hours of work Australia has been in the vanguard.  Australia was one of the first countries in the world to see the introduction of a 48-hour week, and to-day Australia has as short a working week as any industrial country with the exceptions of the United States and New Zealand, where, in each case, very different economic conditions prevail.

Whether at the present time a standard 40-hour working week would be of benefit to the Australian people is a question that should not be determined by political catch-cries or industrial prejudice.  It should be decided in relation only to the economic realities of the Australian and world scene to-day as revealed by conscientious and unbiased examination of the facts.

The central consideration in any major projected industrial or economic change is the standard of living of the people.  Basically the Australian standard of living is determined by the productive power and efficiency of its industries -- their capacity to produce and acquire for the Australian consumer a growing volume of goods and services of improving quality at a cheaper real cost.  In its fundamental long-term aspect, the length of the working week, as with all measures of social improvement, rests on the productivity of industry.  But to-day any vital economic decision is complicated by the abnormal economic circumstances, both in Australia and overseas, left in the wake of the war.  Great parts of the world have suffered a tragic deterioration in their standards of life and in their productive capacity.  In Australia our standard of living to-day is much lower than that enjoyed before the war, and must remain so until the industrial machine is once again engaged in the full, efficient production of peace-time goods and services.  Sections I and I1 of this Report, therefore, take up the two critical and related questions of the productive power of industry and the economic conditions brought about by the war.

Sections III, IV, V and VI discuss the effects of the 40-hour week on different aspects of the economy -- on the cost and price structure, on employment, on different economic groups and on the rural industries as presenting a special problem.  Section VII compares the amount of leisure time enjoyed by the Australian working community (as determined by the average working week, the extent of annual leave, and the number of statutory holidays) with that of the workers of other modern industrial countries, and the implications this comparison has for the ability of Australian industry to compete at home and abroad.

"The 40-hour week" is a many-sided problem.  The author that has prepared this report does not claim that his analysis is exhaustive in scope or in treatment.  He has been mainly concerned to concentrate attention on those parts of the subject which must be of critical importance in their bearing on any just and wise decision.

SECTION I -- PRODUCTIVITY AND THE 40-HOUR WEEK.

A. HAS MAN-HOUR OUTPUT IMPROVED SINCE 1939?

1. A central consideration in any major projected industrial change, involving shorter hours or higher wages, is the capacity of industry to support the real cost and to stand the effects of the change.  Basically this capacity is determined by the technical efficiency of industry -- that is, its power to produce and supply a rising volume of goods and services with a decreasing expenditure of human effort. ⁽¹⁾

   This is not to say that there are no other factors which may enter into the reckoning --such as the level of money costs and (particularly for Australia) of world prices for primary products.  But these influences are transitory in nature -- export prices which are high this year may fall precipitously next.  The core and substance of long-term economic progress is the productive efficiency and technical competence of industry.  Any judgment on a fundamental question such as a reduction in the hours of work over the whole industrial field must, under normal conditions, turn primarily on the sheer physical power of industry to produce.  The matter of the progress or decline in productivity during the war years will, therefore, repay examination at some length.

2. One of the arguments most strenuously advanced to support the claim for the 40-hour week is that, over the war, there has been a marked improvement in the efficiency of Australian industry arising from an unprecedented expansion of the productive resources of the community, and a tremendous acceleration in scientific progress and its application to industry.  It is claimed that we are to-day richer in industrial resources and techniques than before the war.  Our capital equipment has grown and we have discovered new, more efficient industrial processes, materials and products.  All this means that the productivity of industry -- the production per man per hour -- has greatly increased and that we can now cater for our needs and maintain and advance our standards of living with less work than was necessary in 1939.  The community -- so the argument runs -- is entitled to reap the benefit of all these advances in the form of a shorter working week to permit added time for leisure, enjoyment and self-improvement.

3. Is it a fact that the productivity of Australian industry has made great strides over the last few years?  Can this productivity be roughly assessed?

   A great deal of confusion and misconception about the wartime trend of industrial efficiency has arisen because of the paucity of reliable statistical information, the misuse of the information that exists, and the difficulty of drawing comparisons between a peace-time and a war-time economy.  Further difficulties are introduced by the complications involved in the change-back to a peace-time industrial pattern -- the process in which we are at present engaged.

   
   

   Measurement of Productive Efficiency.

4. The absence of adequate statistical information renders impossible the exact, or even approximate, measurement of changes in productive efficiency in Australia.  There are no statistics, official or otherwise, which attempt to measure productivity in terms of man-hour output and to show its variation from time to time.  This constitutes perhaps the most serious shortcoming in Australian statistical data.  To assess with any close approach to accuracy changes in industrial efficiency, figures of man-hour output are essential.  It is safe to say that the overall productive efficiency of Australian industry cannot be measured, and that any figures purporting to do so are open to grave suspicion.  This remark applies particularly to the war years when the whole content or make-up of the goods and services produced is entirely different from their content in peace.

   From the information available, however, it is possible to test, in a quantitative sense, the validity of general assertions to the effect that productivity since the pre-war years has either vastly improved or vastly declined.  The main sources of information are the statistics of production and the data relating to changes in factory horse-power published by the Commonwealth Statistician.

   The Commonwealth Statistician prepares an index of material production per worker, adjusted for price changes, which is of some assistance in assessing efficiency.  However, it excludes the very large section of economic activity concerned with the distribution of goods and with the supply of services such as transport and entertainment.  Also, no allowance is made for variations in the number of hours worked.  This adjustment is necessary to any measurement of the real unit of productivity -- namely, man-hour output.  Obviously, if an improvement in output per worker of, say, 20% were accomplished by an increase in hours of work of 30 %, then an index of material production per worker would given an entirely misleading indication of the change in productive efficiency.  Other significant data relating solely to the manufacturing industries can be obtained from statistics of production.

   An important indicator of changes in productive capacity is the amount of horse-power available per head of the working population.  This is a general measure of potential productive efficiency, popular with statisticians and economists in Great Britain and the United States.  The Editor of "The Economist," Mr. Geoffrey Crowther, has written in this connection:  "What gives a modern community its power to give its citizens a high material income is the amount of productive capital it possesses -- the number of horse-power available to supplement each pair of hands."

   From these various sources of information it is possible to apply quantitative tests -- admittedly rough and ready -- to the claim that a great advance in productive efficiency has been achieved during the war.  We will consider first statistics of production.

   
   

   Indexes of Material Production.

5. The following table compiled by the Commonwealth Statistician shows the changes that have taken place during the war in output per person engaged in material production:-

   INDEX OF MATERIAL PRODUCTION.

   	1938-39	1939-40	1940-41	1941-42	1942-43	1943-44
   Numbers engaged in Material Production (thousands)	962	979	1,016	1,056	1,022	-
   Value of Material Production per person engaged, at current prices	£481	£536	£538	£609	£698	-
   Index of real production per person engaged (reduced by "C Series" index -- base 1911 = 100)	124	135	128	137	146	-

   Source: Labour Report No. 33, 1943 (Commonwealth Bureau of Census and Statistics).

   
   

   The words "material production" in the table refer to the production of physical goods only, and take no account of services.  In order to offset any changes in the sex composition of the working population from year to year, and thus to render the figures comparable, the total number of workers has been converted into equivalent male workers on the basis of relative wages for male and female labour.  For example, if the average wages for men in a certain section of industry were twice that of the women's wage, then women would be equated to men in the ratio of two to one.  The particular ratio used by the Commonwealth Statistician is not stated in the official publication.

   As an indicator of changes in real productive efficiency this index is subject to a number of important qualifications --

   1. To eliminate the effect of price changes, and thus to reduce the index to comparable terms, the Commonwealth Statistician has applied the "C Series" index number.  It has been suggested by trade union officials that this index substantially underestimates the rise in prices that has taken place during the war.  If this view is correct -- and there is good reason to believe that it is -- then the Commonwealth Statistician's index of real production per person would exaggerate any increase that may have taken place.

   2. The index is an index of production per head, and does not take into account the numbers of hours worked.  This seriously detracts from the index as a measure of productive efficiency (the correct measure is, of course, output per man per hour), particularly as the war years were characterised by exceptionally long hours of work because of extra overtime.  In November, 1942, the maximum working week was restricted to 56 hours under National Security Regulations.  Industries fulfilling war contracts usually worked to this maximum.  Engineering trades in particular strained to produce the utmost possible output.  In many fields of activity longer working hours were adopted in order to counteract losses of personnel to the armed forces and to high priority undertakings.

      Unfortunately, there are no official estimates of the average hours worked in any section, or over the whole field, of industry.  However, it would seem possible to obtain some idea of the average amount of overtime worked from the official figures relating to actual wages paid and of the average earnings for a full week's work -- that is, for the standard working week.  The latter figure excludes any payment on account of overtime.  By calculating the percentage of actual earnings over earnings for the ordinary standard week and making allowance for the extra rate of pay on account of overtime -- that is, time and a half -- a rough estimate can be made of the average overtime worked.  On this basis it would appear that on an average the hours worked in the later years of war were about 9% above the normal hours.  (These calculations are shown in Appendix A).  Adjusting the Commonwealth Statistician's real index of production per person for the hours worked, the figure for 1942-43 would be 133, compared with 124 for 1938-39.

   3. The Commonwealth Statistician's index includes the production of primary products, the volume of which is, of course, tremendously influenced by climatic conditions.  This makes it difficult, if not impossible, to arrive at any assessment of changes in efficiency in the primary industries on a production basis.

   
   

   Productive Efficiency in Manufacturing.

6. It would seem that a more accurate indication of movements in productive efficiency could be obtained by excluding the primary industries and considering solely the manufacturing industries.

   The following tables give figures for the value per person engaged, first of manufacturing output, and second of manufacturing production.  In each case the figures are then reduced to terms of 1938-39 prices by both the "C Series" and wholesale price index numbers.  The results obtained are then further adjusted for the amount of over-time worked in excess of 1938-39 in order to eliminate the effect of the greater hours worked during the war years.  The tables are based on information published in the official statistical publications issued by the Commonwealth Statistician, such as the Production Bulletin, the Quarterly Summary of Australian Statistics, and the Monthly Review of Business Statistics.

   OUTPUT PER PERSON IN MANUFACTURING INDUSTRIES, 1938-44.

   	1938-39	1939-40	1940-41	1941-42	1942-43	1943-44
   1. Value of output per person* at current prices, £'s	1022.2	1090.3	1148.4	1237.9	1313.2	1366.7
   2. Value of output per person adjusted by Wholesale Price Index to 1938-39 prices, £'s	1022.2	1052.4	1018.4	1007.7	966.9	989.6
   3. Value of output per person adjusted by "C Scries" Index to 1938-1939 prices, £'s	1022.2	1067.5	1063.7	1083.2	1066.6	1107.3
   4. Index of actual hours worked (1938-39 = 100)	100	100	100	109	109	110
   5. "2" adjusted by "4", £'s	1022.2	1052.4	1018.4	924.5	887.1	899.6
   6. "3" adjusted hy "4", £'s	1022.2	1067.5	1063.7	993.8	978.5	1006.6

   *Persons obtained by equating two female employees to one male.

   
   

   PRODUCTION PER PERSON IN MANUFACTURING INDUSTRIES, 1938-44.

   	1938-39	1939-40	1940-41	1941-42	1942-43	1943-44
   1. Value of Production per person* at current prices, £'s	415.1	435.6	459.0	507.2	543.2	560.8
   2. Value of Production per person reduced by Wholesale Price Index to 1938-39 prices, £'s	415.1	421.0	407.1	412.7	399.8	406.2
   3. Value of Production per person reduced by "C Series" Index to 1938-39 prices, £'s	415.1	426.5	425.1	443.8	441.2	454.4
   4. Index of actual hours worked, 1938-39 = 100	100	100	100	109	109	110
   5. "2" adjusted by "4", £'s	415.1	421.0	407.1	378.6	366.8	369.3
   6. "3" adjusted by "4", £'s	415.1	426.5	425.1	407.2	404.8	413.1

   *Persons obtained by equating two female employees to one male.

   
   

   The "value of output" represents the selling value at wholesale prices at the factory of manufactured goods made or processed during the year, including by-products.  In addition it includes the value of other work done, such as repair work, making up and assembling for customers.  The "value of production" is the total value added during the process of manufacture.  It represents the value of output less the cost of raw materials, fuel, light, heat, power and other goods consumed in the process of manufacture.

7. From the tables it can be seen that a greatly different result is obtained according as to whether the "C Series" index number or the wholesale price index is applied to deflate the increased values of output and production during the war years in order to eliminate the effect of rising prices.  This is because the wholesale price index records from 1938-39 to 1943-44 a rise in wholesale prices nearly double that recorded for retail prices by the "C Series" index.  The "C Series" index rose 23% compared with 38% for the wholesale price index.

   Neither index is entirely satisfactory for the purpose for which it is used -- the "C series" because factory output is valued at wholesale prices, and the wholesale price index because it is comprised chiefly of prices of raw materials and not of those of finished products.  Also, in view of the great increases in the prices of most imported goods during the war, it is possible that the wholesale price index exaggerates the rise that has taken place in the price of home-produced finished manufactured products.  On the other hand, it is equally possible that the "C series" index understates the rise in the prices of these products.  The correct figures for the purpose of adjusting the wartime values may be somewhere between the two.

   But the important point is that no matter which index is used, and no matter whether it is the value of manufacturing output or of manufacturing production that is considered, after allowance has been made for overtime the results in three cases give a lower figure for 1943-44 than for 1938-39.  In the remaining instance -- that of value of production adjusted by the "C series" index -- the 1943-44 figure is practically the same as the 1938-39.

   When it is remembered that, in addition, the deterioration in the quality of many manufactured products during the war has been considerable, the manufacturing statistics would strongly suggest that there has been no material increase in man-hour output since 1938-39.  On the contrary, the figures might well be taken to indicate that productive efficiency in manufacturing has fallen.  But it is not our concern to demonstrate that this is so.  We are merely concerned to show that the official data available apparently indicates that the claim of great and dramatic increases in productivity during the war is without foundation.

   
   

   Factory Horse-power.

8. The following table shows factory statistics of horse-power per head of those employed in manufacturing: --

   FACTORY HORSE-POWER PER "PERSON" AND PER WORKER.

   	1938-39	1939-40	1940-41	1941-42	1942-43
   Total Factory H.P. ordinarily in use, 000's	1,479	1,575	1,728	1,866	1,979
   Male Workers, O0O's	413	427	473	524	536
   Female Workers, 000's	153	161	177	201	223
   Total Workers -- Male and Female, 000's	566	588	650	725	759
   "Persons" (1 male = 2 females), 000's	490	508	562	625	648
   H.P. per Worker	2.61	2.68	2.66	2.57	2.61
   H.P. per "Person"	3.02	3.10	3.08	2.99	3.06

   Source:  Based on the Production Bulletin
   (Commonwealth Bureau of Census and Statistics).

   
   

   This table indicates that in the first two years of the war factory horse-power per head increased, suggesting an improvement in the capital equipment position in manufacturing industry.  By 1942-43 the position was little or no better than in the last peace years.  Because the volume of mechanical equipment available to assist each pair of hands is the most important single determinant of productive efficiency, these figures appear to disprove the assertion that there has been a significant improvement in the productive power and efficiency of industry during the war.

   
   

   Decline in Productivity?

9. From the foregoing analysis it seems evident that claims of greatly increased industrial productivity and efficiency during the war are of extremely doubtful validity.  Increased production has been made possible largely through the employment of previously unused labour resources and by the lengthening of hours of work.  While in the absence of more accurate and detailed data positive assertions in regard to productivity should be avoided, at least the information available points to the conclusion that there has been no significant improvement in man-hour output over the last six years.  On the contrary, it may well be that productive efficiency has declined.  This would be perfectly feasible because of the employment of less efficient labour and because of the fact that a large number of industries, particularly those catering for civilian needs, have been forced to carry on with relatively inefficient plant and equipment, owing to inadequate maintenance and replacement.  Bottlenecks, due to uncertain supplies of materials, would also tend to reduce productive efficiency.

B. PRODUCTIVITY DURING THE RECONVERSION PERIOD.

10. 10. What will be the trend of productivity in industry over the next two or three years of reconversion to a full peace-time economy?  Can we expect man-hour output in this period to be higher than that attained during the war?  Will industrial efficiency in the period of reconversion be as great as in the last peace years before the war -- say, 1936-37 to 1938-39 -- when we were operating under a standard 44-hour week?

11. Efficiency of production in a given industrial and economic environment depends basically on two factors -- first, the personal attitude, skill and technical knowledge of those engaged in industry, including those in managerial and administrative positions;  and, second, the volume and quality of capital plant and equipment available per head of the working population.  Assuming that there is a reasonable level of efficiency and skill and energy among the working community, then the latter factor -- the volume of capital equipment -- is the chief determinant of the amount of output which can be achieved in an hour of work.  It is no coincidence that the richest country in the world, the one with the greatest per capita national income -- the United States -- possesses a substantially greater amount of capital equipment in relation to its working population than any other nation.

    
    

    The Labour Factor.

12. It is unlikely that in peace-time, with the compelling motive of national survival no longer present, the average worker will display as much energy in his job as he did during the war. ⁽²⁾  Certainly the progressive lowering of personal taxation below the abnormally high levels of war-time will give an increased incentive, but it is unlikely that this will be sufficiently great over the next twelve months to have a really marked effect.

    During the transition years it is also to be expected that there will be a considerable amount of unavoidable personal inefficiency.  Men will have to be fitted into new and unfamiliar occupations.  Difficult psychological adjustments will have to be made by many service men and women returning to civil life.  It will be a period of unsettlement.  Extensive training and re-training will be necessary to provide for industry's need for skilled personnel of different types.  By and large it would seem optimistic to suppose that the efficiency of the individual worker will be higher during the next twelve to eighteen months than it was during, or in the years immediately preceding, the war.

    
    

    The Capital Equipment Factor.

13. The other main factor influencing productive efficiency is the amount of capital equipment in relation to the size of the working community.

    What has been the movement during the war in the volume and condition of the nation's capital assets available for the production of civilian goods and services?  This problem may be conveniently considered under four main heads:

    1. Manufacturing industries.
    2. Rural industries.
    3. Tertiary industries -- trade, commerce, services, etc.
    4. Investment in capital assets -- such as roads, railways, irrigation schemes -- by governmental authorities.
    
    

    (a) Manufacturing Industries.

14. Until recent years the importance of productive assets as a factor in the economic life of the modern industrial community has tended to be somewhat underestimated.  This has meant that insufficient attention has been given by private and public statisticians to the measurement of the extent and nature of these assets and their movement from year to year.  It is impossible at the present time to give a rounded and comprehensive picture of the trend in capital plant and equipment, and other assets of a productive character, during the war years.  However, the movement in certain sections of the industrial equipment of the community can be assessed with a reasonable approach to accuracy.  This applies particularly to the plant and machinery used in manufacturing production, and this section has a special significance from the point of view of its effects on the productive capacity of the economy.

    The most reliable estimates of pre-war productive assets are probably those compiled by Dr. Roland Wilson, the Commonwealth Statistician, for a paper entitled "Public and Private Investment in Australia," which was made public early in 1939.  While it has not been practicable to apply the methods used by Dr. Wilson to the measurement of the changes in factory plant and equipment during the war, some idea of these movements can be ascertained from the statistics of plant and equipment for factories published in the Production Bulletin prepared by the Commonwealth Bureau of Census and Statistics.  From this source an assessment has been made of the extent of the wartime additions to industrial machinery compared with the additions made for five peace years from 1934 to 1939.  This assessment is based on the classification of factories used by the Commonwealth Statistician.  It is shown in detail in Appendix B attached.  The figures cover five pre-war years and the five war years up to 30th June, 1944.

    The figures show that, over the five years of peace up to the 30th June, 1939, the value of factory plant and machinery increased by approximately £24m., or by just under £5m. a year.  During the five years of war, the value of factory plant and machinery increased by approximately £37m., but of this amount at least £20m. represented additions in industries primarily devoted to war purposes and which seem to be of very doubtful value as contributors to peace-time prosperity.  This means that the increase in the value of factory plant and machinery in the industries which are definite contributors to peace-time prosperity during the five years of war, amounted to only around £17m., or a little over £3m. a year as compared with the rate of £5m. a year recorded between 1934 and 1939.

    Examination of the wartime movement in the value of plant and machinery within the various industries, as classified by the Commonwealth statistician, discloses that over 90% of the aggregate increase of £37.3m. has been confined to two industrial groups as follows: --

    Class III -- Chemicals, Dyes, Explosives, Paints, Oils, and Grease	£10.6m.
    Class IV -- Industrial Metals, Machines, Implements and Conveyances	£23.9m.
    	£34.5m.

    
    

    Within these groups are included certain industries in which a vast expansion has occurred almost wholly for the purpose of meeting special war demands.  Some idea of the magnitude of this specialised expansion may be obtained from figures of plant and machinery in the explosives industry, which showed an increase of about £8m. between 1939 and 1943, and in the armaments, aeroplane and ship-building industries, which showed an increase of approximately £12m. over those years.

    On the other hand, over the war years a number of industries have shown an actual decline in the value of their plant and machinery.  In the main these were:

    Class I -- Treatment of non-metalliferous mine and quarry products	-£1.9m.
    Class II -- Bricks, Pottery, Glass, etc.	-£0.9m.
    Class IX -- Food, Drink and Tobacco	-£0.2m.
    Class XI -- Furniture, Bedding, etc.	-£0.2m.
    Class XIII -- Rubber	-£0.2m.

    
    

    In most of these industries there had been a substantial and fairly regular increase in the value of plant and machinery over the five pre-war years.  Of the remaining industries the rate of peace-time expansion in the value of plant and machinery was, at best, barely maintained during the war years and, in some cases, it fell considerably short of the pre-war advance.

    In comparing the wartime with the pre-war figures there are two important points to be borne in mind:

    1. The rapid rise in prices during the war, particularly in the prices of constructional materials and capital equipment of most kinds, means that the figures for the war years give an exaggerated picture of the increase in the physical volume of factory plant and machinery during those years compared with the five years preceding the war.  During the five pre-war years prices did not greatly increase.
    2. The major improvements in any increase in the real volume of factory plant and machinery that may have taken place over the whole period of the war, almost certainly occurred before the 30th June, 1943.  This conclusion is confirmed by an examination of the annual increases in value.  These were as follows:-

    June, 1939, to June, 1940	£6.1m.
    June, 1940, to June, 1941	£11.6m.
    June, 1941, to June, 1942	£7.8m.
    June, 1942, to June, 1943	£7.8m.
    June, 1943, to June, 1944	£4.0m.

    
    

    Clearly, the war-time additions recorded a marked slackening after 1943.  Moreover, the increase of £4m. between 1943 and 1944 was confined almost exclusively to war industries.  It is possible, therefore, that since 1944 the total productive effectiveness of plant and machinery in industries primarily civilian, far from increasing, has actually declined.

    The conclusions which might be drawn from this analysis are:

    1. That the net addition to the volume of factory plant and machinery for civilian production over the whole period of the war was only moderate.
    2. That what increase occurred was ill-balanced, in the sense that it was confined to relatively few industries, while over a large field of important peace-time industries either additions to plant and equipment were insignificant, or an actual decline occurred.
    3. That, apart from any absolute increase in factory capacity that may have taken place over the war, the yearly rate of increase was greatly less than the average yearly increase in the years preceding the war.  There can be little doubt that, but for the war, we would have been considerably better off in productive equipment in secondary industry than we are to-day.
    4. The available evidence does not support the claim that as a result of the war the productive capacity of secondary industry has greatly advanced.
    
    

    (b) Rural Industry.

15. The effect of the war on the capital assets and equipment of the rural industries cannot be closely ascertained from official statistics or official sources of information.  Since the establishment of the system of War Agricultural Committees in 1942 the Commonwealth Statistician has collected statistics giving details of the numbers of farming implements of different types employed on Australian farms -- for instance, milking machines, harvesters, reapers and binders, tractors, etc.  These figures -- which are shown in detail in Appendix C -- would suggest that in the case of some machines the farming community has become better equipped over the war years -- at least this is the case from 1942-43 to 1944-45.  This applies particularly to milking machines, single furrow ploughs, harrows and tractors.  The main increases in equipment relate to the production of vegetables and dairy produce.  On the other hand, the quantity of farming implements of important types in the major agricultural industries has fallen -- multiple ploughs, cultivators, headers, strippers and harvesters.

    In judging the significance of the figures it should be borne in mind that statistics showing the addition in any one year to the number of machines employed give no indication of the depreciation which has taken place on those already in use.  A great deal of farming equipment is "ageing" and becoming less efficient, because of the difficulty of making normal replacements over the war.

    It is generally accepted that in the matter of other capital assets such as farm buildings, fences, windmills, tanks, and power plants, there has occurred a very considerable deterioration.  During the war it has been virtually impossible to carry out structural improvements or maintenance because of the insufficiency of manpower and materials.  It is also highly probable that the fertility of farmlands has declined because of shortages of fertiliser and inadequate attention.

    It would seem to be safe to draw the conclusion that the productive power of the major rural industries has suffered some deterioration over the war years.  This conclusion is confirmed by the opinions of farming experts and of those engaged in, or connected in some way with, the rural industries, with opportunities of first-hand observation.

    
    

    (c) Tertiary Industry.

16. In the modern industrial community an increasing proportion of the working population has come to be engaged in the tertiary industries providing services of all descriptions -- wholesale and retail trade, entertainments, hotels, banking and financial services, and so on.  In fact in Australia there is a greater number of people employed in this class of industry than in the primary or manufacturing fields.  It is true that the relationship between the assets of these industries and productivity is not so direct as, for instance, in manufacturing.  Nevertheless, the changes in these assets cannot be disregarded in any attempt at evaluating the productive power of the community.

    Because these industries were not so vital to the war effort as other industrial sections, they suffered a great curtailment of their activities during the war.  Staffs were severely reduced, and normal upkeep for many establishments became impossible.  It seems certain that the physical assets of the tertiary industries -- buildings, furniture, office equipment, fittings -- deteriorated considerably over the war years owing to inadequate maintenance, the difficulty of effecting improvements or of making additions.

    
    

    (d) Public Investment.

17. The remaining field of investment in capital assets is that of public investment -- that is, the expenditure of Commonwealth, State and local governments on bridges, roads, railways, irrigation, water conservation, power schemes and so on which improve the effectiveness of the community considered as a producing unit.

    Owing largely to complications introduced by the war it has not been possible to arrive at any clear or comprehensive picture of what has occurred to public assets over the last six years.  For instance, the vast expenditure of the Federal Government during the war which has been lumped together under the general heading of "war expenditure" presents the private investigator with an insurmountable obstacle in any enquiry of this kind.  While the great proportion of this expenditure can have no permanent value from the viewpoint of civilian production, there is a section of it with a peace-time significance.  But the magnitude of this section cannot be estimated with any accuracy.

    So far as additions to public assets of a civilian character are concerned it may be safely assumed that the waging of total war enforced a substantial reduction below the normal peace-time average.  An analysis of the gross loan expenditure of the States during the war shows in most items -- notably roads, bridges and harbours, public buildings, relief works, irrigation -- a substantial falling off in the amount expended.

    To obtain a picture of the net position the new additions to public capital assets made during the war would have to be balanced against the heavy depreciation and arrears of maintenance work in public utilities which has occurred.  Government documents ⁽³⁾ bear witness to the excessive wear and tear of equipment and to the accumulation of maintenance work -- particularly in undertakings such as railways and tramways and in public buildings -- resulting from war-caused scarcities of manpower and materials.  In the Victorian State Railways alone a fund of £5m. has accumulated over the war for purposes of normal replacements and renewals. ⁽⁴⁾  Even when allowance is made for expenditure on works and utilities coming under the heading of "war expenditure" and having a peace-time value, it is by no means beyond the bounds of possibility that public capital assets would show a net falling-off over the war years.

    
    

    Greater Working Population.

18. The working population, after the main demobilisation of the forces is complete, may be about 15% greater than in 1938-39.  As it is capital per head of the employed community which affects productive efficiency, this increase would have to be allowed for in any comparison of the present with the 1939 position.  In other words, we would need to-day roughly 15% additional capital over and above the 1939 stock to be in as satisfactory a position as the last peace year.

19. From this analysis it seems clear that no vast improvement in the productive capacities of the nation has been made during the war.  On the contrary, if there has been any improvement at all, then, when consideration is taken of the greater working population, the improvement may be slight.  Nor can there be any possible doubt that if the war had not interrupted the normal trend of economic progress we would have been in an infinitely better position to-day so far as capital assets are concerned, and, therefore, in our ability to produce and to maintain and improve standards of living.

    It is misleading to talk vaguely -- as many are doing -- of new industrial and scientific resources, knowledge and techniques born of the pressures of war.  There may be no doubt about the existence of these.  But before they can be applied to enhance industrial efficiency and raise living standards they will need to be translated into terms of physical equipment and machines working with new processes, producing new, better and cheaper products.  This will take time, money, enterprise and work.  Some time must elapse before any substantial quantity of new machinery and equipment can be manufactured, installed and made ready to swell the stream of production.

C. EFFECT ON PRODUCTIVITY OF A REDUCTION IN HOURS FROM 44 TO 40.

Would a 40-hour Week Increase Man-hour Output?

20. Those who support the introduction of the 40-hour week often claim that the reduction of hours of work from 44 to 40 will bring about an improvement in man-hour output, and that this improvement will for the most part offset any fall in production consequent upon a shorter working week.  While the number of hours of work will be less, a greater volume of output will be produced in each hour, thus maintaining total production.

21. Can this claim be substantiated?  It is undoubtedly true that, where they are excessive, the reduction of hours of work leads to an increase in the amount of work done by the hour.  Where the length of the working week is such as to cause severe mental and physical fatigue, then the introduction of a shorter working time would unquestionably bring about an improvement in the amount and quality of the work performed.  An outstanding example is provided by Great Britain after the first World War, when in many industries hours were reduced from 56 to 48.  It was found that, in general, man-hour output advanced considerably.

    But improvement of this kind is most noticeable when hours of work are already excessive, or, at any rate, fairly heavy.  Scientific investigation has shown that by and large a 48-hour week gives better results in terms of man-hour output than a working week of 52 hours.  There is, however, no body of experience to prove that, in general, any material increase in hourly output is obtained when hours are further reduced to 44.  Still less is there anything to suggest that a 40-hour week would give a very much greater -- if at all greater -- man-hour output than a 44-hour week.  In a survey conducted by the Industrial and Health Research Board ⁽⁵⁾ of Great Britain into the relationship between hours and output the following statement is made:

    "At present sweeping statements connecting reduction of working hours with either marked increase or decrease of output are not warranted."

    
    

    48-Hour Week Best for Maximum Output.

22. Whether a 40-hour week would give a higher hourly rate of output than a 44-hour week, is at present in the realm of conjecture.  On the other hand, the whole of scientific investigation and authoritative opinion indicates that the highest total volume of output is obtained with a 48-hour week.

    Mr. Seebohm Rowntree, a noted authority, writes:

    "Experience seems to point to 48 hours as the length of the working week which may suitably be regarded as the standard in most industries, and I should say that any deviation from it must be justified by the facts.  A reduction should only be made if it is necessary for health, or if it can be taken without materially increasing the cost of production."

    Another authority, Dr. P. Sargant Florence, says:

    "Reductions from a 12-hour to a 10-hour basis result in increased daily output;  further reductions to an 8-hour basis results in at least maintaining this increased daily output, but further reduction while increasing the hourly rate of output seems to decrease the total daily output.

    "Since one standard length of working week must be chosen the 48-hour week probably best satisfies the criterion of maximum output with minimum accidents, lost time and overhead charges ... at any rate this seems to the writer the teaching of all the scientific investigation hitherto attempted."

    "The Economist" of 24th November, 1945, makes the following comment on the agitation in Great Britain for a 40-hour week:

    "There may be a few industries where more could be produced in 40 hours than in 48, but they must be very few ... in any discussion increased output must be the touchstone.  The nation cannot afford the luxury of shorter hours and less output;  and if improved techniques can increase productivity, the first benefit should accrue to output (and wages) rather than to leisure."

    A report on the wage structure of the cotton industry in Britain (which is undergoing a process of technical re-organisation and rationalisation) by a Committee of four representatives each of employers and employees under the chairmanship of Mr. Justice Evershed, reveals that in the interests of production, the unions decided not to press their demand for a 40-hour week and agreed that for the present the 48-hour week be retained.

    In a publication, "Planning Hours of Work," issued by the Commonwealth Department of Labour and National Service, there is a paragraph reading:

    
    

    "The Hours for Best Output.

    "Measurement of quantity of output in relation to hours of work is too difficult, and needs too much time and attention, to be done often.  Sufficient results are now available to relieve the individual manufacturer from the necessity of attempting it in normal cases.  As might be expected, hours for highest weekly output depend to some extent on the occupation (type of operation performed) and the conditions in which the work is done.  But often plants in which many types of occupation are performed must, for reasons of organisation, work uniform hours throughout.  Wherever a number of occupations have to be worked for uniform hours, or the trouble of making differences is not worthwhile, 48 hours per week is the best general level to apply over a period, in manufacturing industry.  This is admittedly too long for heavy manual labour, and shorter than necessary for some machine minding, but is a reasonable and simple compromise."

23. The verdict of scientific knowledge and informed opinion, then, is that from the standpoint of total production 48 hours is the optimum working week.  In other words, any shorter working time must tend to bring about a fall in the total volume of output.  This does not, of course, mean that the hourly rate of production would necessarily decline with a reduced working week, but it does mean that it would not increase sufficiently to offset the loss in production due to the shorter working period.  Any claim, therefore, that total production, and thus that strictly material standards of living, could (other things being equal) be as high with a 40-hour week as with a 44, would seem to be utterly without foundation.

24. We are speaking now, of course, in general terms.  The best possible length of working week from the point of view of production varies as between different industries, the kind of job and the physical and mental make-up, age or sex of the worker.  The optimum working time is undoubtedly shorter for women than for men.  It is longer for industries in which the pace of work is set by the machine rather than by the human being.  It is shorter for mental than for physical occupations.  But these variations do not overthrow the scientific verdict that, by and large, and on the average, a standard 40-hour week would give a smaller total output than a standard 44-hour week, and a 44-hour week a smaller output than one of 48 hours.  This must not be taken to mean that the restoration of a 48-hour week is advocated.  This would be highly impracticable.

    
    

    Man-hour Output May Not Change Under 40-hour Week.

25. We have argued that a reduction in hours from 44 to 40 must cause a decline in total output.  But what would be the effect of the reduced working time on the rate of output -- production per man per hour?  Under present conditions it is difficult to reach a precise conclusion on this point.  From the standpoint of economic and industrial policy the safest assumption to make, in our view, is that man-hour productivity would remain unchanged with a 40-hour week.

    There are things to be said both for and against a rise in productivity: In some industries dependent mainly on heavy machinery the pace of work tends to be determined by the machine, not by the worker.  In these cases there might be little or no increase in the rate of output.  On the contrary, if the shorter working week leads to more frequent "starting up" and "stopping" of machinery in relation to hours, the rate of output might well decline.  In industries in which the human factor is predominant there might possibly be some increase in man-hour output.  But it is necessary to note that where experience has shown that there have been significant increases in output with reduced hours, this has usually related to industries in which the hours of work are already so long as to cause tiredness and general fatigue.  It is difficult to believe that in most industries, provided they are properly organised and make provision for an adequate annual holiday for their employees, a 44-hour week could cause a serious measure of fatigue.  In this regard it should be mentioned that at the present there is a strong tendency in industry throughout Australia for the length of annual leave to be increased up to two weeks a year.

    In work, mainly of an office and clerical character, a reduction in hours might bring about an increase in the efficiency of work.  If the same total amount of work has to be performed, then the tendency would be for many offices to discharge it in the shorter time.  On the other hand, it should be borne in mind that there is not the same rigidity in the observance of hours in office as in factory work.  So far as some of the higher administrative functions are concerned, it is highly improbable that the introduction of the 40-hour week would make any real difference to the hours worked.

---

SECTION II -- CURRENT SHORTAGES OF CONSUMPTION GOODS AND CAPITAL EQUIPMENT IN RELATION THE 40-HOUR WEEK.

POST-WAR STANDARD OF LIFE.

1. The outstanding feature of the Australian economy at the present time is the severe shortage of consumption goods and services of practically every kind and of essential materials.  Consumption goods are not only in short supply, but generally (owing to austerity styling and other factors) they are of extremely low quality and, in relation to money incomes, of extremely high cost.

   In addition, the position of the nation's stock of physical capital -- both privately and publicly owned and controlled -- is anything but satisfactory.  Regardless of whether there has been any increase in the quantity of capital assets since 1939 we must not lose sight of the fact that, but for the intervention of the war, we would have been some hundreds of millions of £'s richer in capital equipment and durable goods such as houses than we are to-day.  The war may have greatly speeded up the rate of acquisition of scientific and technical knowledge, but it has vastly slowed down -- and in many respects, reversed -- the normal rate of economic progression.  Furthermore, the capital equipment existing to-day has to provide for a vastly greater demand for the goods and services than obtained before the war.  This demand exists, of course, in the form of generally higher money incomes and a great volume of banked-up purchasing power represented by money savings.  The war has meant that we have been unable to extend our capacity to produce peace-time goods and services to an extent which is anything like commensurate with the growth in demand.

   In some quarters it is held that by comparison with the most advanced technical standards much of our industrial equipment is outmoded.  Until this is rectified our competitive position in certain industries may be in danger.

   The Australian economy to-day is undeniably an economy of scarcity and, for this country, of low real standards of life.  To transform it into an economy of plenty with a high standard of living, within a reasonable time, will require a full concentration on the task of increasing production.

   The bearing on this situation of a general reduction in the working week from 44 to 40 hours needs to be carefully appraised.

   
   

   SHORTAGES OF CONSUMPTION GOODS.

2. The extent and range of the current shortages in consumption goods -- necessities, comforts and luxuries -- from which the community is suffering are easy to under-estimate.

   The variety of food available is far below the 1939 standard.  Meat, butter, and tea are still rationed.  Many kinds of vegetables and fruit are in short supply and excessively high in price.  Bacon is scarce.  There is no cream available for the general public.  Canned fruit and fish are obtainable only in very small quantities.  Chocolates, confectionery, and soft drinks are still not easy to purchase.  The scarcity of beer, whisky and other alcoholic drinks does not need to be pointed out to the average Australian.

   Clothing is still tightly rationed -- so far as men's clothing is concerned almost as severely as at any time during the war.  At the moment some articles of men's apparel are well-nigh impossible to obtain.  The quality of clothing is on the whole poor -- much below the pre-war standard -- whilst the price of clothing is abnormally high -- for some articles almost 100% above the pre-war price.

   The housing situation is as acute as at any time in Australian history.  Official quarters estimate that we are 400,000 houses short of the number needed to house properly the Australian population.  (This problem is referred to in more detail in paragraph 6).  The lack of sufficient school buildings and the antiquated nature of much of the existing school accommodation are a source of constant reference in the press.  There is a threatening shortage of hospitals and medical facilities.  Office accommodation in the major capital cities is almost unobtainable.  We are greatly in need of modern civic buildings -- libraries, art centres.

   Furniture and house decorations are scarce and of poor quality.  Household amenities -- refrigerators, radiators, radio sets, gramophones, vacuum cleaners, carpet sweepers, gardening tools, crockery and to a less extent cutlery -- are still difficult to obtain.  Household linen and towels are among the articles rationed.

   Motor cars are almost unprocurable;  tyres are in short supply;  petrol is heavily rationed;  servicing facilities for the motorist are inadequate.

   All kinds of goods in the luxury class are difficult or impossible to purchase -- cigarettes, tobacco, pipes, jewellery, watches, clocks, sporting equipment, golf clubs and balls, tennis racquets, cricket bats, high-class children's toys.  The pre-war standard of packaging and display has yet to be regained.

   In the field of services the position is if anything worse than in the case of consumer goods.  Shop deliveries have not been universally restored.  Shop service has deteriorated.  Laundry and dry cleaning facilities are inadequate in proportion to the population.  Domestic service for the home is difficult to obtain, and, for most incomes, almost prohibitive in price.  Nursing services are desperately short.  Hotel and cafe facilities are short in quantity and comparatively poor in quality.  Transport services are unsatisfactory.  Entertainment facilities are inadequate for the population for which they cater.

   
   

   PRICES AND MONEY INCOMES.

3. Apart from the quantity and the quality of consumer goods and services a most disturbing feature of the economy is the inordinately high purchase prices in comparison with the general level of money incomes and with the 1939 position.  For example, the cost of building a home to-day is upwards of 60% above pre-war cost.  Unless the cost of home construction is greatly reduced it is difficult to see how under these circumstances -- and particularly when the heavy burden of taxation is considered -- the great majority of people can hope in the future to own the houses in which they live.  According to present indications from motor-car manufacturers and distributors, the low price car before the war will, in the future, be in what was previously considered the high price field.

   It is clear that if standards of living are to be rapidly improved, or even restored to the pre-war level, a great drive to reduce costs of production must be launched.  The tendency of the 40-hour week must, for some few years to come, inevitably be to raise costs.  Estimates of this cost are shown in Appendix D.

   
   

   UNFAIR DISTRIBUTION.

4. In addition to grave shortages, high costs, and poor quality products, a further and most unfortunate result of the failure to re-establish production is a serious disruption to the normal peace-time distribution of what goods and services are produced.  There is ample evidence in the community to-day that a new inequality in the distribution of a large proportion of goods and services has appeared.  This inequality arises from the fact that many of the products in short supply, outside the range of the basic necessities of life, are available mainly to those who happen to be in the position of knowing how and where to obtain them.  Equal opportunity and fair competition in the purchase of many goods no longer applies.  In other words, the factors of chance, privilege, friendship, or favour have assumed a new importance in the process of distributing the limited supply of many products.  Though the war, through steeply-graded taxation and the institution of extensive social services, has ironed out inequalities in incomes and monetary wealth, the influences just referred to have been strong enough to produce, over a wide range of goods and services, a new form of inequality which is basically unfair and most undesirable from the standpoint of the nation's moral welfare.

   Shortages of goods and heavy taxation, while they continue, are an ever-present temptation to evasion of the law.  The temptation grows as the patriotic impulse of war vanishes and the longer the conditions prevail.  There is, therefore, the most urgent need to remove as soon as possible the underlying cause -- namely, the gap between the production of goods and the demand for them.

   
   

   ARREARS OF PRODUCTIVE CAPITAL.

5. There is a vast task before the nation in restoring, converting, modernising and expanding its stock of capital assets.

   Arrears of capital maintenance in both private industry and in public assets and utilities, built up over the war years, have to be overtaken.  Where machinery has been rendered out of date or obsolescent as a result of technical progress and scientific discovery during the war it must be replaced by more modern plant.  Peace-time expansion of capital assets is urgently needed in every direction to cope with heavy demands for consumer goods, particularly of the durable type.  There is a great amount of new public and private capital development, postponed because of the war, which should now be undertaken.

   We are faced with the problem not merely of restoring the pre-war standards of production and of life, but of building up those standards to a point where it is possible for all members of the Australian community to enjoy a life of prospect and well-being.  As a means to this end, and as a prime purpose of economic policy, we should aim at lifting the annual rate of investment in capital assets of all descriptions greatly above pre-war levels.

   The apparent effect of six years of war on the productive assets of Australia has been outlined in some detail in paragraphs 13 to 19 of Section I, and there is no need to repeat the story here.  The main point to bear in mind is that the war has not accelerated the rate of accumulation of these assets, as is often claimed, and that, but for its intervention, our power to produce efficiently would have been far above what it is at present.

   
   

   HOUSING SITUATION.

6. Housing presents an important case calling for special consideration.  Official quarters have estimated that the nation is 400,000 houses short of the number necessary to provide a decent standard of accommodation for the people.  Before the war the maximum rate of home construction in a year was 35,000 houses.  Over the whole period of war only about 50,000 new homes were built.  But for the war, therefore, we might have possessed to-day something like 160,000 additional homes.  Assuming an average cost of £1,250 each, arrears in housing construction caused by the war would amount to about £200m.  The total backlog of capital equipment and housing construction would probably run to several hundreds of millions of pounds.

7. The present economic picture of Australia is thus:

   • First, one of scarcities and shortages of those consumption goods and services, the quantity of which (and not the quantity of money) determines the real standard of living of the people.
   • Second, one of great arrears of capital assets, both public and private, caused by the interruption of the normal trend of economic progress by the war.  An abundant and constantly increasing supply of these assets is a pre-requisite to a high and steadily increasing volume of consumption goods and services.
   • Third, one where a new inequality in the distribution of many goods and services has appeared -- an inequality which is basically unfair and damaging to the moral standards of the nation.
   • Fourth, one where a good proportion of existing capital equipment, either has been -- or may soon be -- rendered obsolescent, and consequently uneconomic and uncompetitive, by the new scientific and technical advances which have occurred during the war.
   • Fifth, one where a vast home building programme at a rate of construction far above pre-war levels is necessary if grave social consequences arising from a tragic lack of houses are to be averted.

   This is a situation which calls irresistibly for the maximum possible production and the fullest use of all resources of labour, capital and materials.  Until the shortages have been solved and the arrears overtaken it would seem utterly wrong to contemplate a reduction in hours which, as all scientific experience shows, must result in a level of output below that which would be possible if the present standard working week were retained.

   The plain, and unpleasant, fact is that the Australian people to-day possess a much lower standard of peace-time life than for many years.  Is it then the right time to introduce a general reduction throughout industry of the hours of labour?

   
   

   OPPORTUNITY FOR DEVELOPING EXPORT TRADE IN MANUFACTURED PRODUCTS.

8. A further point should be added.  The prevailing economic condition of the world is one of desperate shortages and in many countries of tragic destitution and want.  The world to-day urgently needs basic goods and services of all kinds, particularly consumption goods.  In this situation we have the opportunity to make not merely a great contribution to the physical and moral rehabilitation of sections of the world, but to establish international goodwill and new markets for many kinds of manufactured goods.  To make this contribution, to grasp this opportunity, and to solve rapidly our own internal problem of scarcities, at one and the same time, will demand the utmost concentration in expanding the volume of our production.  We must produce sufficient to provide a surplus above our own internal requirements for export.

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SECTION III -- EFFECT OF THE 40-HOUR
WEEK ON THE COST AND PRICE STRUCTURE.

THE PRICE STABILISATION POLICY.

1. The present cost and price structure is dominated by the price stabilisation policy which came into operation on the 12th April, 1943.  This policy is designed to impose an overall ceiling on the prices of goods and services -- not merely on retail prices but on prices throughout all stages of production and distribution.  The price ceiling is based on the prices ruling at the 12th April, 1943.  The maintenance of the price ceiling has made necessary the fixation of rents and, for the most part, the pegging of wages.  It has been accompanied by a policy of cheap money, involving the progressive reduction of interest rates.

   It has not been possible to entirely eliminate rising costs -- for example, those resulting from changes in the prices of imports or from unusual conditions of supply.  In exceptional cases price rises are permitted to cover increased costs.  Sometimes the costs are absorbed somewhere in the chain of production and distribution.  In other words, where it is possible for a manufacturer or trader to stand higher costs, the prices allowed to be charged by the suppliers of his materials may be increased.  Whenever increased costs cannot be absorbed in these ways, without danger to the general price and cost structure, they are balanced by the payment of subsidies.

   This, in broad outline, is the policy of price control being pursued by the Commonwealth Government.  The Government has on many occasions stated its intention of maintaining control of prices during the transition to a peace-time economy, and until the danger of inflation due to the pressure of demand on short supplies of goods and services, is passed.

2. How would the introduction of a 40-hour week affect this position?

   Unless there is a marked rise in productivity, that is, output per man-hour, sufficient to balance the loss of output which would otherwise result from a shorter working period, then the 40-hour week would lead to an increase in unit costs of production.  How could these extra costs be borne?  There are four theoretical possibilities:

   1. A reduction in profit margins -- that is, prices would remain stable and the cost would fall on the producer or distributor.
   2. An increase in prices -- this would mean that the consumer would bear the cost.
   3. The payment of government subsidies to producers and distributors affected -- in this case the cost would fall on the taxpayer.
   4. A combination of any two or all of the above methods.
   
   

   COST OF 40-HOUR WEEK.

3. What would be the cost to the national economy of the 40-hour week?

   This will depend on whether output per man-hour increases, or decreases, or remains unchanged with the reduction of hours from 44 to 40.  We have suggested in Section I that the most reasonable assumption is that there will be little, or no immediate, or early, change in man-hour output under the 40-hour week.  Certainly this is far more likely than that there would be either a marked increase, or decrease, in productivity with the shorter working period.

   On the assumption, then, of constant productivity, it should be possible to estimate with a rough degree of accuracy the effect on production costs of the 40-hour week.  A reduction of 1/11th in hours would decrease output and increase the unit cost of goods and services in those industries affected.  This additional cost would consist of an increase both in labour and overhead costs per unit of production.  We have estimated the additional cost of the 40-hour week to be of the order of £50m. to £70m.  Of this, about £40m. is attributable to increased labour cost and about £20m. to increased overhead.  These figures should not be taken too literally.  They represent only an attempt to assess the rough proportions of the increased cost of production which would be involved in the 40-hour week.  They do not purport to give a closely accurate estimation of the cost -- even if that were practicable.  The details of the cost estimates are shown in Appendix D.

   
   

   REDUCTION IN PROFIT MARGINS.

4. This added cost would have to be absorbed into the cost and price structure by one of the methods indicated above -- that is, by the reduction of present profit margins, or by a rise in selling prices, or by the payment of subsidies or by a combination of these.

   Let us consider the first possibility.  Would it be practicable to absorb the increased cost of the 40-hour week into the cost and price structure by a reduction of profit margins?  Obviously the answer will depend on the profits of industry, which consist to a major extent of the profits of private and public companies.  It should be borne in mind that profit margins in the great majority of cases have already been substantially reduced below pre-war levels because of the combined effect of heavy wartime taxation and price control.  On the basis of a survey of 617 companies the Commonwealth Bank Statistical Bulletin (June, 1945) shows that the ratio of "profits after making provision for taxation" to shareholders' funds fell from 6.8% in 1939 to 6% in 1944.

   In 1944 the official figure for the total of company profits distributed as dividends is £38m.  No reliable statistics of undistributed profits are available, but on the assumption that companies set aside on an average about 25% of their net profits to reserves (this is almost certainly an over-estimate), then undistributed profits might be placed at £15m.  The total of company profits for 1944-45 on this basis of calculation would therefore be £53m.  To attempt to absorb the increased cost of the 40-hour week, or even any reasonable proportion of it, by a reduction of profit margins would therefore be plainly impossible.  Any decrease of profit returns below the present level would without question have a serious effect on business enterprise, the rate of capital replacement and post-war development, and the ability of private industry to re-employ demobilised members of the defence forces.

   
   

   AN INCREASE IN PRICES.

5. What of the second course -- a rise in selling prices?  This would be contrary to the pronounced intention of the government to maintain stability of prices, and, if of any magnitude, would introduce a threatening inflationary element into the cost and price structure.  An increase in selling prices would lead to a rise in the basic wage and its super-structure.  This, in turn, would bring about a further inflation of costs, followed by another increase in wages.  This process would continue until a higher general level of prices was realised, at which the total reduction in the real value of incomes not subject to adjustments on account of rising costs of living was more or less equivalent to the decrease in the real value of output brought about by the shorter working week.  In this case the cost of the 40-hour week would fall on the consuming public, but chiefly on those sections whose incomes do not derive the benefit of cost of living adjustments.

   
   

   PAYMENT OF SUBSIDIES.

6. Under the third possibility -- the payment of subsidies -- the burden of the 40-hour week would ultimately fall on the general taxpayer;  there would be no increase in prices and those whose incomes are adjusted according to price changes would make a contribution to the cost commensurate with their relative contribution to government revenue from taxation.

   
   

   FINANCIAL AND ECONOMIC COMPLICATIONS OF THE 40- HOUR WEEK.

7. All three methods would have clear disadvantages.  The first would be impracticable, and, even if used to a very small extent, would be destructive of industrial enterprise and capital development and seriously complicate the problems of post-war reconversion and re-employment.  The second would set in process an inflationary movement in costs and prices and introduce anomalies between different industries.  It would also mean that while the cost would be borne by the general consumer it would be inequitably apportioned between those whose incomes are adjusted to changes in the cost of living and those whose incomes are not so adjusted -- in favour of the former.  The third course would require a substantially higher level of taxation, and in view of the heavy rates already being paid would place an impossible burden on the general taxpayer, with a reduction of the already meagre incentive to hard work and initiative.  It is also doubtful whether any addition to the already heavy tax burden would be politically practicable.

8. The conclusion is inescapable that without a substantial and early rise in productivity (which in the light of present economic and industrial trends and of the special problems of the transition period, must be regarded as most improbable) the 40-hour week would introduce grave complications into the financial and economic structure of the Commonwealth, and render incomparably more difficult the reconversion process to a full peace-time economy.

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SECTION IV -- EFFECTS OF THE 40-HOUR
WEEK ON DIFFERENT ECONOMIC GROUPS.

1. The disadvantages of the 40-hour week would take two direct forms:

   1. The total output of goods and services would be less than the output which would be possible if the standard 44-hour working period were retained.
   2. There would be a higher unit cost of production for the smaller quantity of goods and services available for purchase.
   
   

   EFFECTS ON THE COMMUNITY OF REDUCED OUTPUT.

2. From the first disadvantage -- the smaller total output -- all members of the community, no matter to what section they belong, would suffer.

   In the first place, to reduce production now will push back the time when rationing will cease, when queues will no longer be necessary, and when the ordinary purchaser can enter a shop with the prospect that he will be able to buy the articles or commodities he requires.  In other words, the 40-hour week will postpone the day when the shortage of goods will be remedied and when the supply will be sufficient to cope with the demand.  This would obviously affect detrimentally, in a greater or lesser degree, all members of the community, and more particularly those returning to civil life from the forces, who need to make good the arrears in their personal belongings and property caused by the war.

   In the second place, even after the post-war condition of scarcity has been solved, the 40-hour week would mean for all a lower material standard of life than would be possible with a longer working week.  The community can consume no more than it produces.  If it works less then it must be satisfied to consume less.  This must also affect adversely the material standards of the great majority of the community.

   
   

   EFFECTS OF HIGHER COSTS.

3. The second disadvantage of a 40-hour week -- higher costs of production -- will have a different impact on different sections of the public.  Some will suffer very little, others considerably.

   We will examine briefly the effects of the 40-hour week on several of the major economic divisions of the community:

   1. The employer.
   2. The wage-earner.
   3. The salary-earner.
   4. Fixed incomes receivers -- those who depend for their income mainly on investments, pensioners, annuitants.
   5. The taxpayer.
   
   

   THE EMPLOYER.

4. It would, in our view, not be practicable to reduce to any extent profit margins below the present level.  After the payment of taxation, amounting in the case of companies to an average of around 11/- or 12/- in the £, compared with 4/6 before the war, these margins are over a large field of industry clearly insufficient to provide an adequate incentive to business expansion and initiative.  If a 40-hour week were introduced and costs of production raised, the employer would need to be compensated, either by being permitted to pass on his additional costs in higher prices or, while the price ceiling is retained, by the receipt of government subsidies.  Apart, then, from the possible reduction in his turnover and the weakening of his competitive position in relation to imports, the large employer might suffer no great direct loss from the 40-hour week.  The smaller employer who is more vulnerable to reductions in turnover, and who often lacks the financial strength of the larger employer, would possibly be harder hit.

   
   

   THE WAGE-EARNER.

5. On the assumption that the increased costs of production resulting from the 40-hour week were passed on in the form of higher prices the wage-earner, like the rest of the community, would have to pay more for the things that he wanted.  But, since the basic wage is adjusted in terms of a cost of living index, the real value of the basic wage -- that is, the goods it can purchase -- would not be impaired.  However, the skilled worker receiving a margin above the basic wage for his special skill would not be compensated for his "marginal rate" because of price increases.  Margins are fixed on the basis of the value of work and not on the needs of the worker -- as is the basic wage -- and therefore they are not immediately, or specifically, varied according to changes in the cost of living.  In addition, special loadings, such as the "1937 prosperity loading" and "war loadings" received by the wage-earner, are not adjusted to price changes and hence their real value would decline with rising prices.

   It is generally believed, too, that while the basic wage is adjusted to rising costs of living, the lag between the increased costs and the adjustment of the wage means a worsening of the position of the worker.  While therefore the wage-earner receives the benefit of cost of living adjustments the real value of his income would tend to decline -- even if slightly -- from increasing costs and prices.

   Against this the wage-earner would be able to place the benefit of the increased time for leisure resulting from a 40-hour week.  The main burden of the increased cost, however, would fall on those whose incomes are not adjusted to changes in the cost of living.  This would mean that the wage-earner would probably receive a greater share of the national income than before.  But it would be a greater share of a smaller national income, and, despite cost of living adjustments, his real income would be less than with the standard 44-hour week.

   
   

   THE SALARY-EARNER.

6. The effects of the 40-hour week on the salary-earner could be of a very serious kind.  Most of those in the middle group of incomes are in receipt of salaries, and the incomes of this class have already been severely depleted over the war years by taxation and higher prices.  A further rise in costs and prices by reducing again the real value of the incomes of this group would hit it very hard.  Already the position of the middle-grade salary-earner is fraught with significant, and possible grave, social consequences, and anything which would work toward a further deterioration of his economic status would, from the broad social stand-point, be highly undesirable as well as highly unjust.  The following table showing the decline since 1938-39 in the real value of salaries of £500, £800 and £1000 indicates the serious nature of the salary-earner's plight.

   REDUCTION IN REAL VALUE OF SALARIES, 1938-39 and 1944-45.
   (For incomes earned in Victoria).

   	£500						£800						£1000
   	1938-39			1944-45			1938-39			1944-45			1938-39			1944-45
   Tax (£)	25	3	8	136	13	0	70	15	5	265	8	0	97	10	0	355	8	0
   Remaining Income (£)	474	16	0	363	7	0	729	5	0	534	12	0	902	10	0	644	12	0
   Remaining Income reduced by "C series" index to 1938-9 levels (£)	474	16	0	294	7	0	729	5	0	433	4	0	902	10	0	522	5	0
   % Reduction in Real Income	-			38%			-			41%			-			42%

   
   

   THE FIXED INCOME RECEIVER.

7. Those who receive income from investments would also be affected adversely by the higher production costs of a 40-hour week.  In this grouping there is quite a big proportion of people who are dependent almost solely on the income they receive from investments for their livelihood.  Many of these are thrifty and prudent people who have saved during their working years with the object of providing themselves with a satisfactory income in their old age.  These people have suffered much hardship during the war because of high taxation and rising costs of living.  Therefore, we should if possible try to avoid any policy which would further aggravate their unhappy situation.  In this class of income receiver also fall those who are in receipt of pensions, as a result of their contribution to superannuation funds in public service and private employment.

   The following table is illuminating.  It shows the decline, caused by taxation and higher costs of living, in the real value of income from property since 1938-39:

   REDUCTION IN REAL VALUE OF INCOME FROM PROPERTY, 1938-39 and 1944-45.
   (For recipients domiciled in Victoria).

   	£500						£800						£1000
   	1938-39			1944-45			1938-39			1944-45			1938-39			1944-45
   Tax (£)	38	4	6	167	18	0	118	11	4	331	1	0	166	19	9	443	19	0
   Remaining Income (£)	461	15	6	332	2	0	681	8	8	468	19	0	833	0	3	556	1	0
   Remaining Income reduced by "C series" index to 1938-9 levels (£)	461	15	6	269	0	0	681	8	8	380	0	0	833	0	3	450	10	0
   % Reduction in Real Income	-			42%			-			44%			-			46%

   
   

   THE TAXPAYER.

8. If the increased cost of the 40-hour week were covered, to any substantial extent, by the payment of subsidies to the producer, a heavy load would be added to the already crushing burden being carried by the taxpayer.  The one advantage of this course would be that it would assist to spread the cost more or less equitably over the whole community, whereas if the cost were passed on in increased prices the impact would bear unfairly on particular sections.  However, it would not seem practicable to cover any great part of the additional cost of the 40-hour week through subsidies.  The total of subsidies for 1944-45 amounted to about £28m., but the final increase in costs of production arising from the 40-hour week might well be several times this amount.  Moreover, the Commonwealth Government has indicated its intention of making further reductions in taxation.  It would be difficult to do this if government expenditure from revenue is to be increased through the payment of large additional subsidies.

   The higher costs of public services which would follow from the introduction of a 40-hour week would throw an additional burden on the tax-paying public.

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SECTION V -- THE 40-HOUR WEEK AND EMPLOYMENT.

EFFECT OF MECHANISATION.

1. One of the arguments used most persistently in the past to support claims for a shorter working week is that the increase and spread of mechanisation, enabling a greater output of work by the individual worker, tend to lead to the displacement of labour and to unemployment.  In order to counteract this tendency, therefore, it is necessary for hours of work to be reduced to offset the effects of the growing productive power of industry on the demand for labour.

   It is interesting to note that the Commonwealth Arbitration Court has never regarded this argument as a sufficiently cogent reason to justify a shorter working week.  Nevertheless, it is being repeated in practically all the publicity accompanying the present demand for a 40-hour week.

   
   

   RATE OF TECHNICAL CHANGE.

2. It is true that the rapid introduction of modern high-output machinery into an industry -- and particularly into those industries the demand for whose products is relatively inelastic -- could lead to temporary unemployment of a serious kind.  There have been instances of this kind in the past, notably in the manufacture of cotton textiles in Great Britain and of boots and shoes.  In industries undergoing a technological revolution it is possible that the introduction of a shorter working week would assist in maintaining employment in that industry, or, at least, in maintaining it at a level above that which it would otherwise be.  In these cases it might be possible to justify a shorter working week to ease the human problems associated with the sudden displacement of labour on a large scale.  But these instances are rare.  Technical change over the whole field of industry is, if not a gradual process, sufficiently gradual to permit employers and workers to make the needed adjustments and to find fresh outlets for their energies.  Leading economic authorities generally unite in the view that the unemployment arising from technical advancement is a relatively insignificant part of the whole employment problem -- in other words, that the unemployment caused by technological innovation is slight.

3. Those who contend that mechanisation and technological progress lead to unemployment overlook an important point.  The success of a nation's industries in competition with the industries of other countries depends basically on their technical efficiency relative to the efficiency of overseas rivals.  Most industries for their expansion, or even survival, must at least keep abreast of technical progress abroad.  Technological stagnation of an industry must, in the absence of offsetting factors, ultimately bring about its decline and the displacement of workers employed in it.  Even if it is conceded that technical and mechanical progress may result in temporary unemployment in the short period, it must be clear that the neglect of this progress must tend to weaken the ability of industry to compete, and its capacity to provide employment at good wages.

4. The argument that the introduction of a 40-hour week into Australian industry will help to solve the post-war employment problem appears to be based on two assumptions.  First, that over the war years there has been a great improvement in technical equipment and man-hour output, so that to-day less labour will be required to do a given job than in 1939;  and, second, that a shorter working week will provide an important means of combating general unemployment.

   Neither of these assumptions appears to be justified.  In regard to the first, statistics of productivity and the position prevailing in individual industries do not support the view that there has been any considerable increase in man-hour output since 1939.

   In regard to the second, it is noteworthy that in none of the many recent and authoritative studies of employment policy (e.g., White Papers of the British, Australian and Canadian Governments, the reports of the Nuffield College and of Lever Bros., and Sir William Beveridge's comprehensive work, "Full Employment in a Free Society") is any mention made of a shorter working week as a means of maintaining employment.  Nor is there any reference in these reports to technological change as a potent contributory factor to general unemployment.

   
   

   LONG-TERM EMPLOYMENT AND REDUCED HOURS.

5. The idea that a shorter working week can make any material contribution to the long-term maintenance of employment is clearly based on a fallacy -- the fallacy that there is only a certain volume of work in the community to go round.  Thus, if everyone works shorter hours it will be possible to share the available work among a greater number of workers.  But if a 40-hour week would give a greater quantity of employment than a 44-hour week, presumably a week of 36 hours would provide more employment than one of 40, and a week of 32 hours more again than one of 36.

   The mere fact of economic progress exposes the absurdity of the contention that mechanisation and the use of "labour saving" devices contract the scope for employing labour.  A well-known economist, J.R. Hicks, in a book entitled "Value and Capital," points out that labour and machinery are generally complementary and that history has shown that increases in equipment lead to an increased demand for labour.

   The long-run effect of improved mechanical devices and technical methods has been to expand greatly the employment capacity of industry.  This has been brought about:

   1. by reducing the purchase price of existing products and services, thus enabling them to be brought within the range of the lower-income earners -- the reduction of prices obviously increases the effective demand for the products concerned;
   2. by the invention of new products (not substitute products) the production of which sets up additional demands for labour and capital;
   3. by the invention of new machinery or the use of additional quantities of capital equipment which require labour for their manufacture and servicing;
   4. by the progressive increase of standards of living and therefore of purchasing power resulting from the continuous improvement and development of industrial equipment -- these higher standards of living based on increased purchasing power in turn give rise to an increased demand for the whole range of industrial products and services.

   To take a simple example of the effect of technical progress on employment;  the result of the introduction of labour-saving devices into the home would, other things remaining the same, tend to diminish the need for domestic servants.  But any loss of employment on this account might be more than offset by the additional labour required to produce the new products, to supply the materials which go into them, to build the factories in which they are manufactured, to supply the fuel to drive the factories and the facilities necessary to transport the materials and products from place to place.

   
   

   REPORT OF DEVELOPMENT AND MIGRATION COMMISSION.

6. In the report of the Development and Migration Commission, "Unemployment and Business Stability in Australia," published in 1928, there is an interesting discussion of the bearing of mechanisation on employment.  This is worth quoting at length:

   "Improvements in the means of production by invention and the application of machinery are frequently accompanied by the displacement of labour and the unemployment of those displaced pending their absorption in other branches of industry.  On this account opposition is frequently expressed by those engaged in industry to the introduction of labour saving devices, it being felt that the immediate disadvantage to those displaced outweighs the general advantages to the community resulting from the use of improved methods.

   "These processes in the evolution of industry are, however, inevitable;  they are, in fact, the very life of industry, and are a most important factor in increasing the productivity of labour, decreasing the cost of living, and, therefore, increasing the general prosperity of the community.  Every increase in the productivity of labour due to improvements in technique ultimately increases the total volume of employment of all kinds in the community.

   "The opinion of authorities is that changes in industrial structure are of relative unimportance as factors in the problem of unemployment.  These changes are, as a rule, gradual."

   There follows a quotation from one of Sir William Beveridge's earlier works on employment:

   " 'The industrial population is constantly changing by death or retirement, at one end of life, and the entry of fresh generations at another;  the numbers in any industry may decline continuously without any one being displaced from it, but simply through no new men entering to take the places of those who get past work.  Industries seldom die in a night.  So, too, new machines and new processes are seldom introduced everywhere at one blow.  They come gradually and experimentally.  Even where the substitution of the new process for the old is direct, the existing workmen or some of them have naturally the first chance of learning the new one.  Often the substitution is quite indirect;  machine production grows slowly in one district or set of factories, as hand production slowly declines elsewhere.  It is not, of course, suggested that these changes are normally accomplished without loss of friction of any sort.  Every transition has its difficulties.  The point to be made is that in any industrial transition the difficulties are, as a rule, far less acute than is commonly supposed.'

   "It should be noted, however, that in modern society the state of constant change and transition is the normal condition of industry, and there is thus a tendency for the continual existence of some unemployment due to this cause.  Men who for years have followed some particular occupation and attained some special skill, upon becoming suddenly displaced by circumstances beyond their control, frequently find it difficult to start their industrial life afresh, and they are, moreover, hampered in their efforts by their lack of mobility -- the lack of mobility of labour generally.

   "The absorption into other industries of men displaced from one particular industry is, in times of active business, accomplished with a minimum of friction, but in times of general depression the transference is rendered difficult."

   
   

   BEARING OF FULL EMPLOYMENT POLICIES ON TECHNOLOGICAL UNEMPLOYMENT.

7. The modern approach to employment policy (followed in the White Papers of the British, Australian and Canadian Governments) is that the level of employment is determined by the total expenditure on, or effective demand for, goods and services.  This expenditure can be analysed into five broad components -- private expenditure on consumption goods and services, such as food, clothes, amusements;  private expenditure on durable capital goods such as plant, factory, houses;  public expenditure (i.e., expenditure by governments) on current services such as education, transport, health;  public expenditure on capital items such as railways, roads, bridges, buildings;  and expenditure on Australian goods by other countries.  Generally, the objective of the policies outlined in the White Papers is to maintain the demand for goods and services from all these sources at a level sufficient to give employment to all the available labour.  There are supplementary measures to assist high employment concerned particularly with price policy and improvement in the mobility of labour.

   The official adoption of full employment policies by the governments of the English-speaking countries places the problem of temporary -- short-term unemployment arising from technical improvements in a different perspective.  This is well described by two world-famous economists, G.D.H. Cole and Sir William Beveridge.

   In dealing with the general problem of structural unemployment, of which technological unemployment is one small aspect, Mr. G.D.H. Cole, in his book "The Means to Full Employment," writes:

   "We are therefore led back to the conclusion that serious as the problem of structural unemployment was between the wars, and may again be after the present war, the clue to dealing with it effectively lies in the handling of 'cyclical' unemployment.  If we can effectively prevent a recurrence of a situation in which the total demand for labour is well below the supply, the problem of shifting labour from one use to another will be much less difficult to handle."

   Sir William Beveridge, in his book "Full Employment in a Free Society," discussing the relationship between technical progress and employment, says:

   "Clearly no attempt should be made to stop technical progress.  It may involve some change of employment and by consequence some unemployment, but if by control of the location of industry violent local misdirection of demand is prevented, and if the entry of youthful labour into industries is controlled, while training facilities are provided for older persons, experience suggests that the resulting unemployment can be reduced to a point at which it represents no serious evil which is a small price to pay for progress."

   
   

   THE 40-HOUR WEEK AND INDUSTRIAL RECONVERSION.

8. It is generally conceded that over the next few years of transition to a peace-time economy there should be no problem of general unemployment.  During this period there will be no deficiency in the demand for labour.  Shortages of consumer goods have to be overcome, arrears of maintenance overtaken, industries re-equipped and expanded for peace-time production, services restored and new public works projects commenced.  Plans for sharing work will not be required because there should be no dearth of work for all.  On the contrary, the supply of labour available may be inadequate to the demand.  This possibility is pointed to by Professor L.J. Giblin, the Chairman of the Finance and Economic Committee attached to the Commonwealth Government, in a paper, "The Problem of Maintaining Full Employment."  Professor Giblin writes:

   "We begin to see that there is a very real possibility of our being short of labour in the post-war period.  Of course, our figures are very tentative and are just as likely to be in error one way as the other, but it is a very real possibility that there will be a shortage of labour for all the things we want to do."

   The view that there should be no fear of general unemployment in the transition years is apparently adopted in the Commonwealth Government's White Paper, "Full Employment in Australia":  "... expenditure in the transition period is unlikely to fall short of that required for maximum production, particularly since these demands are in many cases backed by accumulating purchasing power to make them effective."

   It should be clearly understood that this does not mean that there will be no unemployment at all during the reconversion period.  Patches of short-term unemployment are inevitable in a period of change and flux.  But this will be caused not by shortage of work but by technical hold-ups because of the unavailability of necessary materials and equipment, or by the sheer difficulties of organisation in bringing men and jobs together.

   Under these conditions, where there is a huge demand for goods and services, and hence for labour and materials, the reduction in the working week as a means of spreading employment would seem to have no point.  On the other hand, there are reasons for believing that the 40-hour week at this stage could easily aggravate the employment problem during the process of reconversion to peace-time production.  These reasons are as follows:

   1. The full restoration of a great number of peace-time industries will depend upon there being available adequate supplies of materials or of essential capital equipment.  For instance, the building industry will not be able to develop its full capacity for giving employment until supplies of bricks and timber and other materials have been greatly increased.  The 40-hour week by reducing the output of these materials to less than that which would be possible under a 44-hour week would tend to delay the time when all-out production in the building industry would be possible.
   2. The tendency of the 40-hour week must be to increase costs and prices.  If the higher costs mean lower margins of profit over the whole field of industry, then investment and expansion in private business would be restricted and industrial activity depressed.
   3. Increased costs in the export industries could bring about a reduction in the income of these industries, and, therefore, in the demand for goods, services and labour.  Also, there is at present an unparalleled opportunity for building up an export trade in many kinds of manufactured products which will help to provide employment and raise standards of living.  These opportunities are being lost, and can be lost in the future, through our inability to supply the markets in question.  The smaller output consequent upon a 40-hour week could easily mean the sacrifice of many profitable openings for the export of manufactured products and future employment.

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SECTION VI -- EFFECTS OF THE 40-HOUR WEEK
ON THE RURAL INDUSTRIES AND EXTERNAL TRADE.

SPECIAL PROBLEM OF THE RURAL INDUSTRIES.

1. The bearing of a 40-hour week upon the rural industries requires separate analysis.  There are three distinctive facts about the rural industries which render this necessary:

   1. The proportion of wage-earning employees to the total number of workers in rural production is much less than in the manufacturing and service industries.  A good number of those engaged in the rural industries would not be directly affected by a change in the standard hours of work.
   2. Where nature plays such a large part in determining the quantity of production, the relation between hours and output is not so direct as in industries where man's own efforts are the predominant factor.
   3. The rural industries occupy a key position in Australia's external trade.  Though the income received from our export of primary products, of which the rural industries comprise the great proportion, amounts to not more than about 20% of the total national income it has a crucial influence on the whole economy.
   
   

   EMPLOYMENT, HOURS AND WAGES.

2. In 1938-39, 500,000 workers were occupied in rural production.  Of this number only 200,000 were employed on a wage.  The other 300,000 consisted of employers, those working on their own account, and members of farmers' families assisting in the work of the farm.  In agricultural and pastoral production, comprising the large bulk of rural industry, only 40,000 workers were members of unions.

   The following table gives details of awards or ruling conditions relating to hours and rates of pay at December, 1943, for N.S.W.  This was broadly representative of the position throughout Australia.

   Type of Work.	Wages	Hours.
   Farming:   General Hands   Harvesters (harvesting wheat for grain)   Milkers   Ploughmen   Chaffcutting Feeders	90/- (plus keep) 130/- to 168/- 97/- 90/- (plus keep) 110/6 and 113/6	Vary considerably 56 56 Vary considerably 44
   Pastoral Workers:   Station Hands   Hut Cooks (including sundry work)	90/- 71/3 (plus keep)	48 -
   Shearing Employees:   Cooks (minimum)   Shearers (per 100 sheep)   Shed Hands   Wool Pressers (minimum)	130/- (plus keep) 41/3 146/- 150/-	44 44 44 44
   Fruit Harvesters	97/-	48

   Source:  Labour Report, 1943.

   Note:  In practice, in many cases, award hours are not strictly observed.  There has been some increase in current rates since the publication of these official figures.

   
   

   PRACTICABILITY OF STANDARD 40-HOUR WEEK IN RURAL INDUSTRY.

3. It is difficult to see how the application of a standard 40-hour week could have very much meaning in relation to rural production.  For obvious reasons the strict observance of awards relating to hours is not possible in rural industry in the same way as with the city industries.  The First Report of the Rural Reconstruction Commission attached to the Department of Post-War Reconstruction states:  "At certain seasons, especially at seeding and harvest time, every agricultural worker worth his salt recognises that completion of the work while the soil is in a certain condition, or before the weather changes, largely determines whether the success of the crop is complete or partial.  While we feel that the agricultural industries should be on a footing which will enable them to pay reasonable wages, we do not think they should be called upon to pay high overtime rates to their normal workers during these periods, and it is very necessary for both farmer and wage-earner to agree to a 'give and take' arrangement in many sections of rural industries."  The emphasis is the Commission's.

   However, notwithstanding the likely impracticability of a standard 40-hour week in rural industry, we have assumed the reverse for purposes of discussion.

   
   

   40-HOUR WEEK AND COSTS.

4. It is apparent that a good part of rural production -- that carried out by those who employ no labour, but are assisted by their families -- would not be directly affected by a 40-hour week.  Indirectly, these farmers may even derive some benefit because of the higher labour costs of farmers with paid employees.  In industries where the producers receive subsidies to keep prices stable increased labour costs would necessitate an increased subsidy.  This would amount to a net gain for those not employing labour.  The labour costs of farmers employing labour would rise substantially.

   A great deal of farming labour consists in the garnering and gathering of crops and produce.  Long and exacting hours must be worked in the collection of crops in harvesting condition before they deteriorate.  Fruit must be picked before it becomes over-ripe.  The dairyman must milk his cows regularly.  Assuming that a 40-hour week were practicable in occupations such as this -- a very doubtful assumption -- additional labour would have to be employed, or alternatively overtime worked.  In either case the cost of labour would increase.  Where piece rates apply -- for example, for shearing, fruit picking, potato digging -- these are determined so that the average worker will not receive less than a certain weekly wage.

   On an average the hours worked in rural production tend to be greater than those in manufacturing, and wholesale and retail trade.  In those parts of rural industry affected the additional labour costs of a 40-hour week would, therefore, be proportionately greater than in the other industries.

   In addition to extra labour costs the rural producer would suffer from the higher costs and prices of the city industries consequent upon a 40-hour week.  He would have to pay more for his farming equipment and materials.  The cost of transporting his produce to markets would rise.  He would have to pay higher prices for all the articles and commodities for his own consumption on which he spent his income.

   
   

   EXPORT POSITION.

5. The income received from the exports of Australian primary produce has always had a vital significance for the Australian economy.  When export income has, for one reason or another, declined, the repercussions on Australian prosperity and standards of living, through the impact on our internal economic and financial position, have been considerable and far-reaching.  The probable reactions of a 40-hour week on Australia's external trade, therefore, need to be very closely examined.

   In 1938-39 the total value of exports of primary products amounted to £A125.6m., about one-sixth of the national income for that year.  This amount was made up of the following receipts from exports in the different fields of primary industry:

   	£m.
   Agriculture	26.2
   Pastoral	59.1
   Dairying and Farmyard Industries	15
   Mines and Quarries	24
   Fisheries	0.3
   Forestry	1

   
   

   The total value of exports from manufacturing was only £8.6m.  Primary industries were, therefore, the predominant factor in determining the income received from external trade.  Notwithstanding the expansion in the potential range and variety of secondary production of peace-time goods brought about by the war, and the new possibilities existing for establishing export markets for secondary industries, the primary industries are likely to remain a determining influence in the export field for many years to come.

6. Whatever may be the trend of long-term policy over the next few years it will be vital for Australia to produce and export the maximum quantity of primary products.  Several factors will make output all-important:

   • First, the terms of trade -- that is, the amount of imports we can purchase for a given volume of exports -- have altered disadvantageously for Australia.  Import prices have risen 100% since 1938-39 or 90% since 1939-40, while export prices have risen 60% since 1938-39 or 45% since 1939-40.  This means that to buy the same volume of goods as Australia imported in 1938-39, and to meet overseas interest charges, exports about 40% greater in volume than 1938-39 would be necessary.  Such a situation has grave implications for our international solvency and future balance of payments;  particularly when the present comparatively high level of export prices may not be maintained in the future.
   • Second, the world is suffering from an acute shortage of goods of all kinds, but particularly from shortages of primary products such as wheat, meat, dairy produce and other foodstuffs.  Famine threatens great parts of Europe and Asia.  Recent cuts in the already meagre food rations of Britain indicate the desperate nature of the food crisis confronting the British people and the need for Australia to achieve the utmost production of food, so as to build up the surpluses which it will be possible to send to Britain and the famine endangered areas of the world.
   • Third, during the transition years, it will be highly important for Australia to maintain a large volume of imports to meet especially the need for re-stocking and the expansion of industrial plant and equipment.  In addition, we will wish to import many articles of the consumer goods variety such as motor cars, petrol, clothing, tobacco.
   • Fourth, the severe drought of 1944-45 brought about a disastrous fall in production and depleted the stocks of many rural products.

   The call, then, over the next few years will be for the greatest possible output of primary products.  The facts of the world economic situation and of Australia's own problems of international trade and industrial rehabilitation, suggest that at the present juncture a reduction of hours in the rural industries would be highly undesirable.

   
   

   EFFECTS OF COSTS AND MARKETING STRUCTURE.

7. The increased cost of the 40-hour week to the primary producer would affect the various organised schemes under which certain products are marketed.  Under these arrangements the farmer is paid a fixed price for all his production.  Part of the output is disposed of on the local market at a determined price and the remainder, as in the case of wheat and butter, on world markets at competitive prices.  Over the next few years the overseas market will be largely a seller's market.  However, when world production and distribution is restored the Australian producer of primary products may again find himself in unfavourable circumstances under the stress of world competition.  The question of costs in Australian primary production will then become of first importance.  If overseas prices fall to any extent it may be difficult to maintain fixed returns for all primary production.  Costs would have to be adjusted and production reduced.  In Australia a great deal of primary production is marginal in the sense that it is just able to return costs, and any material fall in prices could bring about widespread hardship.  For these reasons costs of production in the rural industries will be of special importance to the Australian economy in the years ahead.

   
   

   SECONDARY INDUSTRIES AND MARKETS.

8. The effect of the war has been to increase the significance of our secondary industries in the external trade picture.  Australia now has a real chance to build up a profitable and significant export trade in manufactured products.  To do this we must be alert to grasp the opportunities as they occur.  Already a number of golden opportunities for establishing markets, particularly in the Asiatic area, has been sacrificed either because our output has been insufficient to provide a surplus for export as well as meet our own domestic needs, or because our costs are too high.  Industrial unrest has been a major cause of deficient production or of inability to supply.

   In the domestic market costs and prices will eventually be all-important in determining the competitive position of our manufactured products, particularly in view of the likely pressure for reduction of tariff barriers under international financial and trading agreements.  Australian industry on a 40-hour week might find itself in a very difficult position in competition with imports from countries working 48 and more hours a week.

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SECTION VII -- HOURS OF WORK AND
HOLIDAYS IN VARIOUS COUNTRIES.

1. The total hours spent in work by the workers of a particular country, in comparison with those of other countries, obviously exercise an important influence on the productive power and competitive status of the country concerned.  If, for instance, we were to find that the Australian worker gives much less time to work than the workers of other countries, we would have to ask ourselves seriously whether this fact was detrimental to the ability of Australian industry to compete abroad and to the comparative standards of the Australian workers themselves.

   The total working time is determined broadly by three factors:

   1. The average length of the working week.
   2. The duration and extent of annual leave.
   3. The number of statutory or public holidays observed during the year.
   
   

   AUSTRALIA.

2. Although a 48-hour week was first introduced in Australia in 1856 in the case of stonemasons, the general length of the working week at the turn of the century was about 50 hours.  Since that time progressive reductions have taken place and a 44-hour week has for some years been the general rule.  Some sections of the community such as those engaged in primary production necessarily work longer hours, while others such as coalminers, many clerks, and stonemasons work shorter hours.

   Australia has been one of the most advanced of all countries in the granting of annual holidays.  To-day the great majority of manual workers enjoy at least one week's holiday with full pay, many receive ten days holiday and some two weeks.  Under the recent Metal Trades Judgment a fortnight's holiday on full pay will apply to a wide field of industry, and the next few years will undoubtedly see a rapid extension of the two week's holiday.  Salaried employees in Australia have long enjoyed an annual holiday of two or three weeks on full pay.  In addition to these provisions ten public holidays are generally observed and paid for.  The position in Australia in regard to holidays contrasts very favourably with conditions existing in almost any other country.

   
   

   GREAT BRITAIN.

3. Until the years following World War I, hours of work in Great Britain had improved only very gradually since the early industrial epoch.  The average length of the working week is now about 47 hours.  It is noteworthy that the workers in the cotton industry recently agreed to waive their demand for a 40-hour week because of Britain's urgent production and export needs.

   Though salaried workers received holidays with pay as early as 80 years ago, in March, 1925, there were only 1¼ million wage-earners receiving paid holidays.  In the last few years there has been a rapid expansion in the numbers receiving paid holidays.  One week with pay is the usual provision.  By April, 1940, 4½ million manual wage-earners in Great Britain were receiving a paid annual holiday.  Only five or six public holidays are observed in Britain, and only rarely are these holidays paid for.

   Unlike Australia most wage, hours and holiday provisions in the English-speaking countries arise out of agreements between workers and employers at various industrial levels.  In Australia agreements usually cover a complete industry and tend to have statutory force.

   
   

   UNITED STATES.

4. In the United States hours and holiday provisions vary widely.  Many workers are covered by individual agreements made under the National Industrial Recovery Act of the New Deal.  These agreements are not always observed.  Generally the agreements have provided for a working week of 40 hours, but the actual hours worked are in some cases around 36 or 37, largely because of shift requirements.

   Little attention was paid to the matter of annual leave for manual wage-earners until the middle thirties.  Holiday provisions were then increasingly drafted into industrial agreements, but they varied widely between different industries.  By 1937, 36% of all organised wage-earners were receiving an annual paid holiday amounting in the main to between four and seven days in length.  By 1943, 60% of all organised wage-earners were receiving a paid holiday.

   
   

   CANADA.

5. Hours of work in Canada vary widely between industries and States.  The average working week is close to 48 hours.  Although there are ten public holidays, only five or six are generally observed.  Rarely are public holidays paid for.  Salaried staffs usually receive two weeks' annual leave at full pay, but until 1937 very few wage-earners had enjoyed similar privileges.  Since that time there has been a great deal of agitation for Government intervention in the matter of annual leave.  By 1944, possibly more than 50% of all organised wage-earners were receiving an annual paid holiday of about one week's duration.

6. Statistics of paid non-working time as a percentage of working time for the engineering industry in 1945 help to crystallise the relative position in the different countries.  For Australia this percentage is 10.4% and for England, Canada, and U.S.A. only 2%.  (Appendix E shows the basis of calculation of these percentages).

   
   

   OTHER COUNTRIES.

7. South Africa has an average working week of 46 hours, Argentina a little above 44 hours, Sweden 48 hours, and New Zealand 40 hours.  It is well to remember that New Zealand is largely a primary producing country, and that hourly awards could not in practice apply to many rural workers.

   
   

   GENERAL CONCLUSION.

8. It is impossible not to conclude from the evidence that Australian conditions, in regard to leisure time, holidays and working time, are far more liberal than those of practically all her competitors.  This should be borne in mind in any consideration of steps which would further reduce the time spent at work by the Australian working community.

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SUMMARY STATEMENT OF THE AUTHOR'S
VIEW ON THE 40-HOUR WEEK.

1. The 40-hour week is a national issue:  it should be considered from a national standpoint.  It will affect, in a greater or lesser degree, all members of the Australian public.  It should, therefore, be decided in the light of its effects on all the Australian people and not just a section of them.  The question at stake is not whether the 40-hour week will or will not benefit any particular section of the nation, but whether it will or will not benefit the nation as a whole.

2. The 40-hour week would affect different sections of the people differently.  Among those who stand to lose least from its introduction are possibly the larger employers of labour.  Among those who stand to lose most are the lower-middle and middle income earners in receipt of salaries and those whose income is determined primarily by what they receive from their investments.  All sections, however, would suffer serious detriment from the introduction of a 40-hour week at the present time.

3. The progressive reduction of working hours is regarded by the author to be one of the most important of the advantages arising out of industrial progress.  The purpose of modern industry should be to provide not merely an increasing volume and variety of goods at a constantly decreasing real cost to the public -- and thus a higher material standard of life -- but also to improve progressively the conditions of work so as to provide more time for leisure and self-improvement.  It is necessary to strike a balance between more leisure and more real income.  But it would, in our view, be wrong and short-sighted for the community to work shorter hours at serious cost to its material standards of life, when, for many of its members, those standards are already relatively low.

4. Scientific studies on the relation of hours to output point irresistibly to the conclusion that a reduction of the standard working week from 44 hours to 40 would lead to a fall in the total production of goods and services.  There is also good reason to believe that under present conditions the introduction of the 40-hour week would be unlikely to lead to any significant improvement in the rate of production -- that is, output per man-hour.  Until the capital equipment of industry is modernised and restored to full efficiency in the production of peace-time goods and services, and until the training, transference and placement of labour in peace-time jobs is well forward, it would be optimistic to look for any material increase in man-hour output.

5. The key to the immediate economic problem before Australia is greater production.  We are suffering from a decline in our standards of life, forced on us by the war.  We need great quantities of practically every conceivable kind of consumer goods and articles.  We need vast numbers of new houses.  We need an improvement in the range and quality of many kinds of services.  We need capital goods for industrial modernisation and national development.

   But the world far more than Australia is in dire need of more commodities to make up for the economic losses and ravages of war -- food to succour tens of millions threatened with famine, capital equipment to restore war-shattered industries, goods of every description to counter poverty and to raise standards.  To choose greater leisure now would not only intensify our own internal difficulties, but could rightly be regarded as an act of callous indifference to the world's suffering.

6. Whatever the potential productivity of Australian industry and the potential standard of life it can support, it is an irrefutable fact that the present standard of life is relatively low -- much lower than in 1939 and, in fact, lower than the Australian people have possessed for many years.  The volume of goods and services of practically every kind at present available for the enjoyment of the Australian public is inadequate -- in some instances tragically inadequate -- and little greater than that of the worst years of the war.  This, in our view, in itself constitutes an almost irresistible argument against the general introduction of a 40-hour week at the present time.

7. One of the main arguments used to justify the introduction of the 40-hour week is that during the war the productive power and technical resources of industry have immeasurably improved.  While we do not believe it is possible to measure, with any degree of precision, the movement in overall productive efficiency over the war years, the available statistics suggest that this broad claim is without foundation.  But, even allowing that industrial efficiency has been raised by wartime developments, the urgent present need for greater production should take precedence over any question of shortening hours of work.  In other words, if productivity has increased, the advance should be used to increase output rather than to reduce hours.

8. It is generally recognised that one of the most serious dangers threatening a country at the conclusion of a major war is that of inflation.  This danger can be countered in two ways:  first, by increasing production to the utmost so that the disparity between the supply of goods and the demand for them is narrowed, and, second, by maintaining stability in prices and costs through measures of price control, until a reasonable equilibrium has been achieved between supply and demand.  The 40-hour week would be unfavourable to both these conditions -- the first because of its effects on production, and the second because of its tendency to push up prices.

9. The introduction of a 40-hour week should not, in our view, be considered until the volume of civilian goods and services per head of the population has been restored to at least the pre-war level, and until the nation's stock of capital equipment has been modernised, placed on a competitive basis with that of the other advanced industrial countries, and expanded so as to offset substantially the losses caused by the interruption of economic progress by the war.

10. How long this will take depends largely on the steps that are taken now to raise the productive power and efficiency of industry.  The faster the productivity of industry can be raised the more rapidly will it be possible to overcome present shortages and to restore standards of living, and the earlier will the introduction of the 40-hour week become a desirable economic proposition.

11. The author has in previous publications stated his view that ample scope exists for improving the productive efficiency of Australian industry.  Three fundamental economic conditions are necessary:

    1. The spirit of adventure and enterprise must be restored throughout the whole of the working community.  A level of taxation which destroys incentive as the present level does is incompatible with the realisation of this condition.
    2. Competition must be a ruling fact over the widest possible field of economic activity.  Anything tending to destroy, or unduly restrict, the competitive factor in industry is a threat to efficiency and to the cost of the goods and to the quality of the services available to the public.
    3. The co-operation of labour in raising productive efficiency.  This would involve the rejection of restrictions on the most efficient use of labour such as limitations on the output of the individual worker, opposition to payment by results, and other union regulations which curtail output and restrict production.

    The matter of costs and efficiency in Australian industry calls for urgent investigation.

12. When the transition to a peace-time economy is thoroughly complete the question of a shorter working week should, in our view, be brought up for serious consideration and a decision should then be made upon it in the light of the economic and industrial conditions ruling at the time.  Among the likely factors which will bear upon its desirability or otherwise will be the efficiency of industry, the general economic and financial position of the country, particularly our competitive ability in relation to overseas countries, and the time spent in work by the Australian community compared with the workers of other countries.

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APPENDIX A:  ESTIMATE OF OVERTIME WORKED
IN MANUFACTURING INDUSTRY, 1938-1944.

The following estimate should not be taken as a precise measure, but as an attempt to indicate broadly the extent of the longer hours worked during the war because of over-time:-

	1938-39	1939-40	1940-41	1941-42	1942-43	1943-44
1. Average wages paid per adult male employee -- shillings per week	99/-	100/-	102/-	123/6	136/3	140/3
2. Weighted average nominal weekly wage rate, adult males -- shillings per week	97/-	99/-	101/-	108/-	118/-	120/-
3. Difference between 2. and 1. as a % of 2.	2%	1%	1%	15%	15%	17%
4. adjusted for over-time rates of pay	1%	1%	1%	10%	10%	11%
5. Index of hours worked (1938-39 = 100)	100	100	100	109	109	110

NOTES.

1. Average wages paid per adult male employee are obtained by dividing the total male wages bill in manufacturing by the number of adult males plus 60% of male juvenile employees.  Sixty per cent. is taken as the ratio of the average juvenile wage to the adult wage.  This would seem to be reasonably close to ruling awards.  The 1943-44 figure is an estimate.
2. Weighted average nominal weekly wage rate for adult males is obtained from official average wage rates for manufacturing industries, weighted by trade union employment in each industrial division.
3. The percentage by which average wages paid exceeds the average awards gives an indication of income earned through overtime work.
4. To obtain the comparison of hours worked item 3 must be adjusted for overtime penalty rates, here generally taken to be time and one half.
5. Factors affecting accuracy --
   1. Some overtime is at double time rates and also ruling wage rates in industry may in later years be somewhat above official awards.  Both these factors would tend toward over-statement.
   2. As salaries are included in the total wages bill this would tend to increase average wages and thus to over-statement.  However, in a comparison from year to year this would be a common error and should not greatly distort the true relationship through time.
   3. Employment figures are taken at the end of the year in question and, in a period of rapidly increasing employment, would over-state the average number employed throughout the year.  A tendency to under-statement of average wages paid and of overtime worked would result.

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APPENDIX B:  FACTORIES -- VALUE
OF PLANT AND MACHINERY.

Class		At June 30, 1934. £m.	At June 30, 1939. £m.	At June 30, 1940. £m.	At June 30, 1941. £m.	At June 30, 1942. £m.	At June 30, 1943. £m.	At June 30, 1944. £m.
I	Treatment of Non-Metalliferous Mine and Quarry Products	5.4	7.0	6.8	6.6	6.2	5.6	5.1
II	Bricks, Pottery, Glass, etc., Chemicals, Dyes, Explosives	2.4	3.1	3.1	3.0	3.0	2.6	2.2
III	Paints, Oils and Grease	5.4	6.8	7.9	10.9	14.9	17.1	17.4
IV	Industrial Metals, Machines, Implements and Conveyances	24.6	33.0	34.4	40.7	45.3	52.9	56.9
V	Precious Metals, Jewellery and Plate	.1	.2	.2	.2	.2.	.2	.2
VI	Textiles and Textile Goods	5.8	6.7	7.0	7.7	7.8	7.9	7.6
VII	Skins and Leather	.9	1.0	1.0	1.1	1.1	1.2	1.2
VIII	Clothing	2.1	2.6	2.6	2.7	2.8	2.9	3.2
IX	Food, Drink and Tobacco	27.3	32.1	32.6	33.0	32.6	31.7	31.9
X	Woodworking and Basketware	3.3	3.9	4.1	4.2	4.4	4.3	4.5
XI	Furniture, Bedding, etc.	.7	.7	.7	.7	.7	.6	.5
XII	Paper, Stationery, Printing, Bookbinding, etc.	7.1	9.2	10.0	10.8	10.6	10.1	9.5
XIII	Rubber	1.7	1.4	1.4	1.5	1.4	1.2	1.2
XIV	Musical Instruments	-	-	-	-	-	-	-
XV	Miscellaneous Products	.6	.8	.8	.9	1.2	1.4	1.5
	TOTAL -- Classes I-XV	87.4	108.4	112.6	124.0	132.1	139.6	143.2
XVI	Heat, Light and Power	32.8	35.3	37.2	37.4	37.1	37.4	37.8
	GRAND TOTALS	120.2	143.7	149.8	161.4	169.2	177.0	181.0

NOTE:  The value of plant and machinery does not include land and buildings.  It is confined to the value of machinery, implements anu tools, including plant for the conveyance ot raw materials.

Source:  Production Bulletin (Commonwealth Bureau of Census and Statistics.)

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APPENDIX C:  NUMBERS OF FARMING IMPLEMENTS.

	1942-43	1943-44	1944-45
Milking Machines	89,796	100,878	109,561
Ploughs (Single Furrow)	156,393	191,969	190,537
Ploughs (Multiple)	144,894	137,150	138,748
Cultivators	239,843	229,976	216,171
Rotary Hoes		7,158	8,442
Harrows	563,436	595,350	605,986
Fertiliser Broadcasters	27,031	27,714	29,942
Grain Drills	89,350	86,455	91,493
Maize and Cotton Planters	18,379	18,557	18,482
Headers, Strippers and Harvesters	60,167	60,546	59,652
Reapers and Binders	53,801	53,662	53,002
Mowers	53,558	56,065	57,400
Hay Rakes	49,153	50,949	53,055
Chaff Cutters	84,392
Motors, Utility Trucks and Lorries	84,912	90,927	95,635
Tractors	52,507	53,322	59,475

Source:  Statistics Supplied by the Commonwealth Statistician.

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APPENDIX D:  ESTIMATE OF COST OF 40-HOUR WEEK.

The estimated figure below of the increase in costs of production which would follow from the introduction of a 40-hour week is not to be taken as a precise measure, but as an indication of the general proportions of the cost involved.

	Total Employment		Affected hy introduction of a 40-hour week
	Males	Females	Males	Females	Wages Bill
	000's	000's	000's	000's	£m.
1. Rural (March, 1945)	128	23	(a) 60.0	-	18.0
2. Private Domestic	-	(a) 40	-	-	-
3. Forestry, Fishing and Trapping	18.6	-	(a) 15.0	-	4.5
4. Mining and Quarrying	44.3	-	(a) 10.0	-	3.0
5. Factories, Munitions, etc. (c)	35.1	4.4	35.1	4.4	11.3
6. Other Factories and Works	531.5	199.2	531.5	199.2	195.3
7. Commonwealth Department of Works and Housing	6.5	-	6.5	-	2.0
8. Shipping: and Stevedoring	44.4	-	44.4	-	13.3
9. Rail and Air Transport	96.0	8.5	96.0	8.5	30.3
10. Other Transport and Communication	89.6	28.6	(a) 45.0	15.0	16.2
11. Banks and Insurance	25.5	17.9	-	-	-
12. Retail Trade, etc	90.4	101.6	90.4	101.6	45.3
13. Other Commerce, inc. Wholesale	86.0	34.6	86.0	34.6	32.0
14. Government N.E.I.	64.6	29.2	-	-	-
15. Other (c)	204.9	179.6	(a) 70.0	50.0	30.0
16. Totals	1465.4	666.6	1089.9	413.3	401.2

^(a) Estimates.

^(b) Includes Government, munitions and aircraft, etc., establishments, annexes and a few private firms engaged exclusively on munitions, aircraft and shipbuilding, but excludes private factories engaged partly on war contracts and partly on other work.

^(c) Includes building and works construction (other than Commonwealth works projects), education, health, professional, hotels, etc., and for females, also mining and forestry, etc., which are shown separately for males.

METHOD USED.

Figures of total employment for different classes of industry published in the Monthly Summary of Employment Statistics issued by the Commonwealth Statistician have been listed.  From these the numbers of males and females working over 40 hours a week have been estimated.  By applying the average wage rates in industry (males £300 p.a.;  females £180 p.a.) the total wages bill for those working over 40 hours a week is obtained.

With the introduction of a 40-hour week, and on the assumption of constant man-hour output, this wages bill would have to be spread over a reduction in output of 1/11th.  This would result in an increased unit labour cost in total amounting to 1/11th of the wages bill applying to those affected by the introduction of the 40-hour week.  To arrive at the total increase in unit costs an addition has to be made for the irreducible overhead charges which must be spread over the smaller output.  (See Note C.)

Of the £400m. of wages and salaries which would be affected by the introduction of a 40-hour week, approximately £70m. are paid by governmental bodies and £330m. by private employers.  (See Note B.)

On the assumption of constant man-hour output, with reduced hours this would mean in effect an added unit labour cost of £30m. to private employers, and approximately £7m. to government employers.  Overhead costs and losses resulting from reduced turnover may add another £20m. to this.  The total additional cost of the 40-hour week may therefore be somewhere between £50m. and £70m. per year.

EXPLANATORY NOTES.

1. Individual Items.

   1. Rural Industry.  No official statistics are available later than March, 1945.  It is taken that the normal number of unionists in agricultural and pastoral industry, i.e., 40,000, would be affected by a 40-hour week decision.  In addition, it is estimated that another 20,000 males may be similarly placed to these unionists.
   2. Private Domestics.  It is assumed that a 40-hour week decision would not directly affect domestics.
   3. Forestry, Fishing and Trapping.  Trapping employment is regarded as negligible.  In the fishing industry there were, in 1943, about 12,000 personnel and nearly 7,000 craft.  Employers and workers on own account are in the majority.  Employees possibly number between 2,000 to 3,000.  It is taken, therefore, that there are about 15,000 employees in forestry.
   4. Mining and Quarrying.  There are over 25,000 workers engaged in coalmining, practically all on a 40-hour week.  Gold and other mining have variable hours.  It has been taken that 50% of the balance of mining and quarrying employees are on a 40-hour week.  This leaves 10,000 males not enjoying such conditions.
   5. Factories, Munitions, etc.  Taken to be all on a 44-hour week.
   6. Other Factories and Works.  Taken to be all on a 44-hour week.
   7. Commonwealth Department of Works and Housing.  (Previously Allied Works Council).  Taken to be all on a 44-hour week.
   8. Shipping and Stevedoring.  Sailors' awards specify not more than 8 hours a day.  Stevedores are generally on piece rates, which would probably require an upward adjustment with a general reduction in hours.
   9. Rail and Air Transport.  Latter is a very small fraction of the total.  Rail employees generally work 44 hours per week.
   10. Other Transport and Communication.  In the absence of detailed information it has been taken that 50% of this group enjoy a 40-hour week or better.
   11. Banking and Insurance.  Taken as not affected.
   12. Retail Trade, etc.  Regarded as all subject to a 44-hour week.
   13. Other Commerce, including Wholesale.  The wholesale trade is working between 40 hours and 44 hours per week.
   14. Government N.E.I.  Taken as not affected.
   15. Other.  There are about 40,000 males engaged in building construction.  It has been estimated that a further 30,000 males and 50,000 females would be affected by the introduction of a 40-hour week.

2. Government Wages Bill.

   This portion of the wages bill affected by the 40-hour week is estimated at about £70m. as follows: --

   	£m.
   1. Factories, Munitions, etc.	8
   2. Other Government Factories	14
   3. Commonwealth Department of Works and Housing	2
   4. Rail Transport	30
   5. Other Transport and Communication -- (P.M.G. £9m. and Tramways £4m.)	13

   
   

3. Overhead.

   Fixed costs which cannot be varied to meet reduced activity will, with a 40-hour week, result in a higher cost per unit of output.  In addition, if profits are to be maintained at present levels the reduced turnover would necessitate a higher profit per unit of production.

   These elements (overhead and profit) in manufacturing industry amount to nearly 70% of labour costs.  It has been estimated that the increase in unit overhead costs resulting from reduced turnover will be, for industry generally, about 50% of the increase in unit labour costs of a 40-hour week.

4. Factors Affecting the Accuracy of These Estimates.

   1. The weighted average weekly wage is applied in all cases to derive the wages bill.  This may involve considerable error in the estimates of total wages paid to employees affected by the 40-hour week in individual classes of industry.  However, as occupational groups are spread throughout the various industries there should be little overall error through this method.
   2. Salary-earners and clerks normally subject to weekly hours of 40 and less have in some cases been included in estimates.  This tends to exaggerate the final figure.
   3. The inclusion of juveniles at adult rates of pay means an over-statement of something like £20m. to £30m. in the total wages bill.
   4. Continuing discharge of service personnel means a very considerable addition to the wages bill and would possibly outweigh the over-statement implicit in 2. and 3. above.

   Possibly on balance the figures used, when considered in relation to the current position, are on the conservative side.

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APPENDIX E:  COMPARISON OF WORKING TIMES GENERALLY OBSERVED IN THE ENGINEERING INDUSTRY -- NOVMBER, 1945.

	Australia	England	Canada	U.S.A.
Standard hours	44	47	48	40
Time off with pay --   Annual leave   Statutory (or "public") holidays)   Sick leave	2 weeks (a) 10 days 1 week	1 week None (b) None	1 week None (b) None	1 week None (b) None
Per Year --   Working time   Paid time   Paid non-working time as percentage of working time	2076 hours 2288 hours 10.2%	2350 hours 2397 hours 2%	2400 hrs. 2448 hrs. 2%	2000 hrs. 2040 hrs. 2%

NOTES:

^(a) The second week is in respect of 12 months' continuous service commencing as from not earlier than 1/1/46.

^(b) Five or six holidays are observed, but generally without pay.

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SUPPLEMENT TO REPORT ON THE 40 HOUR WEEK

PRODUCTIVITY -- 1926-7 TO 1938-9.

1. Section I of the "Report on the 40-hour Week" analyses the trends in industrial capacity and productive efficiency -- output per man-hour -- over the war years.  The analysis is based mainly on official statistics.  Under peace-time conditions these statistics do not provide a wholly satisfying measure of movements in productivity.  Under war conditions, unless carefully interpreted, they can be dangerously misleading.

   In peace, changes in the quantity and content of the national product are, on the whole, gradual.  But in war-time the quantities and types of goods and services produced alter rapidly and are very different from the quantity and type of peace-time goods and services.  An attempt to compare war production with peace production is, in effect, an attempt to compare two entirely dissimilar things.  How can the efficiency of producing tanks or 25-pounders be related to the efficiency of producing motor cars or machine tools?  Official statistics need to be used with great caution and discrimination in arriving at any conclusions on the levels of productive efficiency and capacity during the war as compared with the levels attained in the last pre-war years.

   We do not believe it is possible to make any precise comparison between the standard of productivity during the war and that obtaining in say 1938-9.  The evidence available, however, in our view, entirely discounts any claim that there has been a large increase in productive efficiency and a large improvement in the producing power of the community over the war.  On the contrary, the statistics at hand suggest that, over the whole industrial field, productive efficiency during the war years may possibly have suffered some decline.

2. Subsequent to the completion of the report proper, it was felt that in addition to the movement in productivity during the war, an examination should be made of the trend that has taken place since the time when the 44-hour week first became widely applied to industry.  For this purpose it is convenient to take as a starting point the year 1926-7, when the Commonwealth Arbitration Court gave judgment in favour of the 44-hour standard in the case of an application by the Amalgamated Society of Engineers.  This case was generally regarded as the most important dealing with hours of work that had yet come before the jurisdiction of the Commonwealth Court.

3. In an endeavour to arrive at conclusions regarding the development which took place in the productive power and efficiency of Australian industry between 1926-7 and the outbreak of war, it is wise not to rely upon any single series of statistics.  A far safer course is to make use of a number of series measuring different aspects of the problem.  The following have been selected.

   1. Material Production, i.e., production of material goods only, excluding all forms of services -- The Commonwealth Statistician's Index of Real Production per Person Engaged.
   2. Secondary Industry --
      1. Value of Manufacturing Output per Person Engaged -- Reduced to real terms by the "C Series" retail price index.
      2. Value of Manufacturing Output per Person Engaged -- Reduced to real terms by the "Melbourne" wholesale price index number.
      3. Value of Manufacturing Production per Person Engaged -- Reduced to real terms by the "C Series" retail price index.
      4. Value of Manufacturing Production per Person Engaged -- Reduced to real terms by the "Melbourne" wholesale price index number.
   3. Real National Income Produced --
      1. per head of population.
      2. per person in work.

4.  

   1. The Commonwealth Statistician's Index of Real Production per Person Engaged.

      This index is compiled from the total values of material production (comprising agriculture, pastoral, dairying, poultry and bee farming, forestry and fisheries, mining and manufacturing) as measured by wholesale prices in the principal markets concerned.  It does not take into account the value of services.  To express the values in comparable "quantitative" terms the "C Series" retail price index is applied.

      This index of material production is the only comprehensive index produced by the Commonwealth Statistician purporting to give a measure of productive efficiency.  As it does not take into account changes in the number of hours worked it cannot claim to give an accurate comparison of productive efficiency between periods when the hours worked have been substantially different.  The use of the "C Series" index, which includes certain types of services as well as material commodities and applies only to retail prices of the limited range of consumer goods entering into the consumption of the basic wage-earner, also renders the index liable to considerable error as a measure of productive efficiency.

   2. Manufacturing Output and Production per Person Engaged.

      These series are not computed by the Commonwealth Statistician but have been compiled from statistics published by him.

      The value of manufacturing output is the total value at wholesale prices at the factory of manufactured goods made or processed during the year.

      The value of manufacturing production is the total value added during the process of manufacture.  It represents the value of manufacturing output less the cost of raw materials, fuel, light, heat, power and other goods consumed in the process of manufacture.

      In reducing these values to comparative "quantitative" terms four separate series have been calculated by applying both the "C Series" and wholesale price index numbers to each series of values.  This course has been taken because neither of these price index numbers is wholly satisfactory for applying to the value of manufactured goods, and because in certain periods substantially different results are obtained according to which one is used. ⁽⁶⁾

   3. The Real National Income Produced.

      The figures of real national income produced per person in work are taken from statistics compiled by Mr. Colin Clark and Mr. J.G. Crawford, and published in their book "The National Income of Australia."

      The real national income produced per head of the population has been calculated by dividing the figures of total real income produced compiled by Mr. Clark and Mr. Crawford by the total population.

      The method used by Clark and Crawford in compiling their figures is fully described in "The National Income of Australia."

      The statistics covering these various concepts are shown in the two tables:

Table I gives the figures for every year since 1926-7.

TABLE I

Year	Commonwealth Statistician's Index of Real Production per Person Engaged (1911 = 100) Measured in Retail Purchasing Power.	MANUFACTURIMG				NATIONAL INCOME
		Manufacturing Output per Person (a) Engaged at 1926/7 Prices adjusted by		Manufacturing Production per Person (a) Engaged at 1926/7 Prices adjusted by		Real National Income Produced per Head of Population (at 1923/7 Prices)	Real National Income Produced per Person in Work (at 1923/7 Prices)
		Wholesale Prices (1911 = 1000)	"C" Series (1923/7 = 1000)	Wholesale Prices (1911 = 1000)	"C" Series (1923/7 = 1000)
		£'s	£'s	£'s	£'«	£'s	£'s
1926-27	123	1050	1050	417	417	130	330
1927-28	125	1090	1080	438	433	128	332
1928-29	123	1105	1073	441	428	12S	338.5
1929-30	110	1171	1094	469	438	126	343
1930-31	112	1219	1100	496	448	111	341
193l-32	114	1281	1178	505	464	112	345
1932-33	118	1269	1208	496	473	116	352
1933-34	126	1223	1199	478	469	117	345
1934-35	117	1193	1173	470	462	127	362
1935-36	125	1202	1187	471	465	133	365
1936-37	134	1158	1183	455	465	134	355.5
1937-38	134	1151	1190	453	4S9	136	360.5
1938-39	124	1140	1151	463	468	-	-

^(a) "Persons" are obtained by adding 45% of female employees to the total number of male employees.  The ratio (45%) is based on their relative- earnings.

Table II shows the percentage increase in each series of the average of the last three pre-war years, 1936-7 to 1938-9, over the average of the three years, 1926-7 to 1928-9.

TABLE II

	Commonwealth Statistician's Index of Real Production per Person Engaged (1911 = 100) Measured in Retail Purchasing Power.	MANUFACTURIMG				NATIONAL INCOME
		Manufacturing Output per Person (a) Engaged		Manufacturing Production per Person (a) Engaged		Real National Income Produced per Head of Population (at 1923/7 Prices)	Real National Income Produced per Person in Work (at 1923/7 Prices)
		Wholesale Prices	"C" Series	Wholesale Prices	"C" Series
		£'s	£'s	£'s	£'«	£'s	£'s
1. Average three years 1926/7-1928/9	124	1082	1068	432	426	129	334
2. Average three years 1936/7-1938/9	131	1149	1175	457	487	134 (1935/6 to 1937/8)	360 (1935/6 to 1937/8)
3. % Increase of 2 over 1	5.6%	6.2%	10%	5.8%	9.6%	3.8%	7.7%

^(a) See notation to Table I.

5. All the statistical series show a general upward trend except the Commonwealth Statistician's index of real production per person and the national income produced per head of population, both of which fell considerably in the depression years -- 1929-30 to 1932-33.  The fact that manufacturing output and production per person engaged and national income per person in work continued to rise despite the depression apparently suggests that there was no interruption of the rising trend of productive efficiency in the depression years.  As against this, however, the Commonwealth Statistician's index of real production per person engaged fell substantially, by some 10 per cent., in these years.  There is some contradiction here which needs to be explained.

   The explanation might be sought in the fact that while the upward trend of productive efficiency in manufacturing received no setback during the depression, these years were marked by a considerable falling-off in the productivity of the primary industries.  But this seems unlikely, particularly in view of the fact that the volume of production in the primary industries during the depression years was on the whole high.

   The true explanation of the contradiction is almost certainly to be found in the nature of the Commonwealth Statistician's index.  To reduce values of production in the different fields of material production to "quantitative" terms the Commonwealth Statistician applies the "C Series" index number of retail prices.  But these values are recorded on the basis of wholesale prices in the principal markets concerned.  In the depression the "C Series" index fell below the 1928-9 level by only about 20 per cent., whereas the wholesale prices of primary products, which at that time comprised nearly two-thirds of the total value of all material production, fell much more steeply -- in some cases by nearly 50 per cent.  The Commonwealth Statistician's index of the prices for the products of all farming declined from 914 in 1928-9 to 608 in 1930-31, and to 575 in 1931-2.  The "C Series" index declined only from 1033 in 1929 to 873 in 1931, to 830 in 1932.  There are therefore strong grounds for the conclusion that the Statistician's index of real production per person engaged substantially understates the true productive efficiency in the depression years. ⁽⁷⁾

   Under normal conditions wholesale and retail prices, as measured by wholesale and retail price index numbers, move fairly closely together.  But in the abnormal economic circumstances produced by depression -- or by war -- the swings in wholesale prices, especially in the case of primary products, tend to be of far greater amplitude than those of retail prices.  Particularly in these circumstances the Commonwealth Statistician's index of real production per person appears to give a misleading conception of trends in productive efficiency.

6. Table II shows the extent of the rise which has taken place in productive efficiency in the period 1926-7 to 1938-9 by expressing the increase of the average of the three years 1936-7 to 1938-9 over the average of 1926-7 to 1928-9 as a percentage of the latter.

   The movements in productive efficiency in secondary industry vary according to whether manufacturing production or manufacturing output is considered and whether the "C Series" or the wholesale price index is taken for purposes of adjustment.  Generally, however, in the absence of more exact measures of productivity, it may be concluded that from 1926-7 to the outbreak of war, productive efficiency over the whole ambit of secondary industry rose by about 8 per cent.

   The discrepancy between the increase of 3.8 per cent. in the case of real national income produced per head of population and that of 7.7 per cent. for real national income per person in work is to be explained by the greater percentage of unemployment in the latter three years.  The average percentage of unemployment based on trade union returns was 11.3 per cent. for 1936-7 to 1938-9 compared with an average of 8.7 per cent. for 1926-7 to 1928-9.

   The difference between the improvement in productive efficiency of 5.6 per cent. revealed by the Commonwealth Statistician's index for all material production and that of about 10 per cent. shown by the figures for manufacturing alone -- when the "C Series" index is used as an adjusting factor -- also possibly arises from the use made by the Commonwealth Statistician of the "C Series" price index in computing his measurements.  A large part of the field of production covered by the Statistician's index is comprised of primary production.  Price indexes relating to primary products fall much more steeply over the period 1926-7 to 1938-9 than the "C Series" index number.  In the former case the fall was of the order of 20 per cent., in the latter case only 12 per cent.  This would suggest that the real production index tends to understate the rise in productivity over the years in question.

   The increase in productive efficiency of 7.7 per cent. shown by the figures of national income produced per person in work is somewhat greater than the percentage rise (5.6 per cent.) in the Statistician's index of real production;  but it is almost identical with the average percentage increase in the figures for manufacturing output and production (i.e., 7.9 per cent.).  The national income figures cover the provision of services such as wholesale and retail trade, transport, entertainment, as well as the output of physical goods embraced by primary and secondary production.  It also includes the construction of houses and buildings.  For all practical purposes it seems reasonable to conclude that the growth in the community's productive power, from 1926/7 up to the outbreak of war, was of the order of 8 per cent.

7. Two questions remain to be asked.

   1. To what extent has the war affected the rising trend of productivity apparent in the thirteen years preceding the war?
   2. What sections of the community received the benefit of the improvement of 8 per cent. in the community's productive power over that decade?

8. The first question has been examined in some detail in Section I, Part A, of the report proper.  The revolutionary change in the structural make-up of the economy brought about by the war renders hazardous any comparisons with peace-time productivity.  For reasons already stated it is difficult to accept the Commonwealth Statistician's index of real production per person engaged as giving a satisfactory indication of the movement in productive efficiency over the war years.  For even stronger reasons official statistics of national income during the war are entirely misleading and must be rejected in any attempt to relate war-time to peace-time productivity.  Figures of manufacturing production and output probably provide the safest overall indication of changes in efficiency.  We have shown in the report proper that, when allowance is made for the exceptionally long hours worked during the war, the output per person in manufacturing shows a decline, suggesting some falling off in productivity.  We have been satisfied, however, to rest on the conclusions first, that claims of large increases in productive capacity and efficiency during the war cannot be accepted, and second, that the normal rate of economic progress was not maintained during the war.  Nevertheless, the evidence available, unsatisfactory as it is, points to the possibility of an absolute decline in productivity over the war.

9. The main point that arises in connection with the second question is whether the workers gained any advantages from the rising productivity of the community;  and, if so, whether these advantages were in proportion to the improvements achieved?

   During the depression years all sections of the community suffered a deterioration in their economic position -- wages were cut by 10 per cent. all-round, unemployment mounted, interest rates were reduced by 22½ per cent., profits fell away, losses were widespread, dividends declined and, in some cases, disappeared, the financial position of the man on the land became a major national problem.  But the wage-earner, because of large-scale unemployment and because he had small resources to fall back on, was probably the hardest hit.

   Improving economic conditions after 1932-33 gave new life to industry and by 1936-7 the prosperous conditions of the late "twenties" had been regained.  Unemployment was down to normal and company profits were on the whole little below the levels of 1928-9.  As prosperity returned, real wages rose and hours and conditions of work improved.  In the important wages case in June, 1937, the Commonwealth Court awarded an increase in the basic wage of 6/- per week above the level assessed in 1934, when the 10 per cent. cut made in the depression was restored to the worker.  In 1938-9 the real wages of adult male workers, as measured by the Commonwealth Statistician's index number, were about 5 per cent. above 1926-7 levels.  The average real wages and salaries paid in manufacturing industry were, in 1938-9, 6 per cent. above 1926-7.  Average hours of work for adult males were 45.46 in 1927, 44.29 in 1939.  Conditions of work in relation to terms of hiring, factory amenities, and holidays progressed in the pre-war decade.

   The effect of the war was to bring about a general decline in living standards, although the position of the wage-earner, in comparison with that of other sections of the community, was well maintained and, in some respects, advanced.  Average real wages for male workers have probably fallen little, if at all, below the pre-war level;  but against this the worker is carrying a much heavier burden of taxation.  The real income of the salary-earner, subject to steeply progressive taxation and without the benefit of cost-of-living adjustments, has been reduced (in the salary range of £500 to £1,000 a year) by something like 40 per cent. to 50 per cent.  Those receiving income from property, the pensioner, and fixed income receiver, have also sustained a similar decline in their real rewards.  Since 1938-9 the wage-earner has continued to benefit in the form of longer holidays, the extension of sick pay, and improved factory accommodation and amenities.

   There has been a vast expansion of expenditure on social services to the advantage mainly of those in the low income groups, of which the wage-earners comprise the great proportion.  In 1925-6 social services expenditure of Commonwealth and State Governments totalled about £30m., or a little less than £5 per head of population.  By 1944-5 the total cost of social services had risen to over £100m. a year, or about £14 per head of population.  Figures relating to the distribution of the national income over the last twenty years reveal a striking change in favour of the low income receiver. ⁽⁸⁾

   Though the war years were marked by universal sacrifices, it is safe to say that the standards of the wage-earner, by comparison with those of other sections of the community, were well maintained.

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ENDNOTES

1.  The main accepted general measure of efficiency is production per man-hour -- the output of the individual worker in an hour of work.  In current economic literature it is frequently referred to as "P.M.H."

2.  This is no reflection on the workers.  In wartime all sections of the community are keyed to an exceptionally high pitch of effort.

3.  See White Paper of Commonwealth Government "Full Employment in Australia." Commonwealth Grants Commission "Twelfth Report" (1945).

4.  See Report in "The Herald," 23rd October, 1945.

5.  A reference to this survey is in "Labour Management" -- August, September, 1944.

6.  No satisfactory price index for manufactured goods is available.

7.  The same weakness in the Commonwealth Statistician's measure of productive efficiency is apparent in the war years.  In these years the "C Series" retail price index rose by only 23 per cent. -- from 1938-9 to 1943-4.  On the other hand, the wholesale prices of the products of primary industry increased by well over 40 per cent.  Therefore, while in the depression years the Commonwealth Statistician's index of real production per person under-states the true productive efficiency, in the war years this index appears to overstate productive efficiency.  (This is quite apart from the fact that the index does not take into account the number of hours worked, which in war-time of course were considerably greater than before the war.)

8.  The redistribution of the national income in favour of the low income receiver and advances made in the standards of life of the wage-earner are dealt with in some detail in the author's publication, "Profit, Income and Living Standards."