Resolving Our Differences

Many years ago, during a trip to Tanna Island in Vanuatu, I was visited by a delegation of traditional elders who wanted me to help them with a serious social problem.  Two Tannese women were living together in a sexual relationship, and the colonial authorities were refusing to intervene, saying that the women's sexual preferences were not their concern.

The male custodians of Tannese traditions viewed the women's actions as a fundamental threat to their way of life.  "If they get away with this, all the other women will want to do the same, and our culture will fall apart", the elders said, providing a fascinating anthropological insight into men's beliefs about women.

I told them their fears that an irresistible wave of lesbianism was about to sweep the island were almost certainly unfounded.  But in any case, there was nothing I could do about their problem, and I thought that the authorities had made the correct decision.  The men soon left, probably grumbling on their way home about foolish Europeans and their culturally destructive attitudes.

However, the elders' anxieties were not entirely misplaced, because an unequal relationship between men and women was a basic principle of their culture.  A great deal of traditional Tannese ritual and political life depended on men's control over women in marriage.  The two indigenous lesbians may have chosen a rather radical way of asserting their autonomy, but women's equality and traditional Tannese culture were essentially incompatible.

It is not only in their treatment of women that exotic non-western societies may confound our cherished liberal principles.  Their cultural attitudes towards justice, tolerance and human obligation often leave a great deal to be desired, making the attitudes held by members of the extreme right in our own society seem caring by comparison.  And such attitudes are not just haphazard characteristics;  they are usually part of the core values of these cultures.

The anthropologist Paul Bohannan has written about an appalling experience he had while carrying out research in a traditional West African society.  One evening one of his local assistants returned from a swim in the river, and told Bohannan that he had just seen a stranger drown.  When Bohannan asked his assistant whether anyone had tried to save the stranger, the man replied, "no, he was not one of our people".

"The importance of cultural diversity" has become one of the most fashionable mantras in contemporary Australia.  Last February's Constitutional Convention agreed that the preamble to a new constitution should recognise our cultural diversity, and anyone who attempts to question the wisdom of this move is likely to be howled down by the people who see themselves as our moral guardians.

Certainly, a rigidly monocultural society would be stultifying, as well as being unrealisable in today's world.  But as the Tannese and West African examples suggest -- and they are a very long way from the extremes that I could have presented -- if we want to live in a humane and equitable society, many expressions of "cultural diversity" should be actively discouraged.

This common sense observation is ignored in much of the current public discussion about cultural issues, thus playing into the hands of the bitter opponents of multiculturalism who fear we are going down a path which will lead to a nation of warring tribes.  One of the reasons for this failure to admit the obvious is that the politicians, academics and others who set the terms of serious debate have developed an unreasonable horror of advocating anything that might be labelled "assimilationist".

In the decades following the Second World War the assimilation of minorities was promoted by "progressives" and international organisations as a desirable goal.  Countries which attempted to prevent indigenous or immigrant minorities from assimilating were denounced as racist.  Since the 1960s however, there has been a 180 degree turnaround.

"Assimilation" has rapidly become one of the great spectres of our time.  Some school history textbooks now inform children that "assimilation" is "cultural genocide", and even people who do not wish to go quite this far are agreed that assimilation policies are "racist".

Yet at the same time, the very people who recoil at the idea of "assimilation" are themselves promoting assimilationist policies.  They are just not honest enough to admit it.

Take AusAID, for instance.  As the government agency responsible for our aid program to developing countries, it is one of the ways in which we try to convince the world that Australia is a "good international citizen".  AusAID places a high priority on its Gender and Development policy which aims to promote women's equal participation and leadership in decision making at all levels, and to help eliminate discrimination against women.

This policy is based not only on Australia's commitment to universal human rights -- itself a very western notion -- but also on the recognition that any economic development programs which ignore the roles and responsibilities of women are unlikely to succeed.  It is an admirable policy, and Australians should be proud of it.  But to Tannese elders and other custodians of patriarchal cultures in the Third World it must be anathema, a demand that they assimilate to middle-class western values;  even "cultural genocide".

And then there is the National Agenda for a Multicultural Australia, the sacred text of the multicultural lobby.  This obliges all Australians to accept not only equality between men and women, but a more general social equality;  together with tolerance, freedom of speech and religion, and the rule of law.

Again, these are wonderful objectives.  But let us not pretend that they are shared by all the cultures now present in this country, or that they can be grafted on to these cultures without undermining some of their core values.

So the argument is not be whether we should be advocating assimilation.  If we want a decent and harmonious society, there is simply no alternative.  The real questions are how much assimilation we should require of minorities, and the best ways of promoting it.

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Welfare Lobby Harming Their Own

Oh for God's sake this is pathetic!  On the tax package the welfare lobby can't see past their bibs.  The Catholics are outraged that their nursing home residents may be 98 cents out of pocket, the Uniting Church that the price of spuds may go up a little more than inflation.  The Australian Council of Social Services want food to be zero rated, which means that food prices should drop absolutely!  Yes please, I'm off to the best restaurant in town.

That's the problem, whatever the government does to vary the GST and the tax rates, no group can be quarantined from its impact.  We have a progressive tax system, so the rich pay more in dollar terms and in percentage terms.  A tax cut must lead to a larger cut to the top end in dollars.  The only way to avoid this is to not have a progressive income tax system.  You don't seriously want a flat tax do you?  Chopping out bits from coverage of the GST can have a similarly regressive impact, for example, the rich consume more food dollars.  Leave the coverage broad and go for compensation, but don't kill the goose that is about to lay the golden egg.

The churches and welfare lobby just don't get it.  Their flock are part of the community, not apart from it.  The plan to change Australia's tax system is the only way to maintain a solid revenue base to fund the services that governments provide to the needy.  Perhaps they would rather keep the poor poor?  We can't have them losing their flock can we?

An intelligent response to the tax plan would be to support it conditionally, on the basis that should any projections, calculations or assumptions be wrong they can be remedied.  I am reminded of the pensioners desire in the late 1980's to have their own measure of the rate of inflation.  They fiddled with the Consumer Price Index to see if they could bias it in their favour (bad luck for the rest of us).  They found that the alternatives were not good, and after much backsliding let the whole project rest.  They realised they were well served by the government's system of measuring inflation.  So it will be with the new tax system, future governments will not have a chance in hell of unhitching benefits from CPI, so the poor will be protected.  The only thing that could bring the benefit system undone is a tax system that is full of holes.  That is the present one.  It's leaking like a sieve.

Who is more likely to ask for tax rate increases, including the GST, in the future?  The welfare lobby of course.  On the one hand they are prepared to go along with those who would fan the concern that the GST will rise, when their position is that current taxes must rise in order to pay the same level of benefits.  A GST is far less likely to rise than the current array of taxes.  If it does as a consequence of buying out old taxes, so much the better.

The welfare lobby should come to grips with its role.  The sort of adjustments they are talking about amount to tens of million of dollars, they are minor in the midst of a $20bn package.  The best strategy is to close their ears to the chants of old comrades and manoeuvre themselves into a position where a grateful government will be keen to work with them in the inevitable long debate before the Senate.  That is time for fine tuning to take place.  The couple of dollars here and there can be put right.

To set out to deny the importance of the package risks leaving the poor at the hands of a weakening tax system that gives the rich too many choices to avoid their responsibilities.  A tax system that has too many disincentives for beneficiaries to work, and that taxes some products and not others on the basis of an economy that our grandfather's knew.

Please, don't deny your people a chance to participate.

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Hanson the Chameleon

Will the real Pauline Hanson please stand up!  For a politician whose popularity is based on her supposed willingness to talk straight, she speaks with a surprisingly forked tongue on matters of race.

There is the Hanson of the maiden speech to Parliament.  This Pauline warned that Australia was "in danger of being swamped by Asians", and said she had "no hesitation in echoing" former Labor leader Arthur Calwell's remarks that Australia did not want or need any migrants from Asia and Africa.  A similar Pauline recently told ABC's Four Corners that there were "too many of one race coming to Australia".

Seemingly opposed to this Hanson, there is colour-blind Pauline who doesn't care about anyone's race, as long as they fit into Australian society.  This Pauline lost Liberal Party endorsement for the 1996 election after she wrote a letter to The Queensland Times demanding that governments "wake up to themselves and start looking at equality not colour".

This same Pauline had to be prevented from committing what her former adviser John Pasquarelli called "political hari kari" in a speech to Parliament in December 1996, where she had planned to say, "I wouldn't mind if there were more Asians in Australia than Anglo-European Australians as long as they spoke English".

Then there is Pauline, friend of Asians and Aborigines, whom we saw chiding a sad fellow on last Monday's Four Corners program who had said he was "sick of Asian people" and blacks.  Hanson responded, "I don't like your attitude ... If you think you are here because I feel that way, well then, you are very wrong and misguided".

Last week, this Pauline went even further.  To the protesters who held up placards with the words "Asians are welcome here" at her open-air meeting in Ipswich, she shouted, "Yes I agree.  Asians are welcome here".

The uncertainty about Hanson's real beliefs could be ended by an acid test.  Why not ask her to appear as "the-Pauline-who-welcomes-Asians" in the international marketing campaign that Peter Beattie's government and Queensland's universities are running.  This commendable campaign will attempt to convince potential students in Asia that Queensland is a friendly and tolerant place, thus protecting an industry which generates $9 million a week for the state.

If we really want to reassure Asians, who better to invite them to Australia than Hanson herself, the person responsible for creating all the anxiety.  Such a campaign would require little paid advertising, because its news value alone would ensure enormous publicity in the overseas media, benefiting tourism and other service industries as well as education.

Unfortunately however, Asian television viewers are unlikely to see Pauline telling them she has put another prawn on the barby in eager anticipation of their visit.  People on both sides of the One Nation divide have an interest in keeping the matter of Ms Hanson's real views about race as murky as possible.

Mixed messages clearly suit the electoral strategy that Hanson's political adviser David Oldfield has mapped out.  On the one hand, One Nation can claim it is not a racist party, thereby retaining support from Australians who are sick of the existing parties, yet who also believe it is wrong to judge individuals by the colour of their skin.

But it can also keep "nudging and winking" in the direction of people who really don't like Asians, in the hope they will vote for One Nation rather than Graeme Campbell's Australia First Party.  Campbell claims Hanson took most of her ideas from him;  and in some ways his is the more radical party.  It has just announced that the Mayor of Port Lincoln, Peter Davis, will be one of its Senate candidates for South Australia.  Davis, a long-standing member of the extremist League of Rights, gained national notoriety a couple of years ago with his statement that people of mixed race were "mongrels".

"Anti-racist" opponents of One Nation are also happy for Hanson to continue fudging on racial issues, because they are keen to make "racism" as broad a concept as possible.  The more racists they can identify in Australia, the more resources they can demand to combat them, and the greater the shame that can be heaped on the nation.

At the beginning of last week, announcing a national dob-in program targeting supposedly racist politicians, Jeremy Hobbs from Community Aid Abroad offered a particularly expansive approach.  According to Hobbs, any policies which are assimilationist, in the sense of expecting one racially defined cultural group "to suborn their interests to a dominant group" are "clearly racist".

This effectively means that any politician advocating the National Agenda for a Multicultural Australia is racist, because this policy obliges members of other cultures to assimilate to certain values of the "dominant group".  Among other things, the National Agenda requires all Australians to be committed to freedom of speech and equality of the sexes.  The latter in particular is an out-and-out call for assimilation, striking at the very heart of many cultures now present in Australia.

It was the Hobbs-like excesses of "anti-racists" in the Keating years that helped to make Pauline Hanson such an attractive figure to many people in the first place.  Just when the great majority of Australians had finally come to accept that past practices of treating people differently because of their race were wrong, the leaders of the anti-racism and multicultural industries started to change their tune.  They began to claim it was "racist" to say that all citizens should be treated equally, with their needs assessed independently of their racial or ethnic identification.

Hanson had a gut recognition of the resentment this kind of turnaround was causing.  It is a pity she did not develop the colour-blind Pauline.  She could have harnessed her courage to argue clearly and consistently that race is irrelevant and that people should only be judged -- in the words of Martin Luther King -- "by the content of their character".  Then she could really claim she is not a racist.

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Overdue, Fair and Goes to the Mark

Mr Howard's deserves an 8 out of 10 for his tax package.

The package does what Mr Howard promised last May when he set-off along the path of tax reform and it does so in a fair, well targeted and suitably comprehensive manner.

The centre piece of the package is reform of the indirect tax system.  It will replace a large number of thoroughly dumb and destructive indirect taxes -- including the wholesales tax, financial transaction taxes, stamp duties on business transactions, and diesel fuel excise -- with a broad-based GST with a single rate of 10%.

This is a reform which is long overdue.  It will provide a real boost to exports -- around $20 billion per year -- and jobs.  It will also produce a fairer and more honest tax system.  Under a GST everyone pays a bit and knows how much they have paid.  While under the existing system tax rates vary from good to good and person to person without any rhyme or reason.

The package proposes the most radical overhaul of state-federal relations since World War II.  In exchange for the loss of some indirect taxes and untied grants, the states will get access to all the revenue from the GST.  This will provide the states two things for which they have long hoped -- access to a growth tax and greater revenue certainty.

The package also addresses the main concern of taxpayers and Premiers -- which is what will stop the Government from unilaterally changing the tax rate?  The package plans to entrench GST rate but requiring the unanimous approval of all governments -- state and Commonwealth -- for any rate change.  Although this is this no iron clad guarantee -- future Commonwealth Parliament will still be able to rewrite the legislation -- it come pretty close.

The weakness of this approaches is that it eliminates one of the only means of truly limiting the growth taxes -- inter-state competition.  Under the proposed system the Commonwealth will level the GST at a common rate across all state.  The states will not have the ability altered the rate or base.

The package provides for generous compensation -- totalling over $6 billions -- for pensioners, the unemployed and self-funded retirees who many be adversely hit by the GST.  Education, health, child care and nursing homes services will be zero rated, which means the tax burden of these industries fall by over $600 million per year.

Food will be taxed by the proposed GST, but so it should.  Exempting food would force the rate on other goods and services up by nearly 5 percentage points or 50% -- and the poor do not live by food alone.

Compliance cost is a major issue with the GST.  The package will, however, more than compensate for additional red-tape, by scrapping provisional tax and moving to a quarterly payment system.  Small business really could not ask for a better trade-off.

The package includes large income tax cuts -- $14 billions per year.  Although the tax cuts are spread across all income levels, they are concentrated on the middle income groups.

The package plans to simplify the social security and family payments system.  These changes in combination with income tax cuts, will give low to medium income a greater incentive to work and save and have a future.

The income tax cuts will really be little more than giving with one hand while taking with another.  They will be funded by about $5 billion in higher indirect taxes on tobacco, wine, diesel and luxury cars and the drawing down of the budget surplus.

Overall, however, the package is impressive and on hits the mark.

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Nationalism, Not Economics, Drives Hanson's Support

The Hanson phenomenon is being written up as a revolt against "economic rationalism" and the economic reform agenda of the last 15 years.  There are several problems with this analysis.

First, it was not economic issues which first brought her to national prominence -- it was talking about issues such as indigenous policy and immigration.  These are issues of cultural identity, not economics.

Second, the economic direction Pauline Hanson has since offered was already on offer from the Australian Democrats, from the Greens, Graeme Campbell's Australia First Party and Rex Connor junior's Advance Australia.  (The profound similarities between the economic and immigration policies of these parties is outlined in a recently released my publication -- Odd Bedfellows:  The Economic Nationalists and Why They Are Wrong.)

The Democrats and the Greens were already pushing the same frightened economic nationalism that Pauline Hanson has since adopted, and so should have gained similar support.

Third, Queensland has had less experience of economic reform than anywhere else in the country.  Its state finances were not botched, its government business enterprises were not grossly mismanaged, so it has had less need to undergo reform.

While concerns about unemployment, and foreign competition no doubt help fuel her support, they are not the real basis of One Nation's support.  What is distinctive about Pauline Hanson is that she offers a series of culturally powerful themes in a public persona which aids her effectiveness in delivering her message.  And while people continue to focus on economic issues -- leaving the cultural field to her -- she will continue to build support.

Her themes are about pride in being Australian, pride in a traditional conception of Australia, about fears of Australia becoming a divided nation.  She also taps into the resentment many people outside the "Triangle" of Canberra-Sydney-Melbourne feel about having that triangle dominate national policy.

Accusations about Pauline Hanson's racism miss the point.  The point is not that she taps into racist sentiments (she does) but that she taps into sentiments of pride in traditional Australia.  And the wasteful failure of special programs for indigenous Australians provide a perfect indicator of Canberra's isolation and incompetence.

Along with official multiculturalism -- the doctrine that the hosts must pay to adapt to newcomers -- and Mabo and Wik -- special property rights on the basis of race -- they provide a lightning rod for fears that Australia is becoming a nation of tribes.  Fears well articulated in Paul Sheehan's best-seller Among the Barbarians.  The policy of targeting government welfare on the basis of "identity politics" -- of getting money if you "prove" you are oppressed and the "culture of complaint" that generates -- creates the impression of an Australia divided on the basis of special deals.  So there is both "downward envy" and a feeling of being insulted.

Attempts to tell the Queenslanders who voted for One Nation that they are "beyond the pale" will build her support, not undermine it

This is the real failure of the Howard Government.  In March 1996, the ALP was effectively wiped out in mainland Australia outside the triangle.  The Howard Government was given a mandate to articulate the concerns of Australia outside the triangle, a mandate it failed to take up.

This failure created a political vacuum.  In walked Hanson.  She is a person not of the triangle embodying resentment at the triangle's dominance and at the sneers of the "guilt industry", a person whose blatant patriotism resonated loudly.

The solution to the Perils of Pauline is not to adopt the economic policies of the Democrats, the Greens and One Nation -- more centralised interventionism.  It is to articulate a sense of a common citizenship rejecting both sneering elitists and old-fashioned bigots.  It is to revisit the Hawke-Greiner move to a new federalism that Keating derailed back in 1991.  It is to articulate a new national contract which gives people far more ownership of decisions, rather than being dictated to by a remote Canberra.

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Consent, Compassion and Coercion

A paper delivered to the Nineteenth Conference of the H.R. Nicholls Society,
MUA -- Here To Stay ... Today!
at the Contra-St Kilda Hotel on 1 August 1998.

It is a sign of the perversity of much Australian political debate that those who wish to retain the fundamental structures of a labour market which has been producing mass unemployment since 1974 -- that is, 24 years without a break -- are regarded as being "compassionate" while those who wish to radically reform those same structures in order to set them on a path with a proven record of achieving full or near full employment are regarded as heartless.

It is the same process of linguistic perversity whereby the H R Nicholls society, which advocates radical change in order to bring Australia's labour market institutions more in line with those of many of our trading partners, is labelled by the ABC as "ultra-conservative" when the real conservatives, and defenders of privilege, are the IR Club.

We live in a society when, despite taxes as a percentage of GDP being at a record level for peacetime, people decry the "collapse" of the revenue base and the alleged frightful cutting of state activity.  In the six years from 1990 to 1995, the Commonwealth Parliament passed more pages of legislation than it did from 1901 to 1974 combined.  Six years, marked by no great national emergency or crisis, saw the passing of more pages of legislation than the setting up of the Commonwealth jurisdiction, both World Wars, the Great Depression and the period of postwar prosperity combined.  Yet we are supposedly seeing a roll-back of the state and a triumph of markets.

Of course, if you deny people an accurate map, and they will be disoriented, and more open to easy solutions.

Yes, governments are less inclined to set quantities and prices directly in markets, with the continuing exception of the labour market.  But no, we do not live in an age of deregulation.  The visible hand of government -- in terms of the size of the tax take, the scale of legislation, the proportion of the population on income support -- is larger than ever before:  yet so much of the tenor of public debate is about the alleged frightful results of smaller government.  To have so much denunciation of the consequences of the shrinkage of something which is in fact continuing to grow is surely perverse.

What I want to do is to set out our situation in direct language and to come back to the perversion of language as a defence of privilege.

Mass unemployment persists in Australia because prices and conditions for labour are set too high for many Australians to find employment.  They are set too high by the operation of the industrial relations system and by the welfare system.

This is easily illustrated.

The historical pattern of Australian unemployment is quite clear.  The surge in real wages under Whitlam, coupled with deteriorating economic conditions, created a continuing rise in unemployment which took four years to work its way through the labour market.  It raised the "base level" of Australia's unemployment rate from less than two to about six per cent of the labour force.

Or, to put it another way, Australia's labour market institutions responded to economic conditions by producing increasing levels of unemployment.

Looking at the employment/population ratio -- the proportion of the civilian population 15 and over in employment -- makes the point even more strongly.

Despite the complaints of a young Paul Keating in his maiden speech about women displacing breadwinners from jobs, the movement of women into the workforce is NOT the cause of unemployment.  That an increasing proportion of the work force is employed part-time reinforces how Australia's performance in employing people has deteriorated.

Having created a rise in what might be called the "base level" of Australian unemployment from a rate of less than two percent to a rate of about six per cent of the labour force, our labour market institutions has since displayed what might be called the "higher mountain" recession cycle.

Each recession creates a surge in unemployment, peaking at a level higher than the previous recession.  Each growth period creates some recovery in unemployment, but ends at a level higher than, or at best equal to, the previous recovery.

This is the pattern of a society moving ever further away from the goal of full employment.

What we have to be quite clear is that this is the pattern of a society choosing to move every further away from full employment.  There is nothing automatic or necessary about this pattern of labour market outcomes.

The point can be made simply by looking at some comparable countries.  That Australia registered 7.9 per cent unemployment in April after 5 years of economic growth was regarded as an achievement.  Yet look at what some OECD countries were achieving at the same time.

Just to emphasise the point, I have noted the last date at which Australia achieved an unemployment rate as low as these countries.  Even taking the country with the unemployment rate closest to our in this group, it is eight years since our unemployment rate was as low.

Looking at employment/population ratios in the same way makes the point even more strongly (1996 is the latest comparable data I could get for OECD countries).

That New Zealand, in 1996, had an employment/population ratio we have not achieved for 24 years says a great deal.  That the US employment/population ratio -- which has since increased -- is at a level that Australia has never achieved since regular labour force statistics first began to be collected in the early 1960s says even more.  It also gives the lie to the Ken Davidson et al line that the US has such low unemployment rates because of the number of people in their defence forces and in incarceration (the number of people in the US in gaol, the defence forces or otherwise institutionalised has fallen from 6 million in 1970 to 3 million in 1997 while the proportion of American 16 and over in civilian employment has risen from 57 per cent to 60 per cent over the same period). ⁽¹⁾

As David Evans, the former Secretary of the Treasury said correctly some years ago, we have the level of unemployment we choose to have.  By which he meant the level of unemployment our policy decisions mean we have.

An instance of such policy decisions are those we make with regard to our system of transfer payments.  A simple example will suffice to show how the welfare system creates unemployment.

We can see that there would be some reason for having one or more children would inhibit one's ability to get a job to some degree -- hence the slightly higher rate of unemployment of among members of couples with children compared to childless couples.

Once we get to 4 or more children, suddenly unemployment rates are much higher.

It is a matter of complete indifference to an employer how many children a prospective employee had.  Yet unemployment rates for those with four or more children is notably higher than unemployment rates for those with one to three children.  Why?  Largely because the family income support arrangements create massive disincentives for those with 4 or more children to seek work -- the welfare system effectively sets minimum wages, and it sets them higher the more children parents have.

We should not be too hard on these people -- they are making choices which maximise the income received by their families.  Just as one can be uncomfortable with crackdowns on "dole cheats" in a situation where the law prices many people out of jobs.

And it is not merely official award rates which raise the price of labour.  Other regulatory activities, such as unfair dismissal laws and increased employer liability for employee actions, which increase the risks of hiring, also do so.  That the 555 page KernotReith Act is hailed in some quarters, and denounced in others, as an act of labour market deregulation is surely another case of perverse use of language.

Do we believe in full employment?  As a society clearly not.  Of course, many make noises about unemployment being terrible, but when it comes to actually doing anything about the shameful level of unemployment in Australia, it quickly becomes obvious that other things are much more important.  Keeping one's own wages up, protecting unions, holding on to fond beliefs, preserving traditional institutions and privileges ... All these things are regularly revealed to be much more important than achieving full employment.

What do we have to do to achieve full employment?  Allow the labour market to become a realm of capitalist acts between consenting adults.  If we are concerned some of those capitalist acts may result in unacceptably low incomes (even though many low incomes contribute to high-income households), then incomes can be "topped up" through devices such as the Earned Income Tax Credit used in the US.  And low-income jobs -- which regularly lead to higher-income jobs -- are much better than unemployment leading nowhere.

Those who decry the alleged results of a free labour market either are frightened of the price effects of competition for their own jobs or have an ideological preference for telling other people what to do rather than letting them make their own choices or have some other vested interest at stake.  Thus, the opposition of the ACOSS, the Australian Council of Social Services, to labour market deregulation on the grounds that it allegedly creates "working poor" is perfectly rational -- having a large unemployed "welfare peasantry" increases their client base.  The "poverty industry" has a particularly strong vested interest in opposition to market solutions to which they are at best irrelevant and which shrink their client base.

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

The most important thing government needs to do to promote full employment is to stop doing things.  To stop setting wages rates by law through the award system.  To stop imposing a monopoly provider of arbitration services which plays grubby interest group politics under guise of being "the umpire" while sacrificing the prospects of the unemployed.  To stop raising the risks of employing people by unfair dismissal laws (no employer can sue a worker who leaves at a crucial time, after all), increased employer liability for actions by employees, etc.  To stop structuring the welfare system so it is destructive of the work ethic.

We can see the means by which unemployment is caused.  We have unemployment not merely permitted, but actually created, by law.

But what causes these means to be so chosen?  Why are so many actions by government so destructive of employment?  Because of the essential irresponsibility of the political process.

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

And raising the costs of labour and the complexity of labour administration advantages large established firms over their competitors such as smaller firms and potential market entrants.

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

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

But we should be very suspicious of grand plans to do more than that.  Taxes are a very expensive way of funding something.  Not only do we have to pay public servants to collect the money and hand it out, there are all those accountants, lawyers, etc. kept busy ensuring their clients comply with the law; all those commercial transactions which don't take place because of taxes; all those changes from preferred behaviour due to taxes.  Because of these extra costs, we can only be confident of society winning on the deal if about $1.30 to $1.50 worth of value is created for every $1 of tax expenditure -- and that is quite a big ask.  (And the bigger government gets, the less likely this criteria is to be met -- which is why it is not surprising a recent study (2) found a strong correlation between bigger government and lower economic growth.) Market exchanges are much cheaper.

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

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

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

Which is where issues of language and information come in.

Selling coercion and privilege is difficult -- if you call it that.  So you don't.  You call it "equity", "social justice", "democratic decision-making", "concern for the national interest".  You don't call it using the coercive powers of the state to run people's employment affairs.  So we end up with a situation where people are far, far freer to make decisions about marriage, parenting and ordinary purchasing than the arrangement of their employment.

Most of the time, people are rationally ignorant of political matters.  It is not something where their capacity to influence events is worth major investment in information gathering and decision making.  So they pay limited attention and work on ongoing sentiments.  Which is why generating and reinforcing background assumptions in public debate is so important.

When people are confronted with a real decision -- a vote in an election or referendum -- that is different.  Then they pay more attention, they gather more information, they consider matters more fully and their attitudes shift and firm.

Even so, there are still major information and attention problems to overcome.  The result is that it is natural for public debate to be carried on, as much of it is, in terms of intentions and resources, rather than effects.  Measuring results is difficult and costly -- indeed, would be irrational expenditure of effort for most people most of the time -- while intentions are easy to grasp, as are expenditures, at least in the comparative sense ($1m is a small programs, $1bn a large one, $500m is more than $300m and so on).  Thus the "outcomes = intent + resources" model of public policy -- with effects being taken to flow fairly directly from intentions plus resources -- is a way of dealing with ignorance.  This allows easy display of moral purpose without the tedious business of working out actual effects.

Opposition to particular public policies is therefore easily construed as opposition to the official intent of such policies.

Such an approach makes life easier for bureaucrats -- who can concentrate on questions of process and measures of activity rather than actual outcomes.  It also makes life a lot easier for journalists.  Scale and intent are easily conveyed; likely effects are much more difficult.

If you have a lazy, conformist and, in Christopher Pearson's words, "invincibly intellectually incurious media", driven by deadlines, then such tendencies are magnified.  The obvious "pack mentality" of much of the Australian media is understandable in terms of the pressures of their job.  The physical and social isolation of the Canberra Press Gallery further reinforces such pressures.

You may say it is the role of professionalism to realise and counterbalance such pressures.  And you would be right.  I leave my audience to make their own judgement about the level of professionalism amongst the Australian media.

The purpose of political leadership is to provide a bridge between enduring sentiments and the needs of the day.  A key part of that is capturing the language of debate.  One must get under, and shift, the underlying premises of debate.  That is not the work of a "trimmer" -- adjusting sails to prevailing winds -- the pre-emptive compromiser who gives away the high moral ground, and therefore the chance to push debate in a fundamentally different direction, before they begin.

It is the task of someone prepared to articulate a fundamentally new direction, based on different premises.  To carry the debate all the way, without conceding key presumptions to their opponents, to the defenders of privilege and coercion.

The question genuine leadership should be able to pose is; do you want full employment?  Really?  What are you prepared to give up to achieve it?  Are you brave enough -- and do you care enough -- to try a free labour market?  Are not the adult citizens of a free society entitled to make their own decisions in such matters?  Are we really that frightened a people?  Do we not believe in ourselves?

Freedom should not really be such a hard sell.  Not when coercion is so costly -- in resources, in jobs, in opportunities and in self-respect.

---

ENDNOTES

1. Economic Report of the President, February 1998, pages 321--322.

2. Gwartney, J., Lawson, R., Holcombe, R., The Size and Functions of Government and Economic Growth, study prepared for Joint Economic Committee of the US Congress, April 1998.

---

APPENDIX

Annual Average Labour Force Statistics, Australia, 1964/65 to 1997/98
Year	Employed						Unemployed							Labour Force			Civilian Population 15 and over
	Total			Full-time			Total			52 weeks or more					Participation Rate
	Number	Rate		Number	Rate		Number	Rate		Number	Proportion	Rate
	(000s)	(% CPop)		(000s)	(% CPop)		(000s)	(% LF)		(000s)	(% UE)	(% LF)		(000s)	(% CPop)		(000s)
1964/65	4559.2	58.1		. .	. .		57.1	1.2		. .	. .	. .		4616.3	58.8		7850.9
1965/66	4690.8	58.5		. .	. .		67.9	1.4		. .	. .	. .		4758.7	59.3		8024.8
1966/67	4871.4	59.1		. .	. .		90.8	1.8		. .	. .	. .		4962.2	60.2		8241.4
1967/68	4988.7	59.3		. .	. .		95.4	1.9		. .	. .	. .		5084.1	60.4		8414.7
1968/69	5111.8	59.4		. .	. .		92.8	1.8		. .	. .	. .		5204.6	60.4		8610.7
1969/70	5285.3	59.9		. .	. .		93.7	1.7		. .	. .	. .		5379	61		8825.1
1970/71	5446.2	60.3		. .	. .		97.1	1.7		. .	. .	. .		5543.3	61.6		9038
1971/72	5539.9	59.8		. .	. .		126.6	2.2		. .	. .	. .		5666.5	61.2		9264.2
1972/73	5680.5	60.1		. .	. .		153.6	2.6		. .	. .	. .		5834.1	61.8		9446.4
1973/74	5863.1	60.8		. .	. .		127.3	2.1		. .	. .	. .		5990.4	62.1		9642.8
1974/75	5856	59.5		. .	. .		247.1	4		. .	. .	. .		6103.1	62.1		9834.8
1975/76	5929.3	59.3		. .	. .		301.6	4.8		. .	. .	. .		6230.9	62.3		10002.4
1976/77	5965.6	58.7		. .	. .		325.1	5.2		. .	. .	. .		6290.7	61.9		10170.1
1977/78	6004.4	57.7		. .	. .		397.6	6.2		. .	. .	. .		6402	61.4		10409.4
1978/79	6054	56.9		5118	48.1		408.7	6.3		68	16.6	1.1		6462.7	60.8		10638.4
1979/80	6193.1	57.2		5221.7	48.3		407.6	6.2		76.4	18.7	1.2		6600.7	61		10821.7
1980/81	6361.2	57.7		5334.3	48.4		395.9	5.9		77.8	19.7	1.2		6757.1	61.3		11026.9
1981/82	6439.9	57.2		5399.7	48.0		423.5	6.2		81	19.1	1.2		6863.4	61		11255.3
1982/83	6329	55.2		5242.7	45.7		624.9	9		127.3	20.4	1.8		6953.9	60.6		11473.8
1983/84	6387.6	54.7		5281.8	45.2		680.1	9.6		202.7	29.8	2.9		7067.7	60.5		11680.7
1984/85	6579.3	55.3		5413.1	45.5		619.4	8.6		192.5	31.1	2.7		7198.7	60.5		11891.9
1985/86	6860	56.6		5603.5	46.2		591.5	7.9		172.1	29.1	2.3		7451.5	61.4		12130.1
1986/87	7044.4	56.9		5688.9	45.9		635.1	8.3		176.8	27.8	2.3		7679.5	62		12390.7
1987/88	7256.3	57.4		5822.7	46.0		610.5	7.8		169.1	27.7	2.1		7866.8	62.2		12652.5
1988/89	7548.7	58.5		6033.3	46.7		534.6	6.6		145.6	27.2	1.8		8083.3	62.6		12908.5
1989/90	7832	59.6		6192.2	47.1		513.7	6.2		116.4	22.7	1.4		8345.7	63.5		13139.8
1990/91	7782.4	58.3		6093.3	45.7		709	8.3		149.5	21.1	1.7		8491.4	63.6		13343.4
1991/92	7636.7	56.5		5884.5	43.5		881.7	10.3		255.7	29.0	3.0		8518.4	63		13527.5
1992/93	7633.9	55.8		5837.1	42.6		940.5	11		336.3	35.8	3.9		8574.4	62.6		13691
1993/94	7780.6	56.2		5929.2	42.8		915.5	10.5		334.8	36.6	3.9		8696.1	62.8		13853.5
1994/95	8093.1	57.7		6119	43.6		794.6	8.9		273.6	34.4	3.1		8887.7	63.3		14031.1
1995/96	8299.7	58.3		6260.5	44.0		766.7	8.5		226.5	29.5	2.5		9066.4	63.7		14236.3
1996/97	8389.1	58.0		6279.8	43.4		796.5	8.7		233.1	29.3	2.5		9185.6	63.5		14464.7
1997/98	8501.4	58.0		6330.8	43.2		768.1	8.3		244.7	31.9	2.6		9269.5	63.2		14669.6

Social Harm in Some Old Beliefs

What caused the tsunami that killed over 2,000 villagers near Aitape on the north coast of Papua New Guinea a fortnight ago?

Scientists would explain that the earth's crust is broken up into a number of rigid plates which float on the molten rock underneath.  These move slowly in different directions, and as they collide they can cause mountains to rise or force one plate under the other.  The three massive tidal waves that devastated the Aitape region were triggered by a sudden vertical drop of two metres along a forty kilometre crack in the ocean floor.

But I doubt this explanation would satisfy villagers who suffered the catastrophe, or who lost their relatives.  It does not answer a fundamental question that confronts people who have experienced serious trauma or misfortune -- "Why me?"

Even people who accept that an undersea earthquake generated the waves will wonder why their villages were destroyed, rather than other villages along the coast, or why their spouses or children drowned while others who were near them somehow survived.

As the Aitape region is strongly Christian, it is hardly surprising that many villagers think the answers are to be found in God's will.  Some survivors have told journalists they were saved by their prayers, while others say it must have been part of God's plan that they should lose their families.

From their comments, it is also clear that many villagers feel the tidal waves were a punishment from God.  Obviously concerned about the effects of such self-laceration, the officiating priest at last weekend's memorial service told people not to blame themselves for the tragedy.  Their burdens are heavy enough, without having the additional weight of believing that their peccadilloes could have such appalling consequences.

Those who are hostile to missionary activity amongst indigenous peoples are usually outraged by the thought that Christianity might cause individuals to accept such a wildly inappropriate sense of guilt.  They think customary rituals and beliefs would provide a much better basis for restoring psychological and social well-being, reasoning that as disasters like the Aitape tsunami would have occurred often in the past, traditional religions would have developed appropriate means for dealing with them.

A typical example of this kind of thinking came from an American former resident of Papua New Guinea who wrote to the Post-Courier newspaper in Port Moresby a few days ago to express her condolences to the "supporters of the traditional beliefs and ways".  She urged them to look to their "rich ancient beliefs as the secret to spiritual recovery" from the disaster.

I hold no special brief for the missionaries who worked in the Pacific and elsewhere, although I respect their dedication and self-sacrifice.  Nevertheless, I think that Westerners who encourage indigenous peoples to return to their "ancient beliefs" have succumbed to a destructive sentimentalism.

It is one which is blind to the enormous social and cultural achievements of the West, and to the strengths of the world views on which these have been based.  Not the least of these achievements is the ability to rapidly mobilise the massive resources needed to assist victims of the tsunami, and the sense of human obligation which ensured that these resources would be provided without hesitation.

To the extent that the survivors from Malol, Sissano and the other devastated villages may turn to "traditional beliefs and ways" in response to the calamity, their recovery, "spiritual" or otherwise, is more likely to be impeded than aided.  Unfortunately, there are signs that at least a few people think the tidal waves were caused by angry spirits or evil magicians.  A couple of articles published in Papua New Guinea's press last week, including one written by a man from Malol village itself, suggest that some survivors are indeed resorting to "ancient beliefs" to explain what happened.

The Melanesian islands of New Guinea, the Solomons and Vanuatu are notable for the extreme diversity of their traditional cultures.  Nevertheless, in the great majority of Melanesian societies people believed that serious misfortunes were never accidental, but the result either of spirits acting in the interests of their adversaries, or of other individuals performing harmful magic directed against them.

Even now, many illnesses and deaths are seen as the result of sorcery or witchcraft, which may be triggered by sheer malevolence, or else by the most trivial slights or offences.  It is not just unsophisticated villagers who hold these views.  When teaching at the University of Papua New Guinea many years ago, I found that educated people may also be fearful of supernatural attack.

In some cases, the supernatural powers thought to be available to humans are immense.  Anthropologists have reported societies where certain people are believed to be capable of destroying the earth itself, and where the threat of such annihilation is readily used to force others to accede to their wishes.  This is supernatural terrorism with a vengeance.

In the Vanuatu island where I carried out anthropological research during the 1970s, tropical cyclones were always seen as being the work of people who were attempting to harm their enemies or destroy their property.  Every major storm would bring a rash of accusations and counter-accusations as those who had suffered injury or damage sought to identify who amongst their opponents were the most likely culprits.

Certainly, the customary beliefs of Melanesians address the "why me?" question.  But the kinds of answers they provide usually have very harmful social consequences, feeding cycles of mutual fear and suspicion, and making social co-operation beyond the narrow kin group always precarious.  Some anthropologists speak of a "paranoid ethos" that characterised traditional Melanesian cultures, and which is still found in areas of contemporary life.

Those who condemn missionaries for undermining indigenous beliefs and practices may find it difficult to accept, but believing natural disasters such as the Aitape tsunami are part of God's inexplicable plan is far less socially destructive than the traditional alternative of believing they are the work of fellow humans with evil in their hearts.

What caused the tsunami that killed over 2,000 villagers near Aitape on the north coast of Papua New Guinea a fortnight ago?

Scientists would explain that the earth's crust is broken up into a number of rigid plates which float on the molten rock underneath.  These move slowly in different directions, and as they collide they can cause mountains to rise or force one plate under the other.  The three massive tidal waves that devastated the Aitape region were triggered by a sudden vertical drop of two metres along a forty kilometre crack in the ocean floor.

But I doubt this explanation would satisfy villagers who suffered the catastrophe, or who lost their relatives.  It does not answer a fundamental question that confronts people who have experienced serious trauma or misfortune -- "Why me?"

Even people who accept that an undersea earthquake generated the waves will wonder why their villages were destroyed, rather than other villages along the coast, or why their spouses or children drowned while others who were near them somehow survived.

As the Aitape region is strongly Christian, it is hardly surprising that many villagers think the answers are to be found in God's will.  Some survivors have told journalists they were saved by their prayers, while others say it must have been part of God's plan that they should lose their families.

From their comments, it is also clear that many villagers feel the tidal waves were a punishment from God.  Obviously concerned about the effects of such self-laceration, the officiating priest at last weekend's memorial service told people not to blame themselves for the tragedy.  Their burdens are heavy enough, without having the additional weight of believing that their peccadilloes could have such appalling consequences.

Those who are hostile to missionary activity amongst indigenous peoples are usually outraged by the thought that Christianity might cause individuals to accept such a wildly inappropriate sense of guilt.  They think customary rituals and beliefs would provide a much better basis for restoring psychological and social well-being, reasoning that as disasters like the Aitape tsunami would have occurred often in the past, traditional religions would have developed appropriate means for dealing with them.

A typical example of this kind of thinking came from an American former resident of Papua New Guinea who wrote to the Post-Courier newspaper in Port Moresby a few days ago to express her condolences to the "supporters of the traditional beliefs and ways".  She urged them to look to their "rich ancient beliefs as the secret to spiritual recovery" from the disaster.

I hold no special brief for the missionaries who worked in the Pacific and elsewhere, although I respect their dedication and self-sacrifice.  Nevertheless, I think that Westerners who encourage indigenous peoples to return to their "ancient beliefs" have succumbed to a destructive sentimentalism.

It is one which is blind to the enormous social and cultural achievements of the West, and to the strengths of the world views on which these have been based.  Not the least of these achievements is the ability to rapidly mobilise the massive resources needed to assist victims of the tsunami, and the sense of human obligation which ensured that these resources would be provided without hesitation.

To the extent that the survivors from Malol, Sissano and the other devastated villages may turn to "traditional beliefs and ways" in response to the calamity, their recovery, "spiritual" or otherwise, is more likely to be impeded than aided.  Unfortunately, there are signs that at least a few people think the tidal waves were caused by angry spirits or evil magicians.  A couple of articles published in Papua New Guinea's press last week, including one written by a man from Malol village itself, suggest that some survivors are indeed resorting to "ancient beliefs" to explain what happened.

The Melanesian islands of New Guinea, the Solomons and Vanuatu are notable for the extreme diversity of their traditional cultures.  Nevertheless, in the great majority of Melanesian societies people believed that serious misfortunes were never accidental, but the result either of spirits acting in the interests of their adversaries, or of other individuals performing harmful magic directed against them.

Even now, many illnesses and deaths are seen as the result of sorcery or witchcraft, which may be triggered by sheer malevolence, or else by the most trivial slights or offences.  It is not just unsophisticated villagers who hold these views.  When teaching at the University of Papua New Guinea many years ago, I found that educated people may also be fearful of supernatural attack.

In some cases, the supernatural powers thought to be available to humans are immense.  Anthropologists have reported societies where certain people are believed to be capable of destroying the earth itself, and where the threat of such annihilation is readily used to force others to accede to their wishes.  This is supernatural terrorism with a vengeance.

In the Vanuatu island where I carried out anthropological research during the 1970s, tropical cyclones were always seen as being the work of people who were attempting to harm their enemies or destroy their property.  Every major storm would bring a rash of accusations and counter-accusations as those who had suffered injury or damage sought to identify who amongst their opponents were the most likely culprits.

Certainly, the customary beliefs of Melanesians address the "why me?" question.  But the kinds of answers they provide usually have very harmful social consequences, feeding cycles of mutual fear and suspicion, and making social co-operation beyond the narrow kin group always precarious.  Some anthropologists speak of a "paranoid ethos" that characterised traditional Melanesian cultures, and which is still found in areas of contemporary life.

Those who condemn missionaries for undermining indigenous beliefs and practices may find it difficult to accept, but believing natural disasters such as the Aitape tsunami are part of God's inexplicable plan is far less socially destructive than the traditional alternative of believing they are the work of fellow humans with evil in their hearts.

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The Unfinished Business of Unfair Dismissal

If you want to know why unemployment is stuck at over 8% -- just look at the sorry saga of unfair dismissal regulation.

Up until the early 1990s unfair dismissal was not a big issue.  The number of claims were modest.  Moreover, there was general satisfaction on the part of employees and employers with the way things were handled.

The Unions, however, did not like the state of affairs.  As pay-back for services rendered during the 1993 election, they got their way with the Industrial Relations Reform (sic) Act of 1994.

This legislation used an obscure international agreement (one not ratified by Federal Parliament) to give the Commonwealth jurisdiction over the issue.  It put in place a highly complex process which emphasised formal compliance with detailed procedures.  It allowed claimants to jump between the Commonwealth and State awards in search of the most favourable process.  And it took responsibility for adjudicating claims away from tribunals to specialist courts.

The legislation predictably, was a disaster for employers -- particularly small business -- and for the unemployed.  On the other hand, it gave the employed and the unions a boost and proved to be gold mine for lawyers.

Following its passage, there was a massive shift in claims away from states to the federal jurisdiction and a large overall increase in the number of claims.  The impact was particularly hard on small businesses.  They not only got hit with a disproportionate number of the claims, but were less able to fight the claims and more prone to getting caught on silly procedural issues.  Not surprisingly, small business put the clampers on employing new people.

The lucky people who already had a job benefited by what was, in effect, an additional redundancy payment.  Given the high cost of fighting claims and the fact that the courts overwhelmingly came down on the side of the workers (78% of claims decided in favour of the employees), most businesses -- again particularly small businesses -- settled no matter what the merits of the case were.

Union leaders benefited not only because they were able to provide another perk to their members, but also because the legislation gave them another tool in the on-going fight against the "boss".

In short, the Act was another example of the insiders -- the employed and the unions -- benefiting at the expense of the outsiders -- the unemployed.

The Howard Government has repeatedly tried shift the balance more in favour of small business and unemployed.  However, their efforts have been stymied by the Labor Party and the Democrats in the Senate.

Some beneficial changes were introduced via the Workplace Relations Act 1996.  Jurisdiction shopping was stopped and responsibility was shifted back to the tribunal.  These changes initially led to a large -- 25% -- drop in unfair dismissal claims.

However, claims soon began to rise again.  The Government responded with a new set of amendments which the defenders of privilege in the Senate dutifully knocked back.

There the situation rests, with up to 10% of all businesses claiming to be cutting their work force for fear of legal action and adding to the ranks of the unemployed.

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For Privatisation

Is government competent to do anything the political system decides it should do?  Is government always the best available social mechanism to do what ought to be done?  Does government naturally serve the public interest?  Is government more likely to serve the general interest than other social mechanisms?

If the answer to these questions is "yes" then government should do everything.  If the role of government is to "do good" and it is competent to do any good it sets out to do, then there is no limit on the size of government -- there is always more "good" to be done.

Clearly, however, the answer to these questions is not "yes".  The "government can do anything" approach has been tried and has been a grotesque failure;  an immensely humanly, socially and environmentally destructive failure.  If experience has convinced even the Central Committee of the Chinese Communist Party that public ownership has its limitations, then the rest of us can surely get the point.  Privatisation is a world wide trend -- between January 1984 and September 1995, in the area of infrastructure alone, 547 firms in 86 countries were privatised for a total value of $US357billion.

Not that we have fully got the point, even yet.  In the last 40 years, after adjusting for inflation, GDP per head has doubled, taxation per head has tripled and welfare expenditure (health, education and income transfers) per head has gone up five-fold -- welfare expenditure increasing faster than revenue, the economy and the population is not a trend that can continue forever!  We may have given the idea of nationalising the economy, but the trend towards nationalising households is still pretty strong -- the proportion of the civilian population aged 15 and over on government income support has gone from 13 per cent in 1970 to 30 per cent in 1996.

Still, clearly the government is not competent to do everything.  So sensible policy is about working out the actual strengths and weaknesses of government action, compared to the alternatives, and the then getting it to "stick to its knitting" -- stick to the things for which it is genuinely the best mechanism available.

We rely on government to make laws, to be the regulator in the public interest.  Now, if one is the person being regulated -- the player -- and the regulator -- the umpire -- at the same time, that is a pretty clear conflict of interest.  Which is a reason to be sceptical about public ownership -- the clear conflict of interest in being both regulator and producer.

The crucial problem with public ownership, however, is that it is not real ownership.  The notional owners -- the public -- do not elect the board, cannot hire and fire the managers, do not have their personal wealth at stake, lack any real incentive (and often the information) to keep track of an individual enterprise's health, do not borrow on the basis of interest rates with any connection to the risk associated with the firms' assets and are not under the pressures involved in the "market for managerial control" of the stock exchange.  A central part of the appeal of "public ownership" -- that it is ownership without personal effort or risk, ownership "on the cheap" -- goes to the heart of its problems as a form of ownership.

The government, as our agents, is supposed to do these things for us.  Well, it should do these for us, but generally it does not -- or rather, it does not do them very well.  For example, the information reporting requirements for firms listed on the stock exchange are far greater than those imposed by government on government business enterprises.  It is easier to get crucial information on BHP -- a private company -- than ANL -- the government shipping line -- despite us being the notional owners of the Australian National Line.  That is because BHP has real owners (and potential owners) and a great deal of money and effort is put into scrutinising its performance (which has been pretty lousy in recent times -- as the market made cruel comment when it greatly increased the value of BHP upon the announcement of the resignation of the Managing Director, thereby rating his performance as being of negative value to the tune of millions of dollars).  No one has the incentive to put anywhere near the attention to ANL (whose performance is truly appalling).

We got an insight into who the real owners of ANL are when the Keating Government tried to privatise it.  The key negotiations ended up being between the union and P&O -- the potential purchasers.  Our agents -- the Government -- essentially stepped aside.  But, then.  we are only the pretend owners.  The real owners -- the employees of ANL -- were represented by their agent -- the union.  Of course, the taxpayers had an interest -- the millions of dollars in ANL's losses we cover each year.  Unlike private sector owners, the employees of ANL are not liable for the capital they waste.

That public ownership is pretend ownership is why privatisation typically leads to sizeable cuts in staff numbers -- once the capital invested has real owners, they will no longer tolerate the very wasteful, inefficient and expensive staffing practices typical of government enterprises lacking real owners of the capital invested (the command economies were notorious for this -- hence the joke about "they pretend to pay us and we pretend to work").  Employees of the old State Electricity Commission used to say "SEC" stood for "Safe, Easy and Comfortable" -- given that about 6,000 workers now do what 25,000 workers used to do, they weren't wrong.  The dramatic drop in wholesale electricity prices -- making Victorian industry much more competitive -- and the massive drop in State debt -- freeing up funds previously absorbed in interest payments -- are pretty major social returns from changing from pretend ownership to real ownership.

As for government being "our" agents, at each election we are given the choice between a duopoly competing for government (ALP or the Coalition) where we are given one vote to choose between two packages of promises about an immense ranges of issues which may or may not be carried out.  Expecting government to be effective commercial agents is just expecting too much -- as disasters like the VEDC, Tricontinental, the State Bank of South Australia and "WA Inc" have showed.  The private sector produces its disasters too -- but people consented to risk their capital in that way, the long-suffering taxpayers of those States did not.  And the performance of private sector companies with real owners of the invested capital is generally much better;  they are generally much more productive users of the resources entrusted to them.  But, then, they have the right incentives to be.

Society is better off with real owners of resources, rather than pretend owners.  Which is why, privatisation ought to be, and is, a strong global trend.

Give Telstra Back to Us

also published in Courier Mail and The Advertiser on 6 August 1998

How do we free Telstra from being a politicians' plaything whilst retaining control?

Simple!  Follow the lead of the AMP and give it back directly to its owners -- us.

This would be the fair and democratic thing to do.  It would also allow Telstra to get on with the essential business of helping build the information super-highway.

The fact is that the original rationale for government stewardship of Telstra -- the need to counter monopoly power -- has evaporated.  The telecommunication industry is now a competitive, international business with literally hundreds of players.  Although Telstra still dominates locally, its monopoly position is gone for good.

More importantly, governments make lousy owners.  They just don't respond well to the need to keep costs down or to create wealth.  Nor do they face, a strong incentive to seek out new consumers and services, to take risks and innovate.  Moreover, being political beasts, they inevitably succumb to the lure of the marginal voter and the pork barrel.

If government ownership days are past, why then the persistent chorus to keep Telstra under government ownership?

For many its the desire to "keep with tradition" and for others it's an ideological thing.

Still for others it is an concern about more unemployment -- though, given the rapid growth in jobs in the telecommunications industry, this fear is misplaced.

More validly, people are concerned about loss of ownership and the threat of being left behind.  Telstra is a big deal -- indeed it now easily the single largest business in Australia.  People quite rightly do not want to lose their legitimate stake in the biggest show in town.

The best way to allay concerns about ownership and control is not with continued government stewardship but rather by returning the asset back to us -- by issuing every citizen on the electoral roll with an equal share of Telstra.

Once it is returned to the people, they can decide to keep, sell or buy according to our own preferences.  If an individual wants to retain ownership she can.  If a person would rather take the money, he can.  If a person wants to keep Telstra Australian-owned, she can by retaining ownership and vote accordingly at shareholders meeting.

Understandably many pollies and interest groups will not like the idea.  Once Telstra is given back to it owners, they will not be able to use Telstra for their own pet projects and interest groups.  But is it not more democratic to allow the people as individuals to make these decisions for themselves?

Access to the best telecommunication facilities is also a big deal.  The future will largely be played out along the information superhighway.

The question is how is the issue of access best addressed?  By government ownership?  If this were the case, people in the bush would not now be complaining about poor service and high prices.

The fact is the only way to overcome the tyranny of distance in the end is by having a competitive and innovative industry -- something which is hindered rather than helped by government ownership.

There is a role for governments to help people with access to the communications services.  However, governments have many options other than ownership.  They can regulate -- as they now do with local calls -- requiring firms to provide certain services at certain prices.  They can pay firms to proved service at subsidised prices -- as is now does with most assistance to industry.

If more funding is required, then the government can sell a bit of Telstra.  For example, the 16% of Telstra the Howard Government now plans to sell is expected to raise around $12 billion, which enough to fund a six-fold increase in current level of telecommunications assistance to the bush for forever and a day.

Although de-nationalising Telstra would not please all, it is like to please most where it counts most.  For example if 50% of Telstra were divided evenly amongst all Australian families, the average household kitty would receive a growing asset worth at current market prices about $6,500.