Government and the arts

FOREWORD

Taxpayer support for the arts is widely thought to be a good thing.  But is it?  Many objections may be raised on ethical and utilitarian grounds.  Much of the great art of the past depended on some sort of patronage, but almost none on the deliberations of grant-dispensing boards and committees.  Large-scale public funding of the arts does not seem to have brought about, or even coincided with, any great upsurge of genius or creativity, and even if it did, what public good would there be to justify taxpayers' money being thus forcibly redistributed?

Similarly, it is often taken for granted that government intervention in the arts, and some sort of arts planning is a good thing.  Thus, an article in The Australian recently stated:

And here, finally, was the enduring message of the conference:  arts authorities need to look beyond immediate concerns towards development of a long-term cultural policy.  Such a long view needs to account for a broad interpretation of culture and must embrace media, broadcasting, communications and education policy as well.  [Emphasis added.]

This article began:  "It is not only in Australia that the arts are under threat.  In Europe, both East and West, in the United Kingdom and in North America, the role of the public sector funding of the arts is being scrutinised."

This appears to identify "the arts" with "public sector funding of the arts" and "scrutiny" with "threat".  But if public sector funding of the arts is coming under closer and more critical scrutiny than at some times in the past, it is because it is becoming obvious that questions must be asked about it.  This publication puts many of those questions, and suggests some answers.

Are the arts an adjunct to education?  Do they enhance people in ethics and civic virtue?  Should we ask governments to define ethics and virtue -- and art -- for us?  How, for that matter, is "art" defined at all?  Once we begin to think about the public funding of the arts, many conceptual, and also ethical and administrative, problems arise.  Perhaps the most important of them are these:

• There are no objective criteria for artistic standards.
• Once governments support the arts, how do we reconcile the conflicting demands of artistic freedom and responsible accounting of public money?
• If, as Lord Keynes is quoted as saying, "the arts owe no vow of obedience", does this mean they owe their patrons and financers nothing?  If they do owe something to their patron and financer, and that patron and financer is the State, does this not open the door to political censorship, either outright or more subtly through selective patronage and appointment?
• A privately-funded artist has to please at least one clearly-defined patron but, in a democracy, who does a publicly-funded artist have to please?  The State, its factions and bureaucrats?  Nobody?  Or some vaguely-perceived, composite, entity?
• If the popular arts do not, by definition, need public money to survive, how is public money for the unpopular arts justified?
• If the arts confer a public benefit which is external to the market for artistic activity, for example by increasing the flow of foreign tourists, how is it to be measured and why can't it be internalised?  Surely the onus is on those who want to spend taxes on art subsidies to at least indicate clearly what the externality is.
• How does one solve the ethical dilemma of forcing people to fund artistic activities which are of no interest to them, or which they may even find repugnant?
• How can we justify publicly-funded theatres, television studios, galleries and publishing houses competing with the theatres, galleries, and publishing houses in the private sector?
• Should the State provide training and encouragement for many more artists and would-be artists than the market can support?
• When public money is dispensed to the arts according to the decisions of politicians or boards or committees, how do we establish safeguards against cronyism?

While the recent McLeay Report indicated an awareness of many of these questions, we do not yet know how its recommendations will affect policy.

Richard Wood's dedication to the arts cannot be questioned.  He has an unusual breadth of experience as a practitioner of several arts.  Here he illuminates some of the problems government faces in its role as patron to the arts, and suggests ways in which, if government funding of the arts is to continue, it may be made more effective and more responsive to community needs.  Having done more for art than most in the community, he writes not as a Philistine but as a democrat.

Hal Colebatch

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INTRODUCTION

The matter of public funding for the arts is composed of several questions, not least of which is how the arts are to be defined.  "The Arts" which the Federal Government funds through the boards of the Australia Council and other bodies, and which State governments fund in various ways, such as music, literature, opera and ballet, are not homogeneous and have different problems.  Other institutions connected with the arts, such as museums, state libraries and art galleries, are also connected with education.  Others, such as arts festivals, seem connected with tourism.  Others again, such as historic monuments and buildings, are part of what is known, rather unsatisfactorily, as "the environment".  This introduction touches on a number of the problems and indicates their variety.

Different kinds of artists do quite different things.  Creative writing and painting, for example, are usually solitary processes undertaken by individuals, while drama and film production are team efforts.  Some aspects of the arts, such as commercial art and industrial design, seem utilitarian, while others scorn utility.  Some involve little money, while some are major industries.  Some cater to small minorities, and some to millions.  Film, radio and television are "art" forms which seem to be special cases for various reasons.  Thus, defining "the arts" for the purposes of public policy, for administering "the arts", or for assessing the public usefulness or benefit of "the arts", is difficult.

The question of whether the arts should be publicly funded at all is also the subject of philosophical and economic argument, but given that some degree of public funding for the arts is a political reality, there is room for further argument about the most efficient way of funding, and the acceptable level of funding.  Furthermore, the objectives of funding need to be clarified:  objectives put forward from time to time include the uplifting and edification of the population, the support of struggling companies and artists, and such utilitarian or pseudo-utilitarian ideas as encouraging tourism, earning of export income, and even enhancing feelings of national pride.  More prosaically, government support for the arts is sometimes justified by arguments which, when boiled down, actually come to mean a glorified form of the dole (the Literature Board of the Australia Council a few years ago changed the name of its bald-sounding "literary pensions" to "emeritus fellowships").

As well as this, the distribution of people in Australia, with a highly concentrated population in a few widely-separated capital cities and a sparse and scattered population in the hinterland, is often put forward as justifying separate State companies and what are in effect cross-subsidies to make the arts available to rural communities.  With the advent of new forms of communication such as satellite television and cable television, and the now widespread availability of videos, some of these arguments may need to be re-considered.

Public funding for the arts is carried out by the Commonwealth, State and local governments, suggesting that those entrusted with public money find the role of art patron not unattractive.  It is notable that this occurs despite the great difference between "the arts", which are very largely if not entirely private goods, and the classical functions of government such as defence, law and order, infrastructure investment or social welfare.

There is a widespread feeling that something is wrong with the publicly-funded sectors of "the arts" in Australia.  They often appear to be out of step with what people actually want.  Perceived as remote, isolated and largely incomprehensible, they appear to do little to justify the amount of public money spent on them.  This is not, of course, uniformly the case.  The ABC's orchestras, for example, plainly cater to a large audience, but that is by no means typical.  (This observation is distinct from questions of "user pays" principles.  One reason the ABC has a large audience is that the listener does not pay.)

In a society such as ours, there is a deep-seated belief in artistic freedom as an essential part of political freedom, and many people are deeply suspicious of government attempts to control the arts.  Yet there is a growing arts bureaucracy and growing government intrusiveness.  Inevitably, there is some link between government policies towards the funded arts and what the contents of those arts will be.  When Australia faces serious economic problems, questions about how spending on the arts is justified, and to what level, become more pressing.

State and Federal funding bodies often conflict and overlap in their functions.  While this can involve waste and inefficiency, it has also been defended as providing some insurance against a monolithic orthodoxy by offering possible alternative channels for support.

This publication examines some of the social implications of government arts funding in Australia, faced as it is with its particular problems of distance and population.  It also deals with the problem, faced by many other societies, of government and bureaucratic intrusiveness and empire-building.  There are strong arguments against many aspects of public funding for the arts.  However, the principle of such funding is a political reality, at least for the immediate future.  Therefore, as well as indicating areas of failure, ways in which public funding can be made more efficient and equitable are also examined.

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THE ARTS AND THE AUSTRALIAN FEDERATION

In 1901, a group of separate British colonies joined together to form a federation of "equal" states.  In fact, it might be argued from the point of view of those living in the outlying states, that what occurred was that the more populous states, New South Wales and Victoria, inherited the status of Imperial Britain and acquired a colonial empire.  The result of this was as clear in the arts as in other areas of political and public activity:  Canberra largely represented the power and influence of the two city-states of Sydney and Melbourne.

The acronym BAPH, coined by the Australian Broadcasting Commission, to indicate the non-central capitals of Brisbane, Adelaide, Perth and Hobart, epitomises the attitude.  The BAPH states are left in no doubt that they are subservient to their more populous masters.  Their governments have, to varying degrees, set up their own structures for public funding of the arts.

There is, of course, no reason to expect that smaller populations should sustain the variety of arts enterprises that the larger city-states can achieve, nor should they expect the populations of their larger neighbours to pay for their choice of entertainment.  The notion that every centre has a right to the same standard and size of facilities as every other, often implied in the arts debate, needs to be re-examined.

Small countries with greater population density and easy travel and communication, such as those of Europe, could justify the existence of a national theatre or a national ballet company (although few do), because such companies can be reasonably accessible to the whole population.  But countries with the geographic spread of Australia cannot make a national company accessible without massive expenditure, and such companies, where they exist, are thinly-disguised state organisations largely paid for by the national taxpayers.

For example, the Australian Opera, based at the Sydney Opera House, has evidently relieved the people of New South Wales from fully supporting a state company.  Similarly, Victorians benefited for a time from the residence of the Australian Ballet company in Melbourne.  Ironically, when the Australian Ballet company honoured its national commitment and engaged in touring the continent, Victoria found it necessary to found a dance theatre of its own.  The Australian Opera has seldom attempted to honour its role in a national sense although, with the aid of the ABC, it has reached far greater audiences through TV and FM simulcasts.  There is no national theatre company or national orchestra.  Should Australian taxpayers be funding both State and National companies?  One or the other?  Or neither?

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PHILOSOPHIES OF ARTS FUNDING

In the debate on the arts, much has been made of funding levels but little of funding sources.  Furthermore, the whole structure of tax-funded arts-nurturing was set up before the community began to become aware of the implications of what is now called Public Choice theory, and of the bureaucratic as well as the political interests now vested in keeping the arts in a condition of state "clientism".  Apart from this, there seems to be a view held by many arts bureaucrats, artists seeking grants, and politicians who have sought to play the role of fairy godmother, that, in the sphere of the arts, the "Guvment Orta", (to use Lang Hancock's phrase):  that somehow it is the role of the government to provide almost unlimited money for every conceivable arts project, no matter what its nature or desirability.  The actual portion of artistic activities funded by public outlays is impossible to determine, until we agree about what "the arts" are, and even then arriving at a figure remains very difficult, since many activities are not costed.

The "necessity" of arts funding is often taken for granted.  Further, there has not been enough analysis applied to the statistics put forward by "art-workers" concerning the astronomical amounts the arts allegedly contribute to the economy.  How this is achieved is explained largely by vague references to tourism and to statements like "The Australian novel is proving to be a pervasive ambassador for the country".  There is probably insufficient public awareness of how vague the philosophies of arts funding are.  (Though this does not mean that there are no arguments for arts funding.)

The British novelist Kingsley Amis produced a little dictionary, "Sod the Public:  a Consumer's Guide", published in The Spectator of 19 October 1985.  An extract is worth quoting here:

Arts Council:  Grants and bursaries from this detestable and destructive body in effect pay producers, writers and such in advance.  This is a straight invitation to them to sod the public, whose ticket-money they are no longer obliged to attract, and to seek the more immediate approval of their colleagues and friends (see Club).  The system encourages a habit of thought whereby "creative" people can be divided into artists, who deliver serious, innovative, difficult stuff and so, of course, have to have financial help, and entertainers, whose work is easy to understand, enjoyable and therefore popular -- you know, like rock music and John Betjeman's poetry, and whose very title to the label "creative" is shaky.  Thus an organisation created to foster art and bring it to the public turns out to be damaging to art and cutting it off from the public.  Only those in the trade profit.  Compare Nationalised Industries and Modernism.

We have questions about arts-funding bodies in terms of how much was being expended, how it was allocated, who controlled the purse strings and so on.  But the fundamental question is not how much or how, but why?  Why is it done, and if it should be done, to what extent and purpose?  One of the most notable developments in the arts in this century has been that the more public money is poured into them (that is to say, money in which no individual has a clearly-identifiable interest), the more remote and esoteric they seem to become.  The fact that Barry Humphries's satires on greedy, grant-grabbing, talentless "pseuds" have been so popular in Australia suggests that the public at large sees something wrong with the present system.

The notion of cultural "rights" is raised sometimes, but, allowing for all the philosophical complexity of debates about "rights", it is hard to see how they come into it.  Grants of taxpayers' money to the arts can hardly be justified by arguing that some people have a "right" to produce art and other people have a "right" to consume it at somebody else's expense.

It has been suggested that all that grants actually do is free the artist from having to produce what the consumer wants.  The arts have become identified in much of the public mind with paintings which the public does not understand or wish to look at, books which no-one wants to read and which are often unreadable, plays which are poorly constructed, obscure or heavy with political messages, or music which would have more appeal to the proverbial passing bat.  The peculiar fact is that the "Yartz" are, and must be, subsidised largely in proportion to the extent that the community does not want them.  Those which are least popular need the greatest support, while those that are most popular need no support at all.  Thus, public subsidy becomes not merely a matter of forcing the public to support necessities which individuals do not want to pay for (as may be the case with, say, defence) but of forcing the public to support luxuries which individuals do not want to pay for.  In economic terms, it might almost be expressed as the difference between being forced to support public goods and being forced to support private goods.

The fact that the amount spent on the arts is small compared to some other areas of government expenditure (though still many millions of dollars) does not alter the principles involved.  Every cent given out by government to the arts (except for money raised non-compulsorily by lotteries etc.) is taxpayers' money which has been taken from taxpayers to compel them to support artistic activities because they do not choose to support them voluntarily.  As soon as we look at the matter in this light, the ethics of government support for the arts take on a different aspect.

PUBLIC GOOD:  THE ARTS AND CIVILISATION

Although it is put forward virtually as a matter of dogma that the arts are a public good, when this proposition is examined it is hard to capture the exact nature of this public good.  There is no evidence, for example, that exposure to art and culture (of the type usually meant when "the arts" are referred to in this sort of context) enhances ethical behaviour, civic responsibility, or moral conduct. ⁽¹⁾  Artists have often specifically claimed to be free of ethical or moral restraints.  As for "culture", there is little evidence that the arts per se enhance, say, gentleness, tolerance or chivalry (though perhaps some specific works do).

There is a notion among some, which has sometimes been expressed quite explicitly, that devotion to the transcendent value of art somehow releases one from, or makes irrelevant, the mere Philistine obligations of ordinary society.  This is not true in all cases, of course, but there is at least no obvious link between exposure to art and increase in public virtue.

It is notorious that in World War II, for example, war crimes and atrocities (as well as acts of stunning callousness) were committed, and approved, by highly civilised and cultivated people, with the richest artistic heritages.  Totalitarian movements, associated with the very worst atrocities, (including the Soviet Communists, the Nazis and, more recently, the Pol Pot regime in Cambodia), gained a disproportionately large part of their senior membership from the ranks of failed intellectuals, school-teachers and so forth who had had more, not less, exposure to art and culture than the average person.

Yet if the arts do not obviously enhance the civic virtues, where is their element of public benefit?  Perhaps there is a question of definition here.  Applying a wide definition, "the arts" (including things like the preservation of historic and well-designed theatres, for example) become part of the environment as a whole, and it is generally thought that environmental preservation and enhancement has a large measure of public benefit.

There is, of course, the argument that the arts are a necessary part of a civilised society, and therefore a fit subject for government intervention.  But even if this is conceded as a general principle, the questions remain:  Why are they necessary?  What level of funding is necessary?

What is a "civilised society" anyway, and how do the arts relate to it?  Because of higher levels of disposable income and greater provision of education than in any preceding time, the twentieth century has probably had more people able to appreciate art than any previous age, but, as indicated above, this has not stopped wars and massacres, even in countries with rich artistic traditions.  Nor did it in the past.  Art and violence may go together.  The Vikings seem to have valued poetry highly.  The Japanese "Kamikaze" pilots may have been regarded by their opponents as uncivilised, yet the admiral who organised them, when the war was lost, after having disembowelled himself in mediaeval fashion, spent his dying hours composing a poem.

"Art" in isolation, and considered as an entity in itself, keeps no streets safe, enforces no contracts, treats no ailments, deters no invaders.  It may reinforce socially useful concepts like duty and honour, or it may attack them, or be indifferent to them.  However, if "art" is considered not along the lines of "art for art's sake" but as a particular application of human skills, we can see its many values.  Without "art" in the wider sense, civilisation would indeed be impossible.  The trouble is, of course, that the wider the definition of art becomes, the vaguer it becomes.

In attempts to popularise the arts, and justify their own offices, administrators at Federal, State and local government levels have devised "community arts", which seem to consist of providing clowns, jugglers, and itinerant entertainers of sometimes dubious standard and achievements, or of employment for individuals as artists-in-residence.  Government grants have been given to train yet more clowns from the ranks of the young unemployed, some of whom, finding that real clowning is a skilled and physically demanding occupation, have turned to such easier pastimes as face-painting and "movement".  It was reported in the press on 7 March 1984, that a grant of $85,000 to unemployed youth in the Latrobe Valley to train clowns had been spent in this way, one of the putative Punchinellas being quoted as to the disadvantages of the more demanding aspects of the profession:

It was boring and we decided we didn't have the expertise.  It was too strenuous.  We didn't have the energy to keep going ... we have to pretend we're doing something with the Government's money. ... It doesn't seem to matter what you do once you get the money.

In fact privately-sponsored "clowning" community activities, such as the popular television show It's a Knockout, do perfectly well without government intervention.  There is no theory of democratic government to my knowledge that suggests these things should be a legitimate area of government activity.

Furthermore, arts grants may be used simply as instruments of political patronage.  People are more aware of their artistic preferences than the appointed administrators who have built up a bureaucracy to provide for them, but in fact public popularity -- the attraction of an audience -- is often decried in arts administration circles in spite of protestations to the contrary.  Theatre companies that appeal to the public and actually make money at the box office, artists whose pictures sell, authors who write popular books, craftsmen who find a ready market are frequently sneered at as "commercial".  And yet the very members of the arts community who despise "commercialism" are often the first in the queue for public largesse.  Then again, a publicly-funded television station, theatre or even book-publisher may grab a "commercial" property at times, boosting its own receipts at the expense of enterprises in the private sector.  The attitude of some practitioners of publicly-funded arts to commercialism is often schizophrenic, despising its "crassness" and fearful of the risks it takes, yet envying its popularity and its successes.  It is, of course, a "damned-if-they-do and damned-if-they-don't" situation.

"CULTURE", ACCOUNTABILITY AND PRODUCT

Once public funding is introduced, the idea of political independence for the arts, an idea with which most people in the community would probably agree, may be misused to "justify" something rather different:  financial unaccountability -- in particular, financial unaccountability to their true, if conscripted and largely voiceless patron, the taxpayer.  A tendency may be to direct arts organisations and individuals to produce what the administrators, rather than what the public, desire.  Moreover, there are few mechanisms for correcting abuses of the system.  Money spent producing a play nobody wants to see can be justified as "encouraging experimental theatre", "pushing back the frontiers" etc.  Money spent producing a play many people want to see and which would be commercially viable anyway, is justified along the lines of getting good value for money or taking culture to the masses.  Thus, once the idea of spending public money on culture is accepted, both success and failure at the box-office can be used to justify the spending, or indeed to attack the spending.

The notion of "Culture" is the pivotal idea around which arguments for large-scale public-sector arts funding revolve.  Goering once said that whenever he heard the word "Kultur", he slipped back the safety-catch of his pistol.  Like some arts administrators, he took culture seriously.  Real artists, however, often take it a great deal less seriously, and seldom have an interest in things like "long-term cultural planning".

The late Sir Robert Helpmann expressed his view of the relationship of the artist with the public in a TV interview, when he told his interviewer that he was only interested in entertaining.  "Culture", he said, "is a bore".  The same attitude may be seen (implicitly or explicitly) in the life, work and statements of practically every truly great artist.  When we look at the lives, attitudes, and achievements of Shakespeare, Dante, Cellini, Cervantes, Leonardo de Vinci, Michelangelo, Mozart and nearly all the other great names whose works have enriched civilisation, we see not purveyors of "culture", but workmen doing a job.  (This is not, of course, to say that they were not geniuses at those particular jobs, or that they would have been happy doing anything else.  But they seldom thought in terms of "culture", or "national cultural strategies".)

Culture has acquired didactic connotations which are better suited to the sphere of education.  Does one go to a concert consciously to absorb culture?  Yes, many people do, because they have the idea that they should, and have been told that they should, whether they like it or not.  Being conscientious they go, and some may indeed be educated by the experience to form a new appreciation of music.  But one ought to go to a concert to be entertained by one's own choice of music in the best available performance.  The same applies to the theatre, the art gallery, or the bookshop:  one goes because they are essentially recreational activities chosen by the individual to meet particular preferences and needs.

The financing of these activities raises important questions of fairness.  If they are simply entertainment, should the individual expect the public purse to provide that entertainment?  If the choice of entertainment is expensive and appeals only to a small audience, should the members of that audience have their bills paid by the rest of the community?  How far should subsidised entertainment be equated with other public services?  If they are something more than entertainment, what are they?

Good design is an art form, easily appreciated in the elegant lines and styling of cars and clothes.  Yet it is never suggested that the entire population should be subsidised into owning Rolls Royces or Cadillacs, or into clothes by Cardin or St Laurent.  The same point holds in societies not noted for their consumption of elegant cars and clothing.  Even in the USSR the higher arts, such as opera or ballet at the Bolshoi, are reserved for those whose status and salaries can afford them, or are used as rewards for groups of bewildered moujiks from the hinterland.  The intervention of the state in the arts in the USSR (both for political control and for perceived national prestige) has given us a signal example of what such intervention tends to result in -- the almost total ossification of the arts.

Productions of opera or ballet at the Bolshoi appear to have been frozen in time.  Sets and presentation seem to have been hardly changed, or even to have been dusted, since the Revolution.  Everything that is done is done brilliantly well, in dance, in opera, in acting, in circus, but it is an hierarchical and immobile brilliance, with the set skills being passed from generation to generation.  If art is to remain alive, it cannot be so restricted and the Soviet ballet provides proof, if it were needed, that no great art can emerge from massive mediocrity.  Once Soviet writers are admitted to the Writers' Union, they are given great privileges and status, but they are also given a political strait-jacket.  Similarly, in other areas of Soviet art, privilege and prestige goes with loss of freedom.  (One theory as to why the Soviet Union has so excelled at chess is that it is one "art" whose actual technique is irrelevant to political controls and thus offers a venue for creative minds of daring innovation).  Many dancers, writers and other artists have defected at great personal risk and permanent loss and disruption to their lives because they cannot stand such stultification.

In The Spectator of 16 August 1986, Stan Gebler Davies attacked state intervention on the grounds that "it can only do damage, and the more it cares to do, the more damage it does".  "The state", he said, "cannot and does not care about genius or even talent, because the state is the sum of its parts, which is mediocrity".  He went on to point out that:

[T]he state so much cares about art that it has, by the abolition of disposable wealth, killed off private patronage and substituted patronage by state-appointed committee, wherein the unaccomplished decide which among the mediocre shall elevate and entertain us.  It was anciently the case that he who cared for art paid for it out of his own pocket.  We were better served then.

That is one challenge:  "We were better served then".  If we look at the years of stingy government support for the arts in Australia -- say the years before the election of the Whitlam Government in 1972 -- we can see the flourishing of great artistic talent:  in music and the theatre Grainger, Joyce, Melba, Helpmann, Sutherland and many others;  in painting Nolan, Dobell and Drysdale, not to mention earlier flourishings like the Heidelberg School and Conder;  in literature, practically every major writer's career was either well-established or completed by 1972 -- A.D. Hope, Kenneth Slessor, Hal Porter, James McAuley, Patrick White, Francis Webb, Douglas Stewart, Gwen Harwood, Rosemary Dobson, etc.  Australia had much to be proud of in fields such as writing for children and radio drama (including commercial radio).  In graphic arts, there had been international figures such as Norman Lindsay, Phil May and David Low (originally from New Zealand but Australian-trained).  (Australian newspaper cartoonists are still outstanding in a brutally commercial and grantless environment.)  The emergence of so many outstanding figures in this period (and those mentioned are only a small part of the list), was all the more remarkable considering Australia's population is much larger now, levels of education, leisure and disposable income are higher than in the past, and international travel and communication (with its allegedly mind-broadening effects) much easier.

In those "years of unleavened bread" lack of high government spending on artistic creativity does not seem to have been a barrier to the emergence of real talent.  In fact, even making allowances for nostalgia and the possibility that we may today be entertaining angels unawares, it can be argued that those years were something like a golden age.  They produced many of the great artistic figures on whom Australia's national pride is still trading.

To what extent have the organisations of state intervention, such as the Australia Council and its various state equivalents, enhanced or improved the arts since their inception?  Certainly many jobs have been created for administrators, assessors, co-ordinators and clerks, ⁽²⁾ but has the standard of performance improved?  It is true that there may be more of everything, but is more necessarily better?  Have we committed the error about which Anthony Field of the Arts Council of Great Britain spoke at the Council of Regional Theatre conference in 1974:  creating "dandelions everywhere" rather than "few, but roses"?

In Harper's magazine of July 1986, Jacques Barzun wrote of the American situation in "A Surfeit of Art -- and why governments need not encourage it", that:

Because art generates excitement, because a great many people have some little artistic gift, and because the life of the artist looks wonderfully free of workaday routines, more and more people in each generation decide that they want to be artists.

Schools watch over every spark of talent and try to fan it to a raging ambition.  The finger paintings of two-year-olds are put up on classroom walls [in Australia they are put on the front of telephone directories!] and child poetry is publicly recited.  This encouragement continues in colleges and in art and drama schools, where scholarships and prizes spur whole classes to proficiency. ...

Consider the glut in greater New York.  According to a report of the Port Authority, there are some 117,000 jobs related to the arts in the New York metropolitan area. ...

Already in 1840, Balzac noted with dismay that there were 2,000 painters in Paris.  Degas, fifty years later, said:  "We must discourage the arts. ..."

To lead people on when there is no chance they will ever fulfill their desire is immoral. ...

It is in this context that we should examine the arts in Australia.

ARE THE ARTS A LUXURY?

In a speech at a Sydney gallery opening in August 1986, the chairman of the Australia Council, Professor Donald Horne, denied that the arts were a luxury we cannot afford in hard times.

"Every institution in Australia", he said, "both Government and private, should learn to look for the arts factor in what it is doing.  The federal government showed that it has its priorities right when, despite the tightness of the budget, it allowed an extra $500,000 for the Australia Council's support for the arts programme.  But", he went on, "Australians should now also be concerning themselves with all the non-budgets -- all those potential arts-support budgets that do not exist".

Professor Horne then quoted four specific areas of arts support which he felt should be developed.  These were:

• As part of their community development schemes, all local government authorities should automatically have community arts, public history, and regional museum programmes, just as they have street cleaning and garbage disposal programmes.
• More Australian business firms should develop the design-consciousness that would help them do their job better.  Australian scientists and artists are there.  It is up to businesses to learn how to use them.
• Firms that take money out of tourism should pass a small percentage of their profits back into those arts, heritage and environment programmes without which tourism would be impossible.
• Trade Unions, ethnic groups, regional organisations and other community institutions should more actively support their own arts and history programmes, in the recognition that history and the arts are the greatest available articulators of identity.

He added that one should also remember that the arts are related to one of Australia's progressive and least subsidised industries, the general entertainment industry.

It is worth examining Professor Horne's propositions because they lead to conclusions which he may not have intended.  Take the proposition that local government should automatically have community arts, public history and regional museum programmes.  A large number of local authorities have these things and, where they are deemed to be of benefit to the local community, they are supported out of the rates.  If the local community, through its elected councillors, chooses to spend its money in this way that is how it should be done.

The point is that at the local community level there is probably about as much real participation and decision-making by those concerned as is practical.  There is no reason why public money from other sources should be involved.  Art is not, as a rule, like public health or national defence and does not need state or national government involvement.  And there is no reason why a community should not, with a perfectly clear conscience, vote to refrain from spending one cent on the arts if that is what the electors so desire.  (Public or "community" spending on the arts at best reflects the wishes of the majority only, and conscripts the cash of the minority, but this is an imperfection of electoral democracy with which we live.)  There is no obligation to spend money on the arts.

Professor Horne's advice to business to support the arts for better design or for tourism could easily be implemented by offering tax incentives for such expenditure.  In some instances, businesses can claim expenditure on the arts, such as sponsoring exhibitions or prizes, as advertising expenses.  It would not be difficult to extend this to other areas of art support, providing it was structured (and this should not be impossible) so that it did not lead to mere tax-evasion.  We should remember however, that even if we devised acceptable ways of extending tax-exemptions for arts support, the loss of tax revenue would have to be made up elsewhere.  And we should also remember that Australia is well supplied with institutions teaching design.  Research into design for improving products may be deductible as a legitimate business expense anyway.  If a business has an incentive to be competitive it will seek the best designers.

The relationship between "the arts" as the term is used here, and the generation of the tourist dollar, is not at all clear.  More research could probably be done on this matter, but it is likely that most tourists travel to enjoy climate, landscapes, historic associations and wild life (in both senses of the term), or to shop, visit relatives and friends and so on, with "the arts" well down on the list of priorities.  Doubtless they do contribute something to tourism, but we do not know how much.  Perhaps they rank even below those "tourist attractions" -- giant pineapples, concrete rams and whales, and dogs-on-tuckerboxes -- that the governing bodies of some areas seem to think confer outstanding interest upon them.

Because the America's Cup races off Fremantle were held in early 1987, the Festival of Perth was persuaded to move its dates forward to coincide with the final races.  It mounted as many events as possible in Fremantle where, the theory was, the yacht-watching tourists would be eager to partake of Australian culture.  The result seems to have been massive financial losses.  The tourists, quite predictably, wined and dined, gambolled and gambled in their cheery way and left the higher arts strictly alone.  This seems to be evidence against the argument that the arts per se directly promote tourism in general.

There is, one assumes, some connection between the arts and tourism.  However, statements claiming much more than this -- that the arts are directly related to tourism in some definite and measurable way -- seem common among public arts administrators.  In an article in The Economist of 9 March 1985, Sir William Rees-Mogg, chairman of the British Arts Council, said that, "The arts are to British tourism what the sun is to Spain".

Statements like this, used as a demand for more spending on the arts on economic or utilitarian grounds, really require some rigorous justification and analysis.  Spanish tourism from Britain is based overwhelmingly on "sun".  Indeed "sun" and "Spain" would, in a typical British travel agency, appear to be almost interchangeable words.  Is tourism to Britain so overwhelmingly based on the arts?  Speaking impressionistically, I would say that the overwhelming part of the reasons most tourists visit Britain is not to see any contemporary arts (though they may happen to, along the way) but to see its history, monuments and landscapes as well as ceremonies such as the Trooping of the Colour and the Edinburgh Military Tattoo.  Tourists whose feet are directed towards Britain may, along with a lot of other things, have the paintings of Turner, Constable or Gainsborough somewhere in the back of their minds, the plays of Shakespeare or the books of writers from G.K. Chesterton to J.R.R. Tolkien to C.S. Forester, along with red double-decker buses, The House at Pooh Corner and the architecture of the Houses of Parliament -- but these are all, very notably, things with which the Arts Council and the public funding of art had nothing to do at all!

Even the popular London theatres which attract many tourists do so by virtue of commercially-successful productions such as light comedies, The Mousetrap, and works by commercially-successful playwrights such as Tom Stoppard and Michael Frayn.  The funded arts are or should be -- almost by definition -- the commercially unsuccessful arts, which implies the unpopular arts.  Indeed, it seems to me possible that some "arts" of the wrong sort may actually drive away more tourists than they attract.  (The West Australian Arts Council voted money to what was, in fact, specifically Anti-American art and poster displays in Fremantle -- at a time when Western Australia was desperate for American tourists.)  There is also, at present, a certain tendency for arts bureaucracies to divert arts grants into promoting things such as rock concerts, which certainly drive people away as well as attract them (and the people they drive away probably tend to be the more affluent).

Again, and speaking of tendencies only, publicly-funded literature often has a whining, self-pitying, introverted and depressing tone quite different to the literature which has to appeal to a buying public in a market-place.  "Kitchen-sink" literature and drama about the squalor and hopelessness of decaying mining towns or the sexual and gastric agonies of poets starving in garrets does not attract tourists (except of an unusually masochistic kind) to view or to take part in what it describes.  Richard Adams, author of what was recently and memorably described to him as "that poxy book about rabbits" or James Herriot's "vet" stories -- all unsubsidised -- have probably attracted more tourists and more foreign exchange to Britain, as the private-enterprise Crocodile Dundee or The Thorn Birds have to Australia.  A thorough study of the whole area of tourism and the arts would be very interesting, but I do not know of anyone who has come to Australia of their own accord to see a subsidised pot, puppet or poem.

Sir William also advanced an argument that government spending on the arts created employment.  This is an argument of which we have heard many variations in Australia.  Sir William argued as follows:

In 1984-85 ... the Arts Council Grant of £100 million was used to finance some £250 million of Arts turnover.  The £250 million includes some vital local authority support, some private funding and over £100 million from the box office.

Approximately £200 million of the £250 million was spent in salaries.  That means that about 25,000 jobs were provided -- the Arts Council gives the best value for money in job creation of any part of the state system -- though of course, many more than that were employed in the subsidised arts for part of the year.  They paid some £60 million in national insurance contributions and taxes.  Of the £100 million of box office receipts, £15 million of VAT was paid, making a return of £75 million in direct revenue to the exchequer.

The 25,000 jobs must be regarded as an addition to the jobs that would otherwise have existed;  unemployment in the arts is so high, and general employment is also so high, that it is probable that at least 20,000 would otherwise have been receiving unemployment and supplementary benefit, at the cost of some £50 million.  Thus, with no resort to concepts such as the Keynesian multiplier, the actual cost to the exchequer of not subsidising the arts by £100 million would have been £75 million of lost revenue and £50 million of additional expenditure.  The PSBR [Public Sector Borrowing Requirement] would have gone up by £25 million if the Arts Council had not received a penny.

I believe in sound finance.  I am in favour of keeping PSBR as low as possible.  I can never understand why the treasury wants to push it up by making cheese-paring cuts in arts spending.

Apart from the fact that the man in the street has no way of knowing whether these figures are right or wrong, there seems to be at least one fact omitted from the argument:  the taxes raised to pay for the whole exercise in the first place (including local authority support and VAT, thus being more than the £100 million Sir William quotes) are raised at a cost in jobs elsewhere (including jobs in otherwise financially viable arts).  Various studies (such as that conducted by the Adam Smith Institute) have concluded that for every hundred jobs created in the publicly-funded sector, considerably more than 100 are destroyed in the private sector.  This is a sobering fact that anyone tempted to moralise on the need for more government spending on the arts should bear in mind.

There is certainly an argument that, in the presence of substantial unemployment, targeted job-creation schemes are less wasteful than employment generation via deficit financing or monetary expansion -- but this is a matter of some contention and in any case is not what the arts are meant to be about.  The Keynesian multiplier does have a use in the analysis of political economy, but it should be used with care.  Even private-sector support for the arts may be at the cost of other economic activity (and presumably jobs) elsewhere, if it is at the cost of diverting investment from something else.

Furthermore, it does the arts no credit to argue for their subsidised existence as a sort of expensive substitute for the dole for those 20,000 of the 25,000 artists who would otherwise be unemployed.  What those figures do amount to, if they are accurate, is an argument against spending yet more taxpayers' money on providing encouragement to young people to embark on "artistic" careers and their prolonged and expensive training in useless skills.  It is a great human tragedy that so many thousands of young people are being expensively trained -- and not only in Britain -- all too often for lives of stultification and resentment as grants pensioners and, at worst, unemployment.  Moving from the private to the public concern we may also note that the creation of an educated but unhappy and frustrated "intelligentsia" without really attractive or fulfilling career prospects is a cause of major political problems in many countries.

Another extravagant set of claims was made in Australia in the publication Artworkers News of November 1986.  These included the following:

The arts are a real and substantial growth industry, directly employing 120,000 people and contributing $6.5 billion to the economy;

Artists are one of the most disadvantaged groups in the society, with an annual income from their art of less than $10,000.

The greatest subsidy of the arts in Australia comes from artists themselves -- estimated at eight times the total government subsidy of the Australia Council.

Public funding for the arts cannot be supported by these claims, or at least not without a great deal more research.  If there are grounds for the public funding of the arts, they lie elsewhere.

As suggested before, depending on how we define "the arts" it can be said that in many ways they do support tourism.  The more widely we define them (for example if we widen the definition to include such things as the preservation of historic monuments and the upkeep and stocking of museums), the more connection with tourism can be seen.  But the matter needs a more hard-headed and realistic approach than simply stating that the arts per se support tourism per se, and, to re-emphasise the point, the "arts" which do support tourism are not necessarily the funded arts.

Even if it made economic sense, the idea of an Australia full of potters, painters, poets, puppeteers, macrame-makers and clowns all potting, puppeteering and clowning away for the benefit of Nikon-clicking, Yen-dispensing tourists is not a particularly attractive one.  (Unless they also bought the products to take home with them, which implies that the artist keeps an eye on the market, as the self-indulgent are loath to do.  Unfortunately the tourists can't take away the clowns.)

Professor Horne's final paragraph regarding the arts "as the greatest available articulators of identity" can perhaps be dismissed as buzz-words of the New Nationalism.  The suggestion that trade unions and other special interest groups should more actively support their own arts and history programmes is an ethically unobjectionable idea, so long as genuine voluntary consent is given by the dues-paying members (although most people probably join unions because they have to, not out of any desire to support art).  In fact, however, particularly in the case of trade unions during periods of Federal and State Labor governments recently, government grants have been awarded to trade unions for projects whose political thrust is obvious but whose artistic merits are more dubious.  Indeed, any government grants to unions -- even for the most aesthetically delightful activities, for example, to enable members of the pro-Libyan Food Preservers' Union to indulge their proclivities for ceramics and stained glass -- is intrinsically and unavoidably political in that it expands the unions' selective and privileged powers and patronage.  Selective government privileges to businesses can be objected to for precisely the same reasons.

The point to be emphasised in the matter of support for the arts is that the support -- which in fact means the money -- should come from local and voluntary groups putting up their own money to serve their own purposes.  There is little justification for government funding from taxation, least of all in the present economic climate, when reduction of government spending is important for the prosperity of the whole nation (except, perhaps, for those arts activities which have a clear educational aspect and assuming we accept the public funding of education).

"SOCIAL CRITICISM", "NATIONAL PRIDE" AND ENTERTAINMENT

One "public good" argument sometimes put forward for the arts is that they act as a venue for "social criticism".  This argument seems dubious.  "Social" here, in fact, often means "political" and many other venues for political activity already exist, such as Parliament.  Adopting this claim in the context of public funding for the arts seems to lead to the idea of funding the arts because of their social criticism function, which is close to legitimising the idea of selective support for the arts on political grounds.

The argument has also been put forward that the arts enhance national pride.  This point was made by Professor Edwin G. West quoting Baumol and Bowen in a rejoinder to Grampp (whose article is quoted at some length below) in the December 1986/January 1987 issue of Economic Affairs:

The proposition Baumol and Bowen make is that the low-income tax payers [i.e. taxpayers with low incomes] who obtain no direct benefits do enjoy compensating spillover benefits from the arts such as "feelings of national pride".

Again, it was reported from France in the press in February 1986 that:

Nearly 100 artists and intellectuals have joined a public appeal for continuation of the French cultural bonanza enjoyed under socialist rule ... among [them] are Nobel prize-winning authors Samuel Beckett and Gabriel Garcia Marquez, British writer Graham Greene, American author William Styron and the Senegalese poet and former President Leopold Sedar Senghor.

Addressed to "French friends", the appeal said:  "For the past five years, under the impulse of the President of the Republic and [Minister for Culture] Jack Lang, France has experienced a formidable cultural upsurge and has regained great international prestige".

The argument is not particularly attractive if one sees "national pride" as often enough boiling down to bread and circuses, more opportunities for perquisites and patronage for bureaucrats, or ugly manifestations of chauvinism:  but it is dubious in any terms.  State-sponsored arts in Western countries today seldom tend to be particularly associated with patriotism.  Furthermore, any achievements by individuals in cultural matters do not necessarily relate to nations.  The Nazis are reputed to have tried to prove that Shakespeare was really German, but it is hard to see how the Reich would have actually benefited even if this claim had been satisfactorily confirmed.  No one loved the Nazi regime more, or less, because the National Socialist German Workers' Party shared the nationality of Goethe, Schiller and Beethoven, and Shakespeare would not have made much difference either.

There are some circumstances, of course, in which some of the arts are used to promote national pride or State propaganda, as in the case of the Nazi films of Hitler's Olympics or, to take a less malevolent example, the monumental statuary of Trafalgar Square.  A flag or symbol that may rally men in battle may also be a work of art, while the creation of some inspiring State ritual or ceremony (like a British Coronation) requires an impresario's skills to be successful.  In these cases, the arts are brought into service as a sort of adjunct to national defence.  However, this is not at all what those who today advocate arts as promoting national pride usually have in mind.  It is instructive to consider this report of an exhibition from Britain in the Melbourne Sun of 25 September 1985:

The exhibition is promoted by the Building trustees and the state-sponsored Heide Gallery.  But there is no question of not promoting politics here.

"Basically", the exhibition notes say, "it shows just how ugly Britain's modern painters, sculptors and other artists see their country and Thatcherism."  [Emphasis added.]

The general entertainment industry seldom figures in pronouncements on the arts, but it is surely where the thinking ought to begin, because the entertainment industry employs more people throughout the entire arts spectrum than any other -- dancers, actors, designers, musicians, craftspeople, writers, directors, cameramen, and a variety of arts-oriented technicians.  Il also services a far greater number of consumers.

In Australia at present it is subsidised in various ways, though many of these subsidies are less "transparent" than the "Arts" grants.  The cost of the ABC, the Film Commission, film tax concessions, monopoly regulation and protection of radio (including local content requirements in music, drama, advertising etc.) and subsidies to libraries, stadiums and so forth, is very considerable.  (The ABC is reported to have more money spent on it than the service sections of the Navy.)  These subsidies (some of which are discussed in more detail below) should come under public scrutiny.  Nevertheless, general entertainment is meant to pay its own way, and much of the industry does.  For this reason, we seldom consider it when thinking of government arts policies.

The various activities of the general entertainment industry in the community are enormously important and far-reaching.  Sections of the industry play a major role in creating further employment:  as mentioned before, a privately-produced film such as Crocodile Dundee has probably done more for the tourist trade than have sponsored arts-and-crafts workshops and poetry readings.  Commercially successful books, films, plays, paintings etc. all create further employment at the retail and marketing levels, as do most other ordinary successful products.  They can be substantial earners of foreign currency.  Commercial novels like The Thorn Birds, though they may provoke intellectual and literary disdain, have been successful in achieving foreign earnings (and have probably contributed to the attraction of foreign tourists).  Without trying to formulate a hard-and-fast economic law, it seems at least logical that someone in the general entertainment industry, working to please a public, is more likely to produce a product that will be, for example, an effective tourist attraction, than someone working on an arts grant.  As has been proved with the film industry, investment decisions do not require subjective artistic -- or political -- value-judgments by a committee.  Under these conditions the arts are not a luxury but a legitimate part of the economy:  an important source of employment which generates an industry-based export market (the question of tax incentives and the large tax concession the film industry has received is a separate one).

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THE ARTS BUREAUCRACY AND CONTROL OF THE ARTS

The Australian arts bureaucracy at Federal, State and local government levels is large and expensive.  The Federal Minister for the Arts, Heritage and Environment, Mr Barry Cohen, asked the Australia Council to review its structure and processes with the intention of achieving significant further savings in money and staff in 1987-88 because "the Government considered that the cost of delivering support for the arts was too high."  Since the Council had been allocated $6.714 million for its administrative expenditure for the year 1986-87 this may be seen as an understatement.

If governments believe that they can buy popularity by pouring large sums of money into the community through the arts, they will probably do what has been done over the past fifteen or so years.  That is, take a sort of Statue of Liberty stance -- "Give me your tired, your poor" -- offering, in effect, the key to the golden door.  The result is inevitable.  The applications soon outstrip the available funds and assessment systems have to be created with attendant personnel and procedures.  From the political point of view, it is at least possible that what initial vote-buying successes the government has in acting as Lady Bountiful are often diluted by the squabbling, ill feeling and resentment that may follow.

Processing the various demands and claims leads to long and inconclusive meetings, deferred or ad hoc decisions, and suspicions of political or personal favouritism or victimisation, or of undeclared conflicts of interest.  It also means that the council and the administrators themselves are placed in the invidious position of having to make decisions which are based on subjective value-judgments, which are bound to be unpopular with some people and which are often difficult or impossible to justify by reference to objective criteria (unlike, say, tendering decisions, where establishing which tender is the lowest is fairly straightforward).

The Australia Council, being the central Federal body, comes under criticism from all sides, but the various state bodies are also exposed to criticism.  In October 1986, the ALP Premier of Victoria, Mr Cain, attacked the Australia Council as "a wasteful, ineffectual, irritating anachronism".  In the same year, the Western Australian government abolished its own Arts Council, which had been established with high hopes in 1973, but which had become the subject of widespread criticism.  Perhaps it is usual for politicians to want to centralise control of patronage in their own hands, and to resent quasi-independent patronage-dispensing bodies, but arts councils would be far less susceptible to political attacks if they were performing well and were popular with the group they were supposed to serve.  Politicians seldom attack things that are popular with interest-groups of voters, and events in Victoria and WA illustrate a failure of function.

When taxpayers' money is being spent on the arts, government control of arts policies is desirable in the sense that the provider of the money should know how it is being spent, but this should be distinguished from control of the arts.  Once the idea of public funding of the arts is accepted, the two pitfalls are political control on one hand and letting quasi-autonomous fund-dispensing bodies operate as laws unto themselves on the other -- both, it may be noted, have much the same results:  a lot of money spent, not much art and a great deal of resentment.

If one has to choose between the two evils of too much control and inefficient spending of money, it is better to choose the latter.  Undesirable as inefficiency is, from the point of view of political liberty it is preferable to the prospect of a so-called National Strategy On Culture.  This ominous idea, originating with the Commonwealth Government, was on the agenda for discussion at the State and Federal Cultural Ministers' Council which met in Brisbane on 1 August 1985.  Faced with only this choice, a wasteful duplication of bodies might be better than a monolith in the hands of Big Brother.

Control of the arts is a temptation which seems to be hard to resist and, once it has become a habit, even harder to break.  Part of the problem lies in the fact that in many countries taxation has reduced disposable wealth and therefore the likelihood of private patronage.  Even so, there is still an enormous amount of disposable and visible income around.  It seems that, in Australia, the rich prefer yachts and race-horses to the arts (and why not, considering what many art forms have to offer these days?)  In a land of conspicuous consumption it is notable that there are few halls, galleries or theatres named after their benefactors -- though one of the last major private patrons of the arts in WA, the late Sir Claude Hotchin, showed how important and useful private patronage of the arts can be.

PRIVATE PATRONAGE?

One reason for the falling-off of private support is that with state support the private donor is superfluous and crowded out.  Another may be a suspicion that funds given to the arts pass out of the donor's control and fail to end up being used for the purpose the donor intended.  Some "socially committed" artists have expected capitalists to subsidise them while they attack capitalism, and surprisingly often they have been successful in this expectation.  (Even Lenin did not look to the capitalists to give away the rope with which they would be hanged.  He expected them to sell it.)  But be that as it may, there is a good deal of mutual distrust between business and the arts.

Furthermore, it may be a useful antidote to artistic hubris and self-righteousness for artists and "artworkers" to remember that their demands for private-enterprise support for the arts are demands for money made in competition with demands for money for things like medical research, charities, and the development of possibly beneficial inventions, as well as infrastructure investment and the jobs and other social and economic goods which that may create.  The claims of "the yartz" for private-sector support are not illegitimate, but they should be kept in proportion.  They occupy no particular moral or ethical high ground.

If greater tax concessions than already exist are found to be a more efficient way of supporting the arts than by government grants with their attendant bureaucracy, they should be considered.  In the United States even gifts to overseas institutions may be claimed.  This is not the sole reason, though it is a strongly contributing one, for the extensive gifts and loans to the art galleries of Queensland, New South Wales, Victoria and Western Australia by the fund set up by Mr Allen Christensen, the American philanthropist.  It should be noted, though, that the fund retains control of its collections by placing them on loan.  It would be hard to encourage the performing arts in the same way.  Yet, given the incentive, there must be considerable enjoyment in backing the production of plays or in sponsoring visual artists, as Mr Christensen has done in the cases of John Olsen, Timothy Storrier, Mary Durack and others.

The sort of official interference which stultifies private investment in the arts is typified by the case of Melbourne's Regent Cinema.  According to the report carried in The Weekend Australian of 9 August 1986, the old Regent Cinema in Collins Street, which for 17 years had served as a roost for pigeons, had become the centre of a controversy between a private development scheme involving entrepreneur Michael Edgley and developer Keith Scobie, and the Melbourne City Council which owns the building.

The Edgley-Scobie plan was to buy the building and restore the theatre to its former glory as part of a $30 million redevelopment.  The Melbourne City Council, however, wanted to redevelop the area for "multiple, culture-related uses".  The Edgley-Scobie proposal was rejected because "it did not satisfy the council about its viability and did not meet the criteria that it increase community activity in the immediate area".  This response to one of Australia's major theatrical and show business organisations carries the imprint of the community arts lobby.  The centre would probably be developed to create "several smaller venues including theatres, galleries, workshops, tourist information centres and retail outlets" according to the city council.  Suddenly, after sitting on the site for 17 years, the council was galvanised into action by the threat that a commercial use might be found for it.

The Melbourne Chamber of Commerce commented that the sale of the building would eliminate costs of $2 million a year in holding costs and generate $400,000 a year in municipal rates.  A significant aspect of the council's failure to support the commercial plan is the suggestion that it should have to be convinced of the "viability" of the Edgley-Scobie plan.  A council whose lethargy has wasted $2 million of public money a year for 17 years is hardly in a position to judge.

WHY DO WE DO IT?  HOW DO WE DO IT?

"The arts, in some way difficult to define, are civilising, and a nation without them is less than a nation.  It may be a nation, but it may not be a civilisation."  Those words of Professor Richard Hoggart, delivered as an ABC Guest of Honour, in 1974, summarise a common attitude towards the subject.  He pointed out that there was a general belief that the arts matter, but that it was difficult to say in what precise way they did.  Nevertheless, he emphasised that under present-day circumstances some of the arts cannot survive unless they have massive amounts of money at the beginning.  In 1946, when the Arts Council of Great Britain was first formed, Keynes said that "art is something incalculable, not to be confined or measured by planning, but cherished and made available for all who want it."  "The arts", he said, "owe no vow of obedience".

Yet many who value artistic freedom, and who feel that support for the arts is a good thing, also feel that, in some way or another, the publicly-funded arts must owe something to those who fund them.  This is a dilemma for democracies.  It is compounded by the dilemma of the unintended consequences of arts funding, part of the dilemma of unintended consequences of welfare funding in general.  Mahatma Gandhi opposed the idea of the Welfare State because it led to the people "becoming a herd of sheep, always relying on a shepherd to drive them to good pastures.  The shepherd's staff," he noted, "soon turns to iron and the shepherds turn into wolves".

The language about workshops and galleries is familiar to anyone who knows the jargon of the arts professionals, or who is acquainted with the satires of Barry Humphries.  Phrases which tend to appear in the advice and application forms for funding are, "to develop and expand the creative images which enhance the community", "involving a high degree of community involvement", and "to meet the expressed needs of the community".  These "expressed needs" are often articulated by community arts officers in the employ of local councils.  Their employment is subsidised by Australia Council or State funds and their role is to stimulate artistic activity in their area.  To a great extent they act as an employment agency for the placement of favoured artists.

The artist-in-residence programme attracts large grants from the federal body and elevates the arts officer to a position of influence and importance.  Councils are often impressed by new methods of getting money from State and Federal authorities.  The community arts network is often politically oriented and looks after its own.  It arose, substantially, by moving into territory previously occupied by the Arts Council of Australia, whose role had been to co-ordinate country touring and to help in organising community festivals.  As a voluntary organisation it became vulnerable to professional administrators who wished to extend their influence and to entrench their salaried positions by creating an aura of indispensability.  They can act as a subtle but effective means of exerting influence.  Ultimately, control of the arts is exercised by control of finance.  Offers of money are made on certain conditions, or grants are given if the applicant asks for the correct activity to be supported.

One attempt to free the arts from this was made by Western Australia's Bob Pike in 1982-83, in the last days of the O'Connor Liberal government.  As Minister for Recreation and the Arts he instituted the Sport and Culture Instant Lottery with the aim of making adequate funds so freely available that any reasonable request from an honest and properly-constituted organisation could be met.  He was opposed by the West Australian Arts Council, which saw its powers of patronage under attack, and by the ALP.  On assuming power, the ALP government soon emasculated the Instant Lottery and cut its funds from a potential $15 million to $3 million each for sport and culture, and tighter control of the arts by authority was re-established.

A sensible policy for the arts in Australia requires that some important distinctions be made.  One of the first points to establish is the relationship of the arts to education.  In Queensland the arts have always been entrusted to the Department of Education.  Other States have varied between having a Department of the Arts or linking the arts to recreation, tourism, heritage, or other portfolios.  States have used Federal arts funding to bolster their education budgets.  That is to say that activities which are clearly educational in their use, such as the Theatre-in-Education company, classes given by artists-in-residence and organised visits to places of artistic interest such as theatres, galleries and museums, are often supported by applications to the relevant Federal or State funding body as an "Arts", rather than as an "Educational", activity.  Which activities are educational should be clearly identified and steps taken to ensure that they are financed as such.  To do so will help clarify arts funding policies.

For example, it would generally be agreed that no community can be fully educated without the provision of adequate museums of art, heritage, history and the environment.  Nor can it be fully educated without an adequate library service.  Based on this premise it can be seen that these activities (probably less contentious than other areas of arts funding) could be charged to education.  Every state has a publicly-funded Museum and Art Gallery, many of which have ancillary branches.  A public library service is regarded as a normal government activity.  There is no scope here to discuss arguments about "user-pays" and privatisation for these things, though they might enter some future political agenda.  There is, at present, a tendency to agree that the public should be provided with the means of viewing art, history, heritage and environmental exhibits as long as they are silent and do not move.  As the need to cut government spending becomes more apparent, "user-pays" and privatisation arguments may gain political acceptability if the trade-off is lower taxation.  (Of course, if people are to be charged to use libraries etc., such a charge should replace tax, not supplement it.  Privatisation may be one way of seeing that this happens.)

There is no need to subsidise general theatre in the major cities.  The professional packaging of popular plays, often using internationally known stars such as Edward Woodward or James Bolan, by entrepreneurs such as John Thornton and John Manford in Perth, has demonstrated this.  On the larger national scale, Michael Edgley and others have toured international companies such as Torvill and Dean profitably.  Pop stars appear to perpetuate themselves adequately.

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THE ARTS INSTITUTIONS

Every major city has an orchestra which is, at present, provided by the ABC, and which is heavily subsidised.  A lack of co-operation by the ABC in the provision of musicians for theatre work, especially for opera and ballet, has led to the creation of second orchestras in many places.  This seems to have been an unnecessary expense which could have been avoided with more sensible administration.  In a city such as Perth, the expense of the second orchestra might have been directed to the augmentation of the string section of the WA Symphony Orchestra.  The argument given by the ABC management, that symphony orchestras did not play in orchestra pits, showed the lack of knowledge and experience of those who advanced it.  In Sydney and Melbourne the second orchestra is provided by the Australian Elizabethan Trust, thus perpetuating the inequality between the BAPH states and their masters.  If most people think that music is an important part of civilised life then they should be prepared to pay for it at the box-office.

To provide the personnel for the arts there must be adequate training.  Australia is already remarkably well-equipped with training establishments.  In fact, for the size of its population and the number of available vacancies that could conceivably occur at any time, there seems to be an over-provision.  If teachers' salaries are costed up, education is probably the most subsidised part of the whole arts empire.  Every state has some form of conservatorium of music, there is a National Institute of Dramatic Art, and in addition to the various state academies and performing art courses, there are high schools that specialise in the teaching of music, art, drama and dance.  There are numerous schools of ballet and dance which produce a steady flow of applicants for the full-time ballet training available with the Australian Ballet school or state companies.  The quality and number of excellent singers testify to the standard of training available.  As we know, Australia has contributed a respectable number of international stars of stage, screen, radio, art and literature.  Most of them were reared in the pre-funding era, and it does not seem to have disadvantaged them (on the contrary it may have added to their competitive edge).  In general, Australia is already well-provided with the necessary means of cultural enrichment, and probably does not need more expensive training establishments whose graduates would, in too many cases, pass from their portals directly to the dole queue.

Since Australia is well supplied with these facilities, any further public spending in this direction should be rigorously scrutinised and confined to essentials.  In Britain it used to be estimated that it took a population of approximately one million people to provide the audience support for one fully professional repertory theatre company.  On this basis Australia must be close to saturation point.

If a policy were to be clearly laid down that the provision of basic facilities, together with their commensurate accommodation, was as far as the government would go, there would be no great deprivation.  Few popular companies would fold, and those that did might do so to the great advantage of the amateur groups from which many of them evolved.  It has long been realised that the way to make money from a constituted non-profit organisation is to be the administrator or director.  Several companies have had grants which paid for salaries ahead of artistic output.  There is at least one script-writer who has received several grants for script development, yet has never appeared to have finished a script, nor had one produced.

There are, no doubt, plenty of hard-working, honest people who have gratefully received grants to write books or films, but one questions whether an over-crowded market needs such artificial encouragement.  It is a fair bet that if someone really has the urge to write, the time will be found and the work done without public funding.  Writing books for the small Australian market will never be a paying proposition, but then there are very few full-time professional authors anywhere in the world.  A few make good or make money, but most write because they want to, and accept the small returns philosophically.  There is no evidence to suggest that any worthwhile work has been written simply because funds were available.

Furthermore, it may do authors no economic favours to encourage them to give up better-paying jobs and careers on the strength of a single, possibly one-off, win in the grants lottery before they have proven their ability to survive unaided in one of the most economically risky of all trades.  If support is to be given to authors, there are better ways of doing it.  The book bounty scheme was open to the objections that may be raised against all bounties, but within the framework of support for literature, it was probably one of the less bad ways to go.  At least it rewarded production, and did not turn authors into pensioners dependent on the judgement of bureaucrats, or allow any one author or publishing house to be favoured or victimised by selective grants.  (The Public Lending Right scheme is not a subsidy but an acknowledgement of authors' intellectual property in their works.)

The dissemination of the arts to remote communities is a peculiarly Australian problem and might be considered by some to be a suitable subject for government support.  The increasingly sophisticated means available to reach small communities by satellite broadcasting has made it possible for them to see and hear high-standard performances.  This makes it less necessary to consider funding country tours, with the exception, perhaps, of some kind of underwriting, or guarantee against loss, to enable companies to visit centres of reasonable size.  This would include commercial companies which, in Western Australia, have not been eligible for assistance to undertake country tours.  Merely assisting commercial companies to undertake otherwise unprofitable country tours would surely be cheaper than having fully-funded companies touring.

Sophisticated high-tech reproduction systems are here to stay.  As anyone who has lived in a small community in a remote area will know, the dream of visiting some major centre such as London or New York and seeing and hearing great music, fine acting, and superb performances live at first hand, often remains just that:  a dream.  No-one seriously expects these things to be delivered live to the outback, but they can be experienced vicariously and with increasing satisfaction by means of modern communications.  Live professional performances will always be desired by some, but will increasingly be confined to centres of major population, unless reductions are achieved in the costs of Australia's transport.

The state capitals are where most of Australia's people actually live, and the funding of the lavish facilities Canberra already has should attract critical scrutiny.  A National Gallery, a National Library, a National Museum, and a National War Memorial (which is, in actuality, largely a museum), located in Canberra largely for its Federal Public Service population, is hardly a serious contribution to "national" culture.  These should be regarded as a shared facility for the benefit of Sydney and Melbourne.

If there are to be national TV, Film and Radio Schools, a National Institute of Dramatic Art, a national Ballet School and a national Conservatorium of Music, their output should be related to reasonable prospects of professional employment.  But we should decide whether this training could be done better on a state level.  If so, there need be no national units and the states should be responsible for funding their own facilities, and their purpose should be clear.

The decision to maintain a museum, art gallery, library, theatre, concert hall, orchestra or any other arts organisation should be a matter for each State.  It might be objected that this is repeating the problems of centralising such facilities in Canberra, but the argument for having such facilities in state capitals is that Australia's population is concentrated in its state capitals to an unusually high degree, while travel between them is fairly difficult and expensive for most people.  Similarly, the maintenance of smaller facilities in regional and district centres should be a decision for the people who live in them.  It must be recognised that some centres will see the arts as important and some will not.  Self-interest, not government intervention, will provide the incentive.

While "privatisation" of facilities, from the national to the local level, may not, in all cases, be practical, it should at least be examined as an option and its advantages and disadvantages properly judged.

STEMMING THE FLOW

In Australia, the sheep (in Gandhi's terms) have usurped the role of the wolves in preying on the public purse.  It is time that the shepherd's staff was turned to iron to beat them off and encourage them to forage for themselves.

Funds for the arts are being used extravagantly, for a plethora of projects which have little public support or value, but disproportionate political support.  They may also be used to compete unfairly in the commercial sector.  It can be shown that the funding of places such as public galleries which sell works of art can effectively put commercial galleries out of business.  This form of activity, referred to by Robert Birch in the Fremantle Arts Review, as "a can of worms", is wide-spread.  It is galling for private gallery-owners who are struggling with rents and wages to see the luxurious self-assurance of the publicly-funded galleries.  Equally, commercial theatres are forced to compete with subsidised theatres putting on the same sort of shows, and sometimes private book-publishers must compete with funded publishers.  Like some other government and quasi-government business enterprises, some funded bodies may not only compete aggressively with the private sector (congratulating themselves on their commercial sense and business acumen), but also enjoy the security and privilege of public financing.

The point is that the consumer's dollar, whether it is spent on paintings, theatre tickets or books, is limited -- particularly in times of economic uncertainty.  Given this, it is all too easy to see arts councils not as promoters of the arts (their original raison d'etre and still their justification), but as forces actively hostile to commercially successful arts enterprises.  All over Australia discontent has been voiced over various forms of unfair competition, predatory pricing, and related practices.  It is time that a serious assessment was made of the areas in which the private sector can provide the public with its arts requirements without the need for spending taxpayers' money.

The brochure published by the Arts Council of Great Britain titled Partnerships:  Making Arts Money Work Harder, sets out the Council's approach to the use of its money.  The main theme of the brochure, as seen by the London Sunday Telegraph, is the need to find partners who will add their money and resources to good "projects".  The kind of partners envisaged are local authorities, development corporations, tourist boards, and commercial sponsors.  The Council gives examples of some of the ventures to which it has contributed.  It will have a familiar ring to anyone who has experienced the community arts programmes of the Australia Council.  A Liverpool Festival of Comedy which "brought a fortnight's laughter to Merseyside", and included a "humorous" sculptor-in-residence is typical of the sort of thing.  A local poet in Nottingham receiving money to write "intricate descriptions of brewing beer", a music and laser show in Barnsley with a company "recruited from the streets and job centres", are matched by the curious collections of clowns and mountebanks which descend on defenceless communities at the behest of our own arts activists.  Private funding "partnerships" for government or public sector-directed projects do not guarantee efficiency or the meeting of the public's wishes.

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VOUCHERS:  FOR AND AGAINST

The case for permitting public choice of private or government-funded education by a voucher system is impressive, and it is possible that government support for the arts could be conducted in a way that permits more public choice by means of vouchers.  It does, of course, pose some difficulties:  for example, who will get the vouchers and who will be unable to get them?  The consumer group for "the arts" is not as obviously identifiable as the consumer group for education.  If the government simply sells vouchers that can then be handed in at the box-office for some sort of discount on tickets, which are subsequently refunded by the government (a possible way of "marketising" support), then the problem arises about who will be able or licensed to collect them.  Opera and ballet?  Other "high" arts?  Comic opera?  Or organisations whose connection with "the arts" is tenuous or non-existent, such as rock concerts, strip shows or the paperback-book section of supermarkets?  All of these might claim connections to song, dance and literature, and attempts to draw the line tend to lead us back into the area of licensing, with its possibilities for favouritism, victimisation, or censorship.  If an organisation receiving what amounts to a subsidy is in competition with an unsubsidised rival putting forward a similar product with similar overheads, then it becomes relatively easy to put the rival out of business.

Furthermore, even with a voucher system, the people most likely to use it are probably members of the more affluent upper and middle classes, and to subsidise the entertainment of these people at the expense of taxpayers in general is to establish a regressive transfer system (as, cynics might argue, does all public arts funding).

Nonetheless, given that the arts (distinguished here, as much as possible, from their predominantly upper and middle class patrons) should have some support, the idea of vouchers merits further investigation.  Vouchers should, after all, allow some devolution of power to the consumer and away from the arts administrator.  In Britain, Northern Arts, a subsidiary of the British Arts Council, introduced a voucher scheme in 1968 to provide incentives for young people to attend artistic events.  It seems to have been administered with considerable efficiency, with coupons reimbursed to a value of $18,000 in 1970.  This represented an estimated 125,000 admissions per year, and costs appear not to have exceeded 10 per cent of the total.  The scheme was dropped in 1981, apparently because of administrative hostility, though the political details of this are obscure.

Another voucher scheme was tried in New York for any "off-off-Broadway Theatre" that requested to be eligible.  In this scheme, which began in 1974, applications for vouchers were accepted from a number of groups, such as students, teachers, clergymen, retired people, union members, etc.  One wonders on what criteria some of these favoured groups were selected.  Teachers, union members and, at least in America, clergymen, are not obviously poverty-stricken.  The result, surveyed by Professor William Baumol, showed an increase in theatre attendance among groups eligible for the vouchers, including blacks, Hispanics and old people, although what this actually meant has been the subject of debate in the journal Economic Affairs for March 1986 and December 1986/January 1987.

In the latter issue, Professor William Grampp, of the University of Illinois, contended that there was no economic rationale behind arts subsidies in any form, and called for their abolition.  Of the New York voucher experiment and its effect on increasing attendances, he wrote:

Actually, there was an increase in the number of elderly people in the audiences and there was more theatre in black and Hispanic neighbourhoods. ... But, according to Professor Baumol, the elderly were not induced to the theatre by vouchers.  They had "long enjoyed" it but because in retirement their incomes were less they could no longer attend, or do so as often.  They did not have to be introduced to a merit good.  The blacks and Hispanics were provided with theatre "only by bending the rules of the voucher programme by permitting direct distribution of vouchers to members of such organisations and neighbourhood groups."

There is another finding to be noticed.  Among the people who received vouchers under the rules, the most popular theatre was one "that specialises in highly traditional performances of the classics and can in no sense be considered experimental."  So the vouchers cannot be said to have encouraged aesthetic ventures which yield positive externalities.  Of course, the popularity of the classics is important "information", but subsidies are hardly required to discover that.

Thus, considered in economic terms, the voucher system as it was applied here had elements of coercion:  the elderly people and others who went to the theatre more often with the benefit of vouchers were, in fact, being given a form of pension they could not spend in any other way.  They would have been better off (even if the theatre was not) by simply being given money that they could spend as they chose.  This would also have been cheaper since administrative costs would have been lower.  Professor Grampp pointed out that coercion was further applied to direct people away from patronising the arts they wanted to:

Moreover, the organisation that managed the voucher system was "somewhat embarrassed at the disproportionate flow of funds to that one group and has since imposed a ceiling on the amount of voucher funding that can be received at any one theatre."  So the result cannot justify the claim that given "a broad menu of productions of higher artistic value ... individual coupon holders could then exercise their choice."

He continued:

What was learned from the New York experiment is in keeping with a survey of 250 audiences made in 1977 for the National Endowment for the Arts.  The data, the survey stated, "does not reveal any striking changes in the composition of audiences" from 1960 to 1977.  The information that has become available since then also shows no important changes.  What the survey of 1977 reported was that the people who attend the performing arts and visit art museums are a very small part of the population, and are more likely than not to be in professional or managerial jobs, to have an income well above the median, to be young, white women, and well educated, this last characteristic possibly the most important because education is more closely correlated with an interest in the arts than is any other factor including income, which is second.  Among the educated, occupation is the most important -- significantly, teaching.  Teachers (in the language of people who conduct surveys) "are heavy attenders among heavy attenders".

It is not surprising that people who are fond of art are more in favour of its being subsidised than those who are not.  An Australian study ⁽³⁾ showed that the strongest support for subsidies was among people with incomes above the median and that this same group made up more than half of the audiences and museum visitors.  An American survey reported that while 38 per cent of all people who were interviewed said they favoured subsidies, 77 per cent of "frequent attenders" said they did.  This result is hardly surprising either.  What people like, they may be willing to buy, but they are even more willing to have someone else buy it for them.

Grampp's conclusions about the usefulness of the voucher-subsidy system either in promoting the arts or in enhancing and uplifting public levels of culture, were harsh -- particularly in view of the fact that one frequently-advanced argument for subsidies is that they help struggling art forms in the "take-off" stage to achieve a widening of their audience:

Whether interest in art is increasing is an important question.  It bears on the hope so often expressed that only if people are given the opportunity to experience art will they acquire an interest which in time will sustain itself.  But that is scarcely more than a hope.  For generations children have been traipsing through the galleries of the world and on becoming adults they have made their way to football stadiums, cinemas, or their television sets to watch Dallas or Coronation Street.  The Italians have had almost 700 years to appreciate the art of their Renaissance but their museums today must still be subsidised (to allow the children of the present to traipse through them on their way to the soccer game).  The Greek government still subsidises the performing arts and perpetuates a practice that extends as far back as classical Athens when people were paid to attend the theatre (a no-nonsense application of the voucher system).

There probably is a little more public interest in the arts today than there was in the past.  But it cannot be attributed to the assistance of governments.  The plausible explanation is that a larger proportion of the population has had a college education and that, along with almost everyone else, it has higher real incomes.  But there is no evidence that the interest is substantially larger than it was, and there is no reason to think it will be so in the future even as education and incomes increase.  Not everyone who has been to college is interested in art, nor is everyone with money.  People who [are so interested] are a small part of the population and no doubt will continue to be.

As much to the point is that the object of their interest, art, is something that concerns themselves alone.  Of the claims that have been made for it -- that it is a merit good, a public good, a good yielding positive externalities -- none has been demonstrated.  Art remains a private good.  The people who want it should pay for it.

These arguments notwithstanding, the voucher system should not be totally ruled out of court.  For, given the likelihood that the arts will continue to be publicly funded, and although a voucher is still a subsidy, it partially takes the subsidy choice away from bureaucrats.  The elderly people who used their vouchers to see the classics helped keep a theatre alive, and exercised as much choice within the system as they could.  If we think theatres are worth keeping alive, this is a point worth bearing in mind -- though we should be clear in our minds about whether we are trying to subsidise theatre or audience.  Vouchers at least get away from the subsidy of art which no-one wants to see, and as well as increasing consumer choice, provide a measure of quality control and an incentive to perform well.  As one might expect, the introduction of a measure of public choice in the form of vouchers seems to go with greater administrative efficiency.

Further, as Grampp points out, we should get out of the whole "thicket of confusion" about "merit goods", that is, goods which, according to some, are those "which individuals should use more of than they freely choose to do, and hence are not supplied in sufficient quantity by the market."  The idea only needs to be stated clearly and without euphemism for its coercive nature to become apparent, depending as it does on the value-judgements of those in power who decide how much of a particular "good" people "should" have -- irrespective of how much of it they actually want.  Arguments in favour of subsidies for the arts depend upon paternalism and snobbery as well as vested interest and economic rent-seeking.

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APPLICATIONS FOR AUSTRALIA

Turning back to the Australian scene, there is, of course, the bedevilling problem of distance and isolation, which has been used by politicians of every party to justify intervention and cross-subsidy -- not merely for the arts, but also for all manner of public services such as rail transport and telecommunications.  A detailed analysis of this would be a major task, but it is worth mentioning here because it is often put forward as a factor justifying special arts treatment for country areas.  Just as the city-dweller subsidises the country-dweller's telephone, so he or she is expected to subsidise the country cousins' artistic and cultural recreations and diversions in various ways.  Whether this should be the case or not is a political matter.  Urban Australians today may well be prepared to subsidise the culture, as well as the roads and telephones, of rural Australians, but they should at least be aware of how the process is redistributing their money.

The practice of matching grants for local authorities also needs to be considered.  There is nothing wrong with local councils or tourist bureaus paying for civic jollification, however puerile, or just plain publicity -- providing that is what their residents and ratepayers want as expressed in the normal methods of democratic choice.  It is the application of pressure to do so from On High, the implied bribe of matching funds, the benevolent approval of "good" projects, that poses a threat to local autonomy, raises the possibility of economic coercion and erodes public choice (both locally and for the taxpayers who supply the matching grant).

Charles Osborne, an Australian expatriate, spent fifteen years as Literature director of the British Arts Council.  He has set his thoughts down in an amusing autobiography called Giving it Away:  Memoirs of an uncivil servant.  It should be required reading for anyone who is concerned about forming a policy for the arts.  Osborne counts as one of his successes the fact that he stemmed the flow of money into writers' pockets by way of bursaries.  He saw "something intrinsically sordid in adopting poetry as a profession", he scorned the dance "animateurs" who move about the country "to bully the natives into dancing" and declared his "revulsion from the whole grotty business of plays in pubs".  His general views are summed up in the review by Robert Stewart in The Spectator of 8 November 1986:

You cannot make people want art.  And if you could, you shouldn't.  Missionary zeal and deforming paternalism walk hand in hand.  The Arts Council's business is to help to make what painters and musicians and dramatists do available for people who want it done to them and people who may, by a happy discovery, find out that they do.  It is no use social engineers masquerading as arts administrators and putting about notions (never so baldly stated, but nevertheless powerful for mischief) that anyone who says that he is a poet deserves the opportunity of state-supplied leisure to prove it or that anyone who says that he doesn't like the theatre needs to be educated.  Osborne's battles against those propositions and the hilarious public quarrels in which his forthright common sense landed him are crisply and gleefully recounted in these memoirs.

Charles Osborne should come home to instruct our own arts administrations.

The Australia Council should not be concerned with state or local issues.  If there are to be "national" companies or broadcasting organisations, the Council should have a role in ensuring that they are made available to the bulk of the population.  A small council of distinguished persons could receive limited funds for the purpose of promoting Australian arts overseas.  An organisation doing this at present is Radio Australia whose efforts are seldom sufficiently appreciated.  Satellite television for overseas transmission should be developed as a logical extension of this.  It also seems logical that, if government support for the arts is an aspect of foreign relations, then the body in question should at the very least co-operate closely with the Department of Foreign Affairs and be aware of its own responsibilities in that direction.  It should not, under the guise of artistic independence, run an alternate foreign policy that has nothing to do with the arts but a great deal to do with politics.

FILM, RADIO AND TELEVISION

It is strange that when the arts are being discussed, the influences of television and radio are rarely mentioned.  The Australian Broadcasting Corporation is the major purveyor of "cultural" entertainment.  It is the world's largest concert promoter.  There are a number of criticisms to be made about it but it plainly has the capacity to make music, concerts and other cultural activities available to the whole population.  It might make sense to transfer some funds saved from the Australia Council to the provenly popular areas of the ABC -- such as classical music -- to enable it to increase local production and extend its range.  This should, however, go with a number of other reforms to improve the ABC and its general responsiveness to public preferences and choices.  Establishing clearly what the ABC is meant to do would be a good place to start.  (This is separate from the issue of reforming other areas of the ABC's operations, such as its current affairs programmes, and separate again from questions about whether or not the ABC should be made self-financing.)

The proposal to merge ABC with the Special Broadcasting Service was a logical move.  The SBS arose because the non-accountable ABC refused to incorporate non-English language material in its operation.  SBS may be thought to have some vote-buying potential but it has always seemed to be a cultural aberration, being devoted to the twin policies of relying on foreign imports and actively encouraging foreigners to remain so.  Its political and other biases offend many viewers who have no real channels for redress but who are nonetheless compelled to support it with their taxes.

Il Globo, Australia's largest Italian-language newspaper, reported trenchantly in November 1986, apropos the proposed merger of SBS with the ABC, that most Italians in Australia were profoundly indifferent to SBS, and lambasted its constant repeats of ancient, poor-quality, stereotyped, and offensive Italian-language films.  Some SBS programmes are very good, but these do not need their own channel.  While the viewing of the best overseas products is a worthwhile occupation and a pleasing luxury for refined and cultured people, it cannot be justified at the expense of a whole second channel for the national broadcaster.  Indeed as a highly regressive transfer of tax-money it can hardly be justified at all.  If there really is a demand for foreign films, then private cinemas, and now perhaps more importantly, private video-hire enterprises, could fill it.  This is surely not only more efficient, but also far more equitable and decent, than forcing people to support with tax-money the arbitrary decisions of bureaucrats or political activists about what programmes will go to air.  In any event, if we are to have a public broadcaster, now that the video recorder is here to stay there is plenty of time to fit in programmes for the minority audience in off-peak periods when this audience can record them.

If a taxpayer-funded channel combining the ABC and the SBS did not attempt to snatch audience and ratings from the commercial channels with repeats of Gilligan's Island, or fill its screens with dreary agitprop from Cuba and East Germany, it could give the Australian TV industry a good chance to prove its worth in the market-place.  We are, perhaps, raising the lid here from a much larger can of worms:  questions of media control, regulation, ownership and accountability.  Deregulation of the media may be one of the most important of all matters in this area, but it is unfortunately too complex a subject to consider here.

The prospect of an unprotected Australian film and television industry facing the full blast of American and British competition may seem daunting at first, but the successes of Australian films in foreign markets, most recently Crocodile Dundee, show that, as in other industries, what is needed is not the protection of an inferior home-made product, but permitting competitiveness.  Crocodile Dundee is significant in that it was made as a commercial venture, without government meddling, and because it has attracted hostility, as has Barry Humphries (in both cases on ostensibly aesthetic grounds), from members of the government-associated arts establishment.  Australian television series are being sold successfully overseas.  At the same time, policies and practices that hamstring local producers must be stopped.  The Australian film industry (and the live entertainment industry) cannot afford the luxury -- in any case ethically unjustifiable -- of Union bans on imported stars.  Australian protectionists of various sorts would do well to realise that bans invite retaliation.

More Australian film stars and other artists have made careers overseas than overseas stars have made careers in Australia, and we have never suffered qualms of conscience from the fact that Nellie Melba, Joan Sutherland, Enrol Flynn, Olivia Newton John, Rod Taylor, Leo McKern, or even Rolf Harris were doing artists in Britain and America out of work.  Instead, we have tended to take their success overseas as a tribute to Australian greatness and their right as Australians.  Bans imposed by Australia on visiting foreign stars could now well prove to be a two-edged sword.  For hard-nosed industrial reasons, as well as for the ethical reason of allowing the consumer accessibility to the best talents, Australia should be taking a lead in breaking down such barriers, not erecting them and thereby encouraging others to do likewise.  The essential immorality of trade protection is that it aims to prevent consumers buying what they want, at a price they are prepared to pay and at which others are prepared to supply them.  Further, its costs are ultimately borne by exporters.  Analogous situations exist with bans on foreign artists.

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CONCLUSION

Nobody should be given money to write or paint or pot or dance at random, There is a world of difference between hiring Michelangelo to paint the ceiling of the Sistine Chapel and paying Joe Bloggs to find an empty space and do his thing.  Commissioned work, certainly for private and arguably for public consumption, is justifiable.  We have previously touched upon Nelson's column and the lions of Trafalgar Square which were commissioned to enhance national pride and morale, as well as to express perfectly genuine and widespread feeling of homage to a hero.  England would be poorer without them, but they have nothing in common with contemporary Arts Council philosophy.  Paying a retainer to an established artist is no different from putting actors under contract for future roles in a repertoire, paying advances to an author, or any other sort of future payment for goods or services.  But no-one should be paid by the public for work not done where none is needed.

When Stuart Devlin, described as "the world's leading gold- and silver-smith", and goldsmith and silversmith to Her Majesty the Queen, was in Perth, he expressed the view that funding the arts was undesirable because it simply created unwanted works that had no place in the market.  His own operation is an example of how it is possible to combine artistic excellence with market success even in a relatively esoteric area.  As Robert Conquest, poet, translator of Solzhenitsyn, and historian, put it in the introduction to his collection The Abomination of Moab, the enemy of art is not the Philistine, who may not know much about art but knows what he likes, but, to retain the Biblical metaphor, the Moabite, the trendy pseud and artist manqué who corrupts the business of art from within.

Except for the lucky few, art is a part-time profession.  Authors live by being teachers or civil servants, actors sometimes wait at table, visual artists design posters, sculptors serve in supermarkets, and dancers drive buses, when the work for which they were trained is not available.  To pay them to do otherwise is simply to make arts funding a more expensive dole.  If public funding is ever to be justified it must be to provide the public with services which the public wants -- film, television and theatre productions, the ornamentation of buildings or public places, orchestras for public performance.  But here, perhaps, is a conundrum.  For if the funding bodies provide the public with what it wants, then public funding ought not to be needed.  Perhaps we can take refuge in the argument that, as in the case of defence, we are providing what is at least partially a public, not a private benefit (not, perhaps, a very good argument, but one we seem to be stuck with).  But simply to provide these services is not enough.  Public funds should only be spent to ensure a high standard of performance.

This, surely, is the heart of the socio-political-artistic problem.  Objective standards of excellence cannot be arrived at, although to make meaningful value-judgements about works of art at all, we must talk as if they can.  Museums buy work according to various criteria, but even so, will not please everybody.  There is no real arbiter of taste.

Even the market economy for works of art has some odd influences and does not reflect standards of excellence in the usual way, except insofar as a thing is worth what people are prepared to pay for it.  A painting reputedly by some master such as Rubens or van Gogh may sell for millions of dollars.  Suddenly it is found to be a fake and loses all its value -- yet the painting itself has not changed at all.

We are left with the broad and general statement, which is also a contentious one, that the best art is that which communicates with and pleases a public.  The novels of Anthony Powell give a small number of people intense pleasure.  Bob Hope and Bing Crosby, also artists in their way, in The Road to Bali give an enormously larger number of people a probably milder pleasure.  But what is important is to realise that both are good of their kind.  The way to ensure high standards, while at the same time also achieving the important objective of political independence for such forms as literature, theatre and film, is not to despise commercialism, but to acknowledge the positive effects of market forces.

It seems certain that some degree of public funding for the arts will continue as a fact of political life.  Accepting this, we should see that this funding is made as efficient and as responsive to consumer needs as possible, by allowing the greatest possible expression of market forces and market signals.  If the taxpayer is helping supply art to a relatively small minority, the laws of supply and demand should not be entirely excluded.  New technology may help bring the musical and performing arts to more people more cheaply than in the past, and cable TV and specialist video services may, as well as improving efficiency, make new opportunities for private enterprise.

A great deal more clarity is needed about what the subsidy of art is actually trying to do.  The funding of museums, art galleries, libraries and state companies, which have a public education aspect, may be seen as educational funding and, arguably, as having a greater element of public good attached to them than do grants to private individuals.

Creative art in Australia, like creative art everywhere, needs encouragement, but does not need committees to tell it what to do.  Though its benefits are almost entirely "private", it has some element of public benefit in that it probably makes at least a small contribution to tourism and probably some contribution to industrial design and is less mischievous than some things people might otherwise be doing (though we cannot tell in advance which semi-talented landscape painters will develop into Hitlers if not pacified by grants).  Some publicly-trained artists, though probably not many, go on to become export earners (a writer of international best-sellers may have had initial encouragement from being first published in a little, funded, magazine).  In any event it seems to be generally agreed that art is a good thing, and to that extent some public support may be justified.

Art does not need to have money thrown at it, will not flourish if money is thrown at it, and will probably decline into a reservation for the dotty, the minimally-talented and the racketeers if money is thrown at it without discrimination -- in some areas it has gone far in that direction already.

We do not need a "national strategy for culture".  Our policy should be to encourage support outside the public sector, and to allow private entrepreneurship in the arts to be reasonably possible.  The publicly-funded arts should not be allowed to damage the commercial arts through selective, subsidised competition.

Statements about multiplier effects on employment and other economic activity created by government spending on the arts may possibly have some validity but should be subjected to further scrutiny by appropriate and impartial economic experts.  (Some work in this field is already being done.) ⁽⁴⁾

Any public funding should be as independent as possible of the judgement of bureaucrats, arts administrators, "assessors" and "peer groups".  Reconciling the demands of administrative efficiency and artistic freedom may pose problems, but it seems likely that maximising the element of consumer choice will help minimise these.  Vouchers might encourage consumer choice and increase administrative savings, but their implications will need to be carefully considered.

The impact of the arts on society is far wider than the possible subsidy to be given to a particular art form.  In their wider sense the arts are always with us.  Every time a person chooses a car or a carpet or clothing or any item of day-to-day living, an artistic judgement is probably involved.  Even mundane things like foodstuffs are packaged to appeal to the eye.  Art and artists are part of our daily lives.  So to suggest that art is unimportant is clearly absurd.  Art permeates the whole of history.  And, because it is ubiquitous in our society, it need not be artificially nurtured.  Art has survived the holocausts of history, and it has a fair chance of surviving even bureaucratic intervention.  Art is naturally integral to human affairs, and natural evolution has served it well in the past.

Perhaps, though, it would be appropriate to end with the vivid if not entirely accurate aphorism -- celebration or denunciation of Art as you may choose to take it -- uttered by the villainous Harry Lime in the film The Third Man:

In Italy, for thirty years under the Borgias, they had warfare, terror, murder, bloodshed -- but they produced Michelangelo, Leonardo da Vinci, and the Renaissance.  In Switzerland they had brotherly love, five hundred years of democracy, and peace, and what did that produce?  The cuckoo clock.

Of course, none of these Renaissance achievements came from the city-State of the Borgias, though they did produce one Pope.  Florence under the Medicis was another story.

---

ENDNOTES

1.  Apropos this point, the question has been raised:  "Can we equally say exposure to pornography or violence does not induce more degrading behaviour?".  Without getting into complex and contentious issues of behaviourist theory, the point may be made that the two are not symmetrical (e.g. art good:  pornography and violence bad).  Those things described as pornography and violence have a content which already has social disapproval, while "art" seems in this context value-neutral.  Indeed, many works that some people have condemned for their pornographic or violent content have been defended by others precisely on the ground that they are works of art.  (George Orwell's study of Salvador Dali's work, "Benefit of Clergy", explores some of the issues involved here.)

2.  In Towards Leaner State Government (1985), T.A.A. Herzfeld pointed out that at that time the West Australian Arts Council had a staff of 21 and a quarter of available funds were spent on administration.  Apart from instant lottery money, which was under the Minister's ultimate control, the council received just over $3 million from the Treasury.

3.  C.D. Throsby and G.A. Withers, The Economics of the Performing Arts, St. Martins, New York, 1979, page 166.  This analysis has since been updated:  see Throsby and Withers, What Price Culture?, Occasional Paper, Policy and Planning Division of the Australia Council, North Sydney, 1984, and Throsby and Withers, "Strategic bias and demand for public goods:  Theory and an application to the arts", Journal of Public Economics, Vol. 31, No. 3, December 1986, pages 307-327.  See also Throsby and Withers, "Measuring the demand for the arts as a public good:  Theory and empirical results" in W.S. Hendon and J.L. Shanahan, (eds), Economics of Cultural Decisions, University Press of America, Cambridge, Mass., 1983, pages 177-191.

4.  See also C.D. Throsby and Glenn A. Withers, The Economics of the Performing Arts, St Martin's Press, New York, 1979.

Borrowing and the Burden of Debt

CHAPTER 6

BACKGROUND

The Government has acknowledged the existence of a debt problem.

A feature of the Victorian Government's economic and financial policies has been the greater reliance on borrowings than in other States, except Tasmania.  The appropriateness of this has come under increasing questioning, particularly since the down-grading in June 1990 by Moody's of the rating assigned to $A denominated debt guaranteed by the Victorian Government. ⁽¹⁾  This was the first such down-grading of $A denominated debt of an Australian State since World War II and, while the rating (Aa1) remained at a high level, the basis of the down-grading -- the high proportion of revenue going to meet debt servicing costs and the Government's "diminished capacity to address its economic and financial problems" -- highlighted the potential for high borrowing policies to result in political and economic instability.  Further emphasis has been given to this potential by the announcement in March-April 1991 by both Moody's and Australian Ratings that they were considering a possible further down-rating.  On that occasion Moody's identified a number of areas of concern, viz, continuing national economic slowdown, growing infrastructure needs, continually high budget deficits, political inertia, high level of contingent liabilities and potential for further weakening of Commonwealth assistance.

In his 1990-91 Budget Speech the Victorian Treasurer acknowledged that Victoria has a high level of debt and that the cost of servicing debt "has now reached a point where the policies of the past need fundamental change".  He also stated that in future the Government intended to make a stronger contribution to capital works from recurrent revenue.  The Treasurer attributed Victoria's high debt level to two main factors.  First, certain services, notably gas supply, provided from within Victoria's public sector, are a private sector responsibility in other States.  Second, Victoria has "always" operated on the basis of high borrowings and high debt because successive governments believed "it was fair that the cost of State infrastructures should be borne by future generations that derived the benefit".

A central feature of the Government's 1990-91 Budget was the implementation of a debt management strategy which envisaged a small estimated reduction in budget sector debt through an increase in the sale of government "business" assets ⁽²⁾ sufficient to more than meet the estimated (lower) budget deficit and the increase in debt resulting from the take-over of additional debts of Tricontinental.  The Treasurer also indicated that Victorian semi-government authorities would sharply reduce their net borrowings in 1990-91 and that Victoria would accordingly borrow less than the global borrowing limit set for its authorities by Loan Council.  For the Victorian public sector as a whole the budget estimates for 1990-91 suggested that, while there would be an increase in net debt (from $26.6 billion at June 1990 to $27.2 billion at June 1991), that would involve a reduction (of 0.7% points) in the proportion of debt to Victorian non-farm GDP, taking it down to just over 25% at June 1991.

The Budget also provided for a sharp cut back in estimated capital expenditure by the public sector in 1990-91 -- expenditure on fixed assets was estimated to fall by 16.4%.  This also appears to be a "fundamental change" compared with the previous policy of making the rate of capital investment responsive to the state of the economy and the economic cycle. ⁽³⁾

But the acknowledgement leaves a question mark.

Apart from accepting that economic and financial circumstances had changed, the acknowledgement by the Victorian Treasurer that "the policies of the past need fundamental change" was not accompanied by any explanation of why such a change had suddenly become necessary, or what particular level of debt servicing charges should be targeted.  The apparent continued support in the Budget Speech for the notion that it is "fair" for future generations to bear the cost of State infrastructure, and persistent assertions by The Age's chief economic writer that "borrowings by Victorians from Victorians" are no cause for concern, suggest that the underlying rationale for a policy of high public sector borrowings has not necessarily been discarded and that it may have some residual support.

This Chapter examines the issues against the background of trends in debt and debt servicing costs of Victoria and other States, and the purposes for which debt has been employed.  The examination covers the debt and other financial commitments of both the budget and non-budget sectors as both sectors are the ultimate responsibility of the State Government and each sector contributes to Victoria's overall debt problem.

What constitutes a debt problem?

There are no precise criteria or even rules of thumb which can be used to determine whether a State or even a country has a debt problem.  Much depends on economic and political circumstances and the purposes for which borrowings have been used. ⁽⁴⁾  Further, as indicated by the considerable range of ratings by credit rating agencies, there are degrees of debt problems.  The rating currently given to Victorian debt -- the second highest -- indicates that the State still has capacity to increase the burden of debt should it be judged appropriate to do so.  At the same time, the initial down-grading, and the recently emerged prospect of a further down-rating, are warning signals that the State's policies have become significantly more risky.  Moreover, it is important to note that major down-gradings sometimes come after a financial crisis has occurred.

What constitutes a "debt problem"?  At one end of the spectrum the most obvious answer is that a debt problem exists when there is an incapacity to service and/or repay outstanding borrowings;  a "problem" of that order would, however, be not a problem, but a crisis.  In the case of a State Government it is most unlikely that such a situation would ever arise in any absolute sense, given the assets held and the power to tax. ⁽⁵⁾  However, there is potential for serious economic and financial problems to emerge well before any possible question arises of suspension of payments.  Essentially, these problems arise from two main sources.

First, and most obvious, investors start to demand a higher rate of return for lending to a high debt State.  In Victoria's case, this has already occurred and the Auditor General has estimated that this is probably adding around $5 million per annum cumulatively to the cost of Victorian borrowings. ⁽⁶⁾ 

Second, and more important, there is likely to be an increasing reluctance by the "present generation" to bear the burden of increasing servicing costs either through higher taxes or through a lower level of ordinary services.  This increased reluctance becomes the more evident if past borrowings have been used for non-revenue earning purposes or for investments in enterprises which are earning poor returns and requiring increasing subsidies from general revenue.

Moreover, if comparisons with other States indicate that those States have used their borrowings more productively, this will likely add to dissatisfaction.  Thus, far from regarding it as "fair" to bear the cost of past borrowings, the present generation is likely increasingly to resent having to pay the costs of decisions in which they played no part, and the benefits of which they may well dispute.  This is likely in turn, to be reflected in increased political resistance to higher taxes or cuts in ordinary services, thereby making it more and more difficult for the Government to service the existing debt without taking decisions that would lead to its political overthrow.  The South American "solution" -- to expand the money supply and reduce the real cost of debt servicing by impoverishing its citizens in a different manner -- is not available to a State Government.

It is this potential for political instability, leading to an incapacity to make decisions needed to restore a State's finances, that goes to the heart of what constitutes a debt problem.  Once that political incapacity emerges there are inevitable flow through effects to the State economy as businesses and individuals also become more reluctant to take decisive action, particularly as regards longer term investment.  The emergence of such a situation can, in turn, increase the difficulty of servicing State debt as the growth in the State's economy and revenues slows.

The change in economic circumstances after the 1960's and 1970's made particularly inappropriate the pursuit by the State Government of high borrowing policies.  The shift from negative real interest rates in the 1960's and 1970's to high positive real rates in the 1980's not only raised the costs of borrowing but required greater attention to improving the return on capital expenditure.

Now, with the Australian economy in recession and the prospect of slower growth in the 1990's, the State is in a classic over-geared situation in which high debt servicing costs are accompanied by slower growth and, hence, a reduced capacity to meet them.

THE EXTENT OF DEBT AND ITS SERVICING

Victoria has the second highest per capita debt after Tasmania.

ABS figures of net debt for State public sectors, compiled on a basis comparable between States, are set out in Table 6.1 ⁽⁷⁾ which also includes our estimates for 1990-91.  ABS figures show that, at 30 June 1990, net public debt was $27.7 billion, which constituted over $6,400 per head.  At this level the Victorian public sector's net debt is the largest in Australia and only Tasmania has a higher per capita debt and a higher debt relative to State product.  Part of the reason for Victoria's high net debt is the fact that Victoria has a relatively low level of financial assets.  Thus at 30 June 1988 Victoria's gross financial assets were less than those of NSW, Queensland or South Australia.

It should be noted that the ABS estimate of net debt at 30 June 1990 is $1.1 billion higher than the estimate published in the Victorian Budget papers.  This appears to be due in part to the inclusion as debt by the ABS of operating leases which the State Government refuses to count as debt, presumably because it would mean acknowledging that they effectively involve avoidance of Loan Council global limits on borrowing.

TABLE 6.1:
NET DEBT

	1983-84		1986-87		1989-90		1990-91(e)
	$bn	% GSP	$bn	% GSP	$bn	% GSP	$bn	% GSP
NSW	15.6	23.1	20.1	21.7	20.8	15.8	22.0	16.2
VIC	16.0	28.3	21.5	29.4	27.7	27.1	27.9	26.7
QLD	4.8	17.0	5.7	14.8	3.4	6.2	3.5	6.2
WA	5.1	29.5	6.4	25.0	7.8	21.3	8.5	22.5
SA	3.3	21.9	4.1	19.6	4.7	16.7	5.3	18.1
TAS	2.1	49.2	2.6	42.9	3.0	36.8	3.4	40.4
All States	46.0	24.8	60.4	23.5	67.4	18.7	70.6	19.0
All States excl Vic	31.0	23.3	38.9	21.2	39.8	15.3	42.7	15.9

Notes:

(i) Net debt figures for 1983-84 and 1990-91 (est) are derived by adjusting net debt figures published in ABS 5501.0, 28 March 1991 on the same basis as on page 5 of that publication.

(ii) Gross State Product figures are the author's estimates based on GDP figures in ABS No.5206.0, Dec Q 1990

Table 6.1 shows that, while the burden of Victorian debt (measured relative to GSP) has been falling since the recent peak reached in 1986-87, the reduction has been much less than in Queensland and NSW and significantly less than the average for all States excluding Victoria.  Moreover, reflecting the much slower than expected growth in even nominal GSP, the burden of debt is now likely to drop by no more than 0.4% points of GSP in 1990-91.  Since 1983-84, the Victorian public sector's net debt has increased by 8.3% per annum, the highest of any State and well above the average of 4.7% per annum for all States excluding Victoria.

Thus, while the annual increase in indebtedness has declined as a proportion of GDP since 1986-87, it has remained above the average for the States up to the current financial year.  Indeed, in three out of the last five years Victoria's increase in net debt has been greater than that for any other State, relative to GSP.  The very small increase in net indebtedness estimated for 1990-91 is primarily a reflection of the large provision for asset sales, which the ABS estimates put at around $2,000m but which appears to be an under-estimate (see below).

Victoria has easily the highest debt servicing burden.

As to the debt servicing burden (measured by taking the proportion of interest to total revenue), Table 6.2 shows that this has actually increased since 1986-87 and is significantly higher than in 1983-84.

The servicing of Victoria's net public sector debt now takes over 21 cents of every dollar received in revenue, more than double the average for all other States of over 10 cents per revenue dollar.  In fact, Victoria has easily the highest debt servicing burden, with even Tasmania having to pay "only" 19 cents per revenue dollar.  The net interest bill faced by the total Victorian public sector in 1990-91 is estimated at $3.4 billion, more than the total estimated outlays on health, social security and welfare combined, more than any other State and nearly $800 million more than for the much larger State of NSW.  If Victoria could reduce to NSW levels the proportion of revenue going on net interest, there would be a saving of about $1.4 billion.

These official figures do not tell the full story, however.  The debt management strategy announced in the Budget includes provision for "managed increases in the rate of growth of debt charges through the use of interest rate swaps and other instruments, effectively spreading interest costs over the next 5 or 6 years".

Moreover, the increased resort to "operating" leases (see below) has to an extent substituted lease payments for interest payments.  In short, even allowing for the reduction in interest rates, the estimated slight fall in the debt servicing burden in 1990-91 is almost certainly misleading.

Also relevant is the decision by the June 1990 Loan Council meeting for the States to take back the primary responsibility for debt raised by the Commonwealth on behalf of the States under the Financial Agreement.  This means that the volume of public debt issued in the name of Victoria will increase progressively and the cost of servicing that debt will be higher than otherwise.

From a longer term historical perspective, estimates of net public sector debt published by the Victorian Government suggest that there has been little change in the burden of net debt since the mid 1970's and that the present burden is much lower than in 1960. ⁽⁸⁾  While from one point of view that may be comforting, what it also suggests is that the strengthening of Victoria's net debt position between 1960 and the mid 70s (chiefly as a result of inflation reducing the real burden of the State's debt) has not been consolidated, and in recent years has been partly lost.  Moreover, estimates published of debt servicing costs ⁽⁹⁾ suggest that net interest payments now represent a higher proportion of non-farm GDP than in 1960 (about 3.0 compared with 2.5%) and almost double the proportion in the mid 1970's.  These estimates show that, as a proportion of public sector revenue, ⁽¹⁰⁾ there has also been a doubling in the burden of debt servicing costs since the mid 1970's.  The fact that the burden of net debt has hardly changed since the mid 1970's, while the burden of debt servicing costs has about doubled, primarily reflects the much higher interest rates experienced in the 1980's.

TABLE 6.2:
DEBT SERVICING COSTS (Net Interest Paid As % of Revenue)

	1983-84	1986-87	1989-90	1990-91(e)
NSW	11.5	12.1	12.3	12.4
VIC	17.4	20.0	21.6	21.4
QLD	7.9	5.6	5.4	6.2
WA	12.2	13.6	13.0	12.7
SA	11.1	11.3	12.8	12.6
TAS	15.7	17.1	17.2	18.6
All States	12.6	13.4	13.4	13.2
All States excl Vic	11.0	11.0	11.1	10.4

Source:  ABS 5501.0, 28 March, 1991.

Official debt figures do not tell the whole story.

The foregoing relates to trends in and comparisons of official published statistics of debt and debt servicing costs.  However, there is a range of other commitments given by the Victorian public sector which either constitute near debt or involve contingent liabilities.  Thus, in his report on the budget for the year ended June 1990, the Auditor General included as part of debt unfunded superannuation liabilities of $16.0 billion and estimated that, on that basis, indebtedness of the budget sector alone was $32.6 billion compared with the figure of $14.5 billion published in Budget Paper No.2.  The Auditor General also drew attention to additional financial commitments totalling $3.1 ⁽¹¹⁾ billion and contingent liabilities amounting to $48.8 billion, of which some $25.1 billion were in respect of guarantees to financial institutions.  Some of these guarantees (for example, those in respect of the Victorian Equity Trust) are almost certainly going to be called up.

It is a matter of concern that contingent liabilities in the form of guarantees about doubled in the three years to June 1990.  Of course, with the sale of the State Bank since then, that will about halve these liabilities.  Even so, guarantees other than in respect of the State Bank amounted to $23.3 billion at 30 June 1990, compared with only $8.1 billion at 30 June 1983.  The resort to such guarantees creates the potential for "moral hazard" problems to arise -- as indeed occurred in the case of the State Bank -- and it seems particularly anomalous that every policy of insurance by the SIO should carry such a guarantee.

However, putting contingent liabilities on one side, the following picture can be compiled for public sector indebtedness, defined broadly, as at 30 June 1990.  It should be noted that these estimates do not include anything for employee entitlements and other commitments that may have been entered into by the non-budget sector, ⁽¹²⁾ or for potential liabilities in respect of unfunded liabilities of the Workcare and Third Party Insurance schemes.  It is not clear why the Auditor General has excluded these commitments, which would have added another $3-4 billion to the figures.

TABLE 6.3:
VICTORIAN PUBLIC SECTOR INDEBTEDNESS, 30 JUNE, 1990

Budget Sector   Net Borrowings   Employee entitlements   Creditors and accrued interest   Other Financial Commitments (incl operating leases)   Victorian Equity Trust	15.0 16.9 0.7 3.1 0.7 36.4
Non-Budget Sector   Net Borrowings	12.1
Total	48.5
Per Capita	$11,175

The Victorian Treasurer has disputed the inclusion as debt of employee entitlements and has disagreed with the Auditor General's conclusion that operating leases are "simply another form of borrowing and should have been taken into account for Loan Council purposes and reported as borrowings in the Treasurer's statement".  However, the Tasmanian Government has acknowledged that these leases are tantamount to borrowing.  In its Budget Papers it is stated that "While the usage of leasing and similar arrangements has been less in Tasmania than other States, the financing costs involved are becoming a significant element in the State's overall indebtedness". ⁽¹³⁾  Indeed, Tasmania's annual leasing payments now take around 0.7% of public sector revenue and, while no comparable figures are published for Victoria, it would be surprising if annual leasing payments were not taking at least 1% of Victorian public sector revenue, that is, the servicing costs of all forms of borrowing by the Victorian public sector almost certainly account for more than 21.4% of revenue.

As to the indebtedness in regard to unfunded superannuation liabilities, while it is common practice amongst the States not to count these liabilities as debt per se, there is no doubt that they represent a liability that will have to be met out of future Victorian government revenue.  Certainly, the substantial borrowings of the superannuation funds on behalf of the Government, in order to finance amounts the Government would otherwise have had to pay to superannuitants, ought to be included in the official debt figures. ⁽¹⁴⁾  Further, while it is true that most other States also have liabilities for unfunded superannuation schemes for Budget sector employees, ⁽¹⁵⁾ there is some evidence to suggest that the Victorian scheme may be more generous than in other States.  In particular, at 30 June 1990 NSW had a significantly lower net unfunded liability of $14 billion, ⁽¹⁶⁾ or $2413 per head of population compared to Victoria's $16 billion or $3,665 per head of population.  Grants Commission data on Victoria's superannuation payments from the budget shows that, over the five years to 1988-89, they increased by no less than 80%.

No information is available on Government physical assets.

In assessing Victoria's debt liability, account ought to be taken of the physical assets which have been created by the borrowings.  While no data is available, the value of such assets would undoubtedly exceed net Victorian public sector debt.  In this sense, therefore, the State Government itself can never be considered a candidate foi bankruptcy per se.  But well before bankruptcy is reached debt problems can and do arise in the sense referred to earlier.

THE USE OF BORROWINGS

Borrowings have been used to finance capital exenditure.

Some comfort can be taken from the fact that net borrowings ⁽¹⁷⁾ by the Victorian public sector have been equivalent to only some 50-60% of expenditure on fixed assets by the Victorian public sector.  In the current year, the Victorian Budget papers estimate that net borrowings will finance no more than around 30% of capital expenditure, reflecting the increased resort to proceeds of asset sales and the sharp reduction in estimated expenditure on fixed assets.

But more capital expenditure has been of a "social" kind.

But, while it is thus clear that borrowings have not been used to finance government consumption expenditure, that does not tell us anything about whether they have been productively employed.  A very broad indication can be obtained of the use of borrowings from the fact that net debt of the non-Budget sector (that is of statutory authorities), which makes up a little under half of the total state public sector net debt, was growing up to 1989-90 at a significantly slower rate of around 8% per annum compared with the 11% per annum growth in the Budget sector debt.  This doubtless partly reflects the reduction in major capital projects, primarily in the areas of electricity and gas, which together account for about three quarters of non-budget sector debt.  In the electricity area, capital spending slowed markedly following the installation of excess capacity in the early to mid 1980's on the basis of expectations of a major resources boom.  Moreover, although there now appears to be a need to increase spending, the SECV (which has been a major borrower) has recently announced its intention not to borrow for a period of several years in order to improve its debt/equity ratio and has proposed the partial privatisation of electricity generation.  Borrowings by bodies such as the SECV and Gas and Fuel might have been even lower but for the Government's policy of deliberately holding down their charges and requiring such bodies to pay hefty "dividends" to the Budget, thereby limiting the internal funds available to finance capital works.

And total capital expenditure has been cut back.

The slower growth in non-Budget sector debt raises a question as to whether the real decline in gross fixed capital expenditure in that sector in recent years reflects a reduction in need for infrastructure or whether it is more a reflection of Government "rationing" of borrowings for such purposes because of other perceived priorities.  More generally, the fact that Victoria is the only State in which the nominal level of capital outlays was lower in 1989-90 than in 1983-84, and the further very sharp cut in capital expenditure in the 1990-91 Budget, suggests that high debt levels are now constraining capital spending.

TABLE 6.4:
COMPOSITION OF VICTORIAN DEBT (NET)

	Budget Sector		Non-Budget Sector
	$Bn	% GSP	$Bn	% GSP
1982-83	6.9	14.1	7.1	14.5
1983-84	7.6	13.6	8.0	14.3
1984-85	8.5	13.8	9.1	14.7
1985-86	9.7	14.2	10.1	14.8
1986-87	10.8	14.9	10.6	14.7
1987-88	11.6	14.0	10.7	12.8
1988-89	12.7	13.8	11.5	12.5
1989-90	14.5	14.4	12.3	12.2

Source:  Victorian Budget Papers for debt figures.  GSP figures are the author's estimates.

This also, of course, raises an important question about the sustainability of the reduction in estimated net borrowings in 1990-91 once additional infrastructure spending becomes unavoidable and once there is a diminution in the supply of non-business assets capable of being sold.

Debt servicing costs of the budget sector have risen sharply.

What is clear is that an increasing proportion of net borrowings has been used to finance projects in the Budget sector, rather than the non-Budget sector.  This is of potential concern because the Budget sector comprises government activities that do not attract sufficient revenue to cover a significant proportion of costs and where there are few market tests as to the likely returns. ⁽¹⁸⁾  Thus, since 1986-87 the burden of net debt servicing costs of the budget sector have risen sharply from around 6% to 9% of revenue, about three times the NSW level.  The Queensland budget sector, by contrast, is actually a net earner of interest, that is, a net lender to the rest of the public sector.

While debt servicing costs of trading enterprises remain high.

Moreover, while the debt servicing ratio for the non-Budget sector of Victoria has been coming down in recent years, it remains at a very high level.  Almost 80 cents in every net revenue dollar of Victorian public trading enterprises is going to meet interest payments.  This is much higher than for Queensland (37%), NSW (62%), or WA (54%) and considerably higher than the average for the five States excluding Victoria.  Not surprisingly, this high debt servicing burden is reflected in the high losses of Victorian public trading enterprises, which are running at around $1 billion per annum or close to 1 % of Victoria's GSP.

THE OUTLOOK FOR DEBT

The Government budgeted for only a small debt increase in 1990-91.

At the time of the 1990-91 Budget the Government estimated that the net addition to Victoria's public sector debt in 1990-91 would be $574 million, which is broadly consistent with the estimate of $220m based on ABS estimates shown in Table 6.1 above.  The Victorian Government estimate assumed that, in addition to above-the-line asset sales of $711 million, there would be sales of "business" assets amounting to $2.6 billion and that the proceeds would be used to retire debt (including $1,700 million of bad debts of Tricontinental not taken over by the Government in 1989-90) and to help offset the estimated "deficit" ⁽¹⁹⁾ of $845 million.  Estimated proceeds from business asset sales included the $2.0 billion from the sale of the State Bank and (potentially) from the State Insurance Office, pine plantations and the State's interest in the Portland Smelter.

But the increase may be quite a bit larger.

However, there are serious doubts about whether the increase in public sector debt can be held to the Budget estimate.  Certainly, the projected "deficit" for 1990-91 seems likely to be significantly higher than $845 million and sales of "business" assets are unlikely to achieve the target of $2.6 billion.

It would not be surprising, in these circumstances, if the increase in net public sector debt were to reach say, $1,500 million or 1.4% of GSP.  While there are indications that the Government has been exploring "innovative" methods of borrowing, this would imply that the Government's target of borrowing "at least" $118 million less than its global borrowing limit of $1,137 million is unlikely to be fulfilled.  Indeed, the Government may need to seek a "special" increase in Victoria's global borrowing limit from the Commonwealth.

Beyond 1990-91 there mil be pressure to increase borrowings -- but the Commonwealth will seek to hold them down.

Beyond 1990-91 there is a question as to the sustainability of such lesser increase in net debt as may be achieved in 1990-91.  Thus neither the existing high reliance on asset sales nor the very low level of capital expenditure in 1990-91 can be sustained;  the effects of the spreading of interest costs to future years will wear off;  and the possibility of an extended recession and/or a slow recovery from it will make for slow growth in State revenues and upward pressure on the public sector deficit.  Of course, the Commonwealth Government will be anxious to hold down the level of State authorities' borrowings in order to increase domestic saving and reduce the current account deficit.  Further, the move to allocating States' basic shares of Loan Council borrowing limits on an equal per capita basis will mean a reduction in Victoria's share of whatever overall global limit is set.

Victoria faces a serious debt problem.

All this adds up to the conclusion that, in the absence of measures to reduce recurrent spending and/or to privatise some statutory authorities, it will be difficult to repeat the (likely) reduction in 1990-91 in the ratio of net debt to GSP.  The reality is that the Victorian Government faces a serious debt problem.  Thus:-

1. While the burden of debt has fallen in recent years the reduction has been less than for other States and the relative burden remains high by interstate comparison.  Further, the published debt figures do not tell the full story, as other means have been found of financing capital spending which constitute quasi-borrowings;
2. The debt servicing burden is the highest among the States and has actually increased significantly since 1986-87.  Further, the published figure does not reveal the full extent of the burden, which probably involves the taking of over 22% of public sector revenue to meet interest or quasi-interest payments.  The re-assumption of responsibility for Financial Agreement debt, and the widening of interest margins from this and the credit rating down-grading, will add to servicing costs, although lower interest rates will provide some relief.  (However, real interest rates seem likely to remain high);
3. In addition to the official figures for public-sector debt, the Victorian Government has very considerably increased commitments of the public sector that constitute quasi-debt or contingent liabilities.  The extent of unfunded superannuation liabilities suggests a more generous superannuation scheme for Victorian public sector employees than for their NSW counterparts.  Even allowing for the reduction that will occur in contingent liabilities as a result of the sale of the State Bank, the increase in guarantees is of concern;
4. While borrowings have not been used to finance government consumption expenditure, there has been an increase in recent years in the proportion of borrowings used to finance Budget sector capital expenditure, which generally has much lower revenue earning potential.  Moreover, borrowings used to fund capital expenditure in the non-Budget sector have produced inadequate returns, reflected in the fact that interest payments continue to take 80% of every net revenue dollar and that losses are running at around $1 billion per annum;
5. While the 1990-91 Budget projects only a small increase in public sector debt and a fall in the relative burden, the much greater than expected deterioration in the Victorian economy and the likelihood of a higher public sector "deficit" means that any reduction in the relative debt burden is likely to be small in the current year.
6. Although the 1990-91 Budget is the first official acknowledgement that Victoria needs to effect a fundamental change in its high borrowing policies, the reliance on asset sales as the major vehicle for reducing the burden of debt fails to go to the heart of the problem and will be difficult to sustain.  The possibility of an extended period of slower growth in Victorian revenues will also make it difficult to sustain lower deficits (let alone reduce them further) and, hence, difficult to reduce borrowings for that purpose.  In addition, the current relatively low level of public fixed capital expenditure will not be sustainable and there will be mounting pressure either to increase borrowings for this purpose or to privatise.  Pressure to privatise is likely to be enhanced by the Commonwealth macro-economic policy objective of increasing domestic savings and, hence, maintaining a tight control on Loan Council global borrowing limits.

WHAT NEEDS TO BE DONE

Major changes in policies are needed.

The foregoing conclusions are based on there being little or no change in existing policies.  However, if policies along the lines proposed elsewhere in this Report were to be introduced to reduce recurrent outlays, improve the returns on public capital and/or to privatise substantial sections of that capital, there is no doubt that the debt problem could be brought under control.

The difficulty that now exists is that the implementation of such policies takes time and, because they will inevitably impinge on entrenched pressure groups, are likely to be subject to considerable opposition.  In our view, however, the problem is serious enough to warrant major changes in policies in the near term.  It will be argued, of course, that a recession is not the time to be cutting government spending and employment.  Arguments along such lines need to be balanced against the difficulties of reviving private sector activity in a sustained way without action along the lines indicated.  Moreover, the time to implement reforms is when the community most readily perceives that serious problems exist and can most readily identify their causes.

However in terms of possible objectives for bringing the debt problem under control, it is difficult to be specific either as to timing or as to ultimate objectives.  Certainly, the top priority should be to stop the further growth of public sector debt, which involves bringing public sector receipts and expenditures into balance.  The aim should be to do that without relying on proceeds of asset sales, that is, any such proceeds should be used to retire debt, and without increasing taxes.  The next step would then be to move into surplus so that, for a time, the public sector is contributing, in an on-going sense, to the reduction of debt.  The aim should be to gradually reduce budget sector debt, that is, the debt that largely represents "social" expenditure of a non-revenue earning nature.

We recognised, however, that, in view of generous redundancy provisions incorporated in wage awards, it may be difficult to bring the public sector into balance in the initial stages of any "reconstruction" program.  Accordingly, it may be necessary to borrow in order to pay off those who are made redundant in addition to voluntary redundancies through normal "wastage".  Such borrowings would, of course, be a good "investment" for the Victorian community and, provided they are limited to such purposes, would be well justified.

There also needs to be a change in the role of public sector borrowings and in the capacity of State Governments to undertake such borrowings.

More generally, there is a need to change the role of borrowing in financing State expenditure.  As a matter of policy, the Queensland Government has for some time financed non-revenue earning capital expenditure from budget revenues and the NSW Government has started to move in the same direction.  There have been similar indications from the Western Australian and Tasmanian Governments that they intend to adopt similar policies and, as noted, the Victorian Treasurer indicated in his Budget Speech that the Government intends to make a stronger contribution to capital works from recurrent revenue.

In our view, however, more needs to be done to prevent politicians succumbing to the strong temptation to resort to borrowings to finance expenditure that will result in short term electoral support, particularly from powerful interest groups in the community that are pursuing their own narrow interests.

The United States experience and practice is relevant.

The electorate of the States of the United States (US) has since the early 19th century adopted a wide variety of institutional restraints on the fiscal behaviour of their politicians.

The most widely used fiscal disciplinary tool (which all but one state employs in one form or another) is the requirement of a balanced budget.  In seven States, the requirement is solely statutory;  in 29, solely constitutional;  and in 13 States, the requirement is both constitutional and statutory.  In three States, the requirement stipulates only that the governor must submit a balanced budget but, in 25 States it requires that the State may not carry over a deficit into the next fiscal year.

There is also a wide variation in the stringency of these rcquirements across States.  By way of example, Art XVI Sec I of the California Constitution requires that the legislature shall not, in any manner, create a debt in excess of $300,000 without a vote of the people.

US balanced budget requirements have in Australia been generally perceived as restrictive but in reality to have little or no effect.  The experience of States of the US does not bear this out.  Indeed a recent major study of this experience found. ⁽²⁰⁾

"the presence of relatively stringent balanced budget requirements seems to be consistently and significantly associated with lower levels of deficits, lower levels of spending, debt and taxes".

and

"that it is safe to conclude on the basis of the findings reported here that balanced budget requirements generally have substantial effect.  It is not the case that these devices are only associated with tiny or trivial differences in state fiscal outcomes".

The Victorian Constitution should be amended to provide for a balanced budget.

It would be inappropriate to simply assume that what works in the US will work in Australia for there are significant institutional and political differences.  However, the success of the balanced budget requirements in the States of the US, as well as the poor fiscal performance of the Victorian and other Australian State Governments over the last decade and the weakness of other fiscal disciplines, strongly suggest the desirability of examining an amendment to the Victorian Constitution to require a balanced budget.  The precise form of such an amendment would require detailed examination and community debate.

We propose that the Government issue a Green Paper on the matter in the first instance.

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ENDNOTES

1.  The down-grading by Moody's was followed by a down-grading to AA1 by Australian Ratings.

2.  In 1990-91 proceeds of $2,600 million from the sale of business assets are estimated to more than offset the deficit of $660 million (on the basis set out in Victorian Budget papers) plus Trico debts of $1,700 million on top of the $576 million already taken over by the State in 1989-90.  Proceeds of sales of "business" assets are distinguished in the Victorian Budget from proceeds of sales of "surplus" property and sales and leasebacks of property.  Proceeds from such latter sales are deducted from capital outlays above the line in the Victorian Budget whereas proceeds of sales of business assets are treated as available to help meet or offset the deficit but are not actually brought into the Budget per se.

3.  In "Victorian Public Sector Debt", Information Paper No.2, Department of Management and Budget, December 1986, it was stated that "The present Government believes that the rate of capital investment or asset creation should also be responsive to the state of the economy and hence should vary over the economic cycle".

4.  For further discussion of the debt issue, see Debt:  What Should Be Done, by Richard J. Wood, October 1990

5.  There is also the likelihood that, in extremis, the Commonwealth Government would assist in some way.  Under the 1927 Financial Agreement, the Commonwealth assumed primary responsibility for all outstanding State debts and agreed to contribute towards the interest and sinking fund costs, which the States continued to pay to the Commonwealth.  However, it is questionable whether the Commonwealth would provide such extensive assistance in the event that only one State ran into debt problems.

6.  That is, $5 million in the first year, $10 million in the second year, and so on.

7.  To obtain an estimate of net debt, the ABS only deducts financial assets, which cover the financial claims of the non-financial public sector on other organisations and households and include shares and other forms of equity in companies listed on the stock exchange.  Other (fixed) assets are not offset against gross debt.  The ABS uses a "face value" definition of liabilities, i.e. the value to be repaid, or, in the case of securities, the nominal value shown on the security.  In the case of securities issued at a discount, this type of valuation is a little misleading because the face value includes a component of deferred interest payments.  For example, zero coupon bonds are normally sold at a deeply discounted rate.  Holders of these bonds are willing to hold them because of the lump sum they will receive at the maturity date.  Effectively, a proportion of this lump sum includes interest forgone over the life of the bond, thus not all of the face value of the bond represents debt outstanding.  (Equally, financing by this method means that true debt servicing costs are understated, because the interest accumulating is only scheduled to be paid when the debt matures.)  Excluded from the debt estimates are:  all liabilities of the financial public sector (i.e. State Banks, State Treasury Corporations etc);  equity;  contingent liabilities;  employee related liabilities such as superannuation and long service leave;  and, because of information shortages, short term trade credits.

8.  Chart 1.6, 1990-91 Budget Paper No.2.  This shows net debt at 60 percent of NFGDP in 1961-62, falling to around 27 percent in 1975-76.

9.  Media Release by Mr Roper of 18 May 1990, "Treasurer's Response to Moody's Statement".

10.  The definition of public sector revenue in Mr Roper's statement differs from that used in Table 5.

11.  Comprising $2.2 billion in respect of Trico and State Bank debts, $0.25 billion for guarantees of deposits with the Farrow group and $0.63 billion for operating lease arrangements.

12.  However, Victoria's statutory authorities mostly operate funded superannuation schemes.

13.  Tasmanian Budget Paper No.1, 1990-91, p 138.

14.  According to superannuation consultant, Mr Daryl Dixon, the Victorian Government had borrowed $1.3 billion as at 30 June 1990 from superannuation funds in order to fund lump-sum superannuation pay-outs.  Moreover, the Government pays a 6 percent real interest rate on such borrowings (Sunday Herald, 24 March 1991).

15.  Queensland operates a fully funded scheme for such employees, Tasmania has started to implement such a scheme and NSW is investigating it.

16.  Budget Paper No.2 1990-91 p.490.  Part of the reason for a lower per head liability in NSW would be relatively fewer Budget sector employees

17.  Net borrowings in this context includes net drawing on financial assets.

18.  A recent study published by EPAC suggested, for example, an excessive cost of capital works in Melbourne's outer suburbs to develop and service new blocks.  (See Infrastructure Costs On The Urban Fringe by Dr Robert Birrell).

19.  Defined for this purpose as Total Financing Transactions, less Increase in Provisions, for the public sector as a whole.

20.  Fiscal Discipline in the Federal System:  National Reform and the Experience of the States, ACIR, A-107, July 1987.