The High Price of Reform Fatigue: We set up the economic conditions after 2010 today

The 2001 Harold Clough Lecture

Mike, Harold, ladies and gentlemen,

HAROLD CLOUGH

I have long admired Harold Clough.  To have been asked to give this particular lecture is an honour.  He has a special talent for producing things.  When this is done in relatively free markets, rather than by extracting market privileges from weak and corrupt governments, Adam Smith's "invisible hand" ensures that we get the things we really want.

These relatively free markets (and for that matter other social exchanges) depend on rules we call institutions.  Some societies uphold them better than others -- the free and prosperous ones.  Most businessmen, especially those who don't try to have governments legislate in their favour, tend to regard "institutions" as someone else's worry.  I don't complain about that.  Businessmen are specialists in providing goods and services and most should stick to their lasts.

However, Harold went further, devoting thought, attention and resources to the institutions.  Not least by his support for the Australian Institute for Public Policy, he did practical things to uphold them.  My theme today, and that of a book I have all but completed, concerns the strengthening of those institutions during the 1980s and early 1990s, the considerable benefits for the whole Australian community that their restoration accomplished, and their partial decline since.  Australia cannot afford reform fatigue -- especially not when the world is heading into recession and, if we are unlucky, substantial resources might be needed for bin Laden and his boys.

THE STATE OF PLAY

Australians began the 2000s enjoying sustained economic growth of 3 to 4 per cent.  Real wages had increased by 3.8 per cent a year since 1995-96. ^[1]  Inflation was around 2 per cent.  Unemployment had been reduced from around 11 per cent to fewer than 7 per cent, although much "hidden unemployment" had to be conceded.  We had recently escaped the so-called "Asian melt-down" almost without a hiccup.  We had a Commonwealth budget surplus of 2 per cent of GDP.

Those benefits were associated with the partial reversal of a long downward trend in Australia's relative living standards.  When compared with other rich countries -- that is, all of Western Europe, the US, Canada, Australia, New Zealand and Japan -- Australia's per capita GDP, expressed as the percentage of these, declined from 132.3 in 1950 to 99.9 in 1975.  They declined further to 88.6 per cent by the time of the 1992 recession.  However, since then, they rose to 95.5 per cent by 1999. ^[2]  That improvement was not brought about by a favourable shift in our terms of trade -- the ratio of the prices at which Australians import and export.  Between 1990 and 2000 these moved against us by about 7 per cent.  The economic freedoms enacted by a period of unusual and exceptionally good government offer the only plausible explanation of the turnaround of a 40-year trend.  I am not guilty of mere ex-post facto rationalising.  The benefits were predicted.

Economic freedom was then the zeitgeist of almost the whole non-African world.  But Australia did better than most and made gains relative to other nations.  Our achievement was uncommon but not totally exceptional.  Other countries at other times had done even better by much the same means -- post-War Germany and Japan, and the Asian Tigers despite their recent difficulties, for instance.  It is worth noting, as we ponder the future, that the leaders of those nations had not had the benefit of a friendly zeitgeist to smile upon their bonfires of regulations.  In spite of my efforts to instruct the zeitgeist here, reforming leaders will have to overcome anti-globalisation sentiment -- or is it still more an organised beat up than the true spirit of our times?

Be that as it may, Federal politicians who once led the charge for economic freedom and generously supported a reforming Labor Government are returning to bad old ways.  Even though they tax at record levels, these profligates have squandered the budget surplus.  It is no good Peter Costello challenging Kim Beazley to name the savings.  He would do better to ask me -- I'm sure I could suggest savings of a few $ billions off the cuff and I would not be telling the Treasurer anything the Department of Finance had not already told him.

These once-were-principled politicians extended the tariff protection of the motor and textile clothing and footwear industries.  They subsidised enterprises that could not raise their capital at market prices, for instance, a magnesium mine and the Darwin to Alice Springs Railway.  They baled out HIH customers and guaranteed bits of Ansett.  They used the foreign investment powers to prevent the commercial takeover of Woodside.  Trying to out-Hanson Hanson, they imposed costly requirements on Telstra that we all pay for.  They subsidised the housing industry.  They maintained the wheat export monopoly.  Competition policy is under serious threat.

After what was admittedly a frustrating time in the Senate, they ceased even trying to reform the labour market.  In short, there are signs that we are reverting to interventionist government and Keating's "big picture" is lost.  The Government has not yet reverted to all of the bad habits of the Fraser years but its recidivist tendencies are obvious.

It is hard to know what to believe of any Opposition but, to the extent that Labor rhetoric is be believed, it is worse.  Fortunately, very few Governments are quite as bad as they sound in Opposition.

The politicians who once believed that economic liberty would best give us the prosperity to look after the underdog;  improve our health care, environment and schools;  and to be simply secure in a dangerous world, are nowhere to be heard.  Who today are the equivalents of Hawke, Walsh, Keating as Treasurer, and Button (whose corporatist methods I often disagreed with but who nevertheless struggled bravely to raise productivity)?  Who today is the equivalent of Howard when he was Opposition Leader or Hewson?

In most States the scene is even more depressing.

The retrogression is not just an Australian phenomenon but I repeat that not all economic reformers have always had the advantage of times that favour reform.

I have written the story of the rise and partial decline of the ideal that I believe is responsible for our present relative prosperity.  By showing that the "Good Fight" can be won and explaining some of the means that succeeded or failed, my hope is to encourage others to take up the task of defending the institutions upon which prosperity depends.

New Zealand's one-time reforming Finance Minister, Roger Douglas, needs little encouragement to tell of how New Zealand Governments that made what he calls "quality" decisions won elections and how, when they ceased to make them, they lost.  That was true also of the Tory Party in the UK.  In Australia only Kennett lost while he was still, on substantial balance, making those quality decisions.  Reform requires leadership, and in a democracy, it is almost all of the explaining, cajoling and teaching kind.  It is not just the responsibility of politicians.  As Douglas put it pithily, "The dog has to see the rabbit".

The case for the economic institutions can, of course, be made in different ways.  To some it is appropriate to talk in terms of efficiency but, since the most fundamental rules are widely appreciated and almost universally professed, we can also talk of "economic rectitude" -- Bert Kelly's expression.  At Jeremiah 3 vi there is a passage that I once used, possibly unwisely, on the Uniting Church in my electorate with whom I was disputing interest rate policy.

Hast thou not seen what backsliding Israel hath done?  She has gone up upon every high mountain and under every green tree there hath played the harlot.

The quotation over-emphasises my case, but I like it.  I am not predicting for Australia anything as dramatic as that of which Jeremiah presciently warned Israel.  Nevertheless, why court any risk?  Economic strength underpins national security.

In summary my story is that:

• Before 1983 Australian opinion and practice were well behind Europe and the US, and the Australian economy was going fairly badly.
• From 1983 into the early 1990s we lived through unusual and exhilarating times.  The Hawke and Kennett Governments and the Howard-Hewson Oppositions, putting nation before party, did momentous things to reverse the decline.
• The rewards of sound economic policy, particularly policy affecting investment, may be lagged by as much as a decade.  It was not until after "the recession we had to have" in 1991 that we began really to enjoy the benefits of what was done in the 1980s.
• After Keating cast aside Labor's virtue to defeat Hewson and Fightback, the Coalition in Canberra also lost much of its enthusiasm for reform, although reform was by then proceeding at a cracking pace in Victoria.
• There is reform fatigue but it was not the prime cause of the rise of One Nation.  That was the alienation of rural and upper blue-collar people who were sick of being talked down to by, especially, the politically correct.  In the case of Victoria, Kennett had done so many things to offend the electorate, that he would have suffered a landslide had voters not appreciated that he had rescued the Victorian economy.
• Howard is looked increasingly like Fraser;  and Beazley most unlike Hayden, Hawke or Keating.

Liberalism is an unsettling doctrine that has several times since the 1700s seemingly been defeated by its own success.  There is a concept of long -- that is, 40 to 50 year -- economic waves referred to as "Kondratieff cycles" that enthuse some economists.  When all is well, as in the long boom of the nineties, people avoid the inconveniences of economic rigor and after a considerable lag find themselves in the next long-wave downturn.

CORRUPTION AND PUBLIC CHOICE

Before taking a quick look at the record I have a definition of political corruption for which I am indebted to the late Paddy O'Brien and he to the one-time Marxist philosopher Jean-François Revel.  And I will raise for your consideration what is for me the most convincing explanation of why governments betray their trust.

Revel goes like this:

In a civilised, efficiently alert democracy, you have to be a fool to commit the major felonies punishable by the law:  breach of trust, peculation, embezzlement, influence peddling.  So in order to gauge the extent of corruption in our own kinds of liberal society, we need to look beyond the classic offences.

Being "corrupt" means somehow misapplying political or administrative power, whether directly or indirectly, outside its proper sphere, for one's own financial or material advantage or in order to distribute the gains among one's friends, colleagues, relations, or supporters.  When a minister grants a subvention to an association of dubious utility, even when he observes all the rules in doing so, he is committing an abuse, especially if it turns out that the beneficiaries of the subvention are his personal or political friends.  A subvention of a million Francs, for example, is the equivalent of a year's profits for a thriving business.  Multiplied by some thousands of instances (and by sums mostly very much greater), this act amounts to a levy imposed on the labours of the producers, in favour of the occupants of the power structure.  The further the system extends, the heavier the hidden tax on production and the less profit and employment.  Even if legal appearances are saved in these transactions, it may be assumed that democracy is not.  The national inheritance is diverted into private or partisan uses, causing a pernicious drain on the general economy.  No doubt the good Minister who performs this little service for his henchmen has no sense of being dishonest -- and that is the most serious thing about it ... the greater the role of the State the more numerous the opportunities for corruption. ^[3]

You might think such a definition of political corruption unrealistic -- Ministers of the Crown, you say, will never cease to misapply political or administrative power to distribute gains among supporters or potential supporters.  Maybe not, but virtue is something one aspires to.  If Revel's standard is so unrealistic as to be irrelevant, how come that, for 10 or 12 years, politicians in some parliaments made a better fist than before or since of resisting the temptation to win votes by misusing authority?  I'm not talking of the frequent situations where Governments are unsure of what they ought to do.  I am concerned with the occasions when, knowing what they ought to do, they don't do it for political reasons.

Australian politicians don't accept personal bribes.  A few may have sold privileges for campaign funds -- that seems to have been the case of WA Inc -- but neither is that form of corruption a major problem weakening our economy.  The systemic rottenness is caused by exchanges of privileges for the blocks of votes that interest groups can deliver and/or to avoid the politically-damaging lies that lobbies resort to.  Governments can buy-off vested interests whenever those who bear the cost (such as purchasers of cars and clothing) are too dispersed to run an effective counter campaign.  The process is explained by the public choice theory that earned James Buchanan a Nobel Laureate in 1986.

That concentrated interests so readily prevail over dispersed interests is the bane of democratic politics.  Because consumers are many and dispersed, they cannot organise as readily as can producers.  This gives rise to a "supplier bias".  Concentrated interests prevail because only they have enough at stake to let one issue influence their vote or to cover the cost of mounting a political campaign.

An example usually helps to make the point.  Consider the straightforward instance of a tariff, such as that on textiles.  It may transfer $1 billion per year from 19 million consumers to, say, 100,000 producers organised in 100 companies.  Each consumer has $53 per year at stake;  each worker has $10,000 and each company $10 million.  It is relatively easy for the unions and company executives to organise to make life difficult for a government that reduces tariffs.  And I assure you the textile industry of my time in politics recognised no equivalent of Queensbury's rules.

Enforced transfers such as are made via tariffs produce dead-weight losses that any government mindful of living standards would wish to avoid, but only the concentrated interests can deny it votes.  However, if public choice theory, powerful as it is, were all there was to be said about government, the nation would be ungovernable and, incidentally, there would be no point in my research.

We are not ungovernable.  Not all electors are so selfish or all politicians so weak.  We now enjoy the predicted lagged response to reforms that politicians made and the public accepted.

Conventional wisdom has it that an Aussie dollar bringing only US$0.50 does not reflect economic fundamentals.  Could the currency traders be factoring in the political fundamentals?  Might they be saying to themselves, the economic fundamentals won't last?  Can you imagine any current polly making say Keating's Banana Republic Statement or Hawke's March 1991 statement to Parliament in response to the Garnaut Report in which he spelt out the need for an open economy?  Can you imagine one of our current "leaders" signing off on Fightback?  Our current leaders are not espousing doctrinaire socialism -- that battle remains won.  But backsliding Australia is played the harlot, avoiding tough decisions and again lying down with vested interests if not yet under every green tree.

Now I'll remind you of just a bit of history.

THE FRASER YEARS

On 14 December 1975 we awoke hungover and full of resolve after the Great Gough's wing ding of a party.  We had elected Malcolm Fraser who promised economic rectitude, but instead he returned to pre-Whitlam McEwenism.  In 1982, Fraser tried to buy office with a disgraceful budget.  Although Howard's budgeting is so far much better than it, he is doing the same.

From 1979 a group of backbenchers, who were dubbed "Dries", mounted an, at the time, unsuccessful campaign to have the Government mend its ways.  I won't recount the efforts that Peter Shack, Ross McLean, Jim Carlton, Murray Sainsbury, I and others made on your behalf.  We didn't get it all wrong, but that will keep.  The important point is that we were far from alone.

It was during these years that the Centre for Independent Studies grew to influence.  John Stone was Secretary to the Treasury, and at the Reserve Bank Austin Holmes ran the research department and Bob Johnson was Governor.  It was when David Trebeck, as director of the National Farmers Federation, knocked respect for the national interest into the farmers' lobby.  The Modest Member, Mavis, Clarkson and Eccles, the characters of Bert Kelly's witty newspaper columns each weak explained the better rules by which an economy might function.  Alan Wood circulated the Syntec newsletter.  It was when Hugh Morgan began making speeches directing public attention to the public interest.  Western Mining, MIM, CRA, Renisons and Cliffs -- the gang of five -- took on the Federal Government over tariffs.  The Campbell report into the financial markets was written.  Bill Hayden quietly converted the Federal Labor Party into a party fit to govern.  Even the Liberal Party produced a remarkably dry platform, although I doubt that any minister more than glanced at it.  Toward the end of the Fraser years an intellectual ferment was under way but nobody that I am aware of then recognised its potency.

The IEA in London and several American free-market think-tanks had been feeding dry ideas into public consciousness for in some cases more than a decade.  In 1979 Margaret Thatcher was elected British Prime Minister.  Nevertheless, the climate of opinion in Australia that allowed the Hawke Governments to change so much so quickly, required the efforts of Australians.

HAWKE

The Labor Government elected early in 1983 inherited a mess -- a projected budget deficit of $9.6 billion, serious wage pressures, 10 per cent unemployment, a public-sector borrowing requirement of 7 per cent of GDP, annual inflation of some 7.5 per cent, liability to service foreign debt of 1.3 per cent of GDP, and a currency in long-term decline.

Although Hayden had made it determined not to repeat the Whitlam mistakes, it had gone to the people with what was then the usual grab bag of irresponsible promises.  Scenting victory, Hawke told the National Press Club that if Fraser's budget deficit proved bigger than expected he reserved the right to modify his undertakings.  His "modification" proved both radical and beneficial.  Since it is not the promises that politicians break but those they keep that most often break economies, we should excuse the tactic.

On the positive side for the incoming Government, the recession had almost bottomed, it inherited a body of semi-established ideas, of which the Campbell Report was the most important, and it faced a chastened Opposition.

In the socialist tradition, Labor would, no doubt, have liked to ease the economy out of recession by increasing demand with public borrowing and reducing real costs with unanticipated inflation.  However, that was ruled out on two counts.  One was that after ten years of substantial public deficits the markets were awash with government paper so that more could be sold only at interest rates that would depress activity.  The other was that Australian inflation, which was already above that of our trading partners, was anticipated.  There was thus no possibility of monetary illusion but only policies that addressed costs could work.  Treasury was firmly anti-Keynesian.

Supply side reforms -- tariff reduction, deregulation and privatisation -- would in time raise productivity, reducing unit costs and permitting higher living standards on a sustainable basis, but those policies have long lags.

Neville Wran, one of the better supporting cast at the highly theatrical "Economic Summit", said the agenda was jobs, jobs and jobs.  Maybe, but only real wage reduction could achieve those in the shorter term.

To that end Hawke tried a corporatist agreement to limit wages and prices.  It didn't work for him, as it had not worked for Mussolini or James Callaghan, and I have no intention of defending it or anything like it.  However, it will stand to the everlasting credit of Hawke's three Governments that they began reducing and improving the quality of government expenditure and removing government-imposed barriers to efficient production.  That is, they set about achieving decent levels of productivity growth by every important means except that of reforming the labour market.

By 1988 they had implemented all of the many significant Campbell Committee recommendations to liberate the financial markets including the big steps of floating the currency and deregulating interest rates.

The 1987-88 IAC Annual Report had quantified the taxation effect of protection at 6.2 per cent of household expenditure.  The Hawke Governments eliminated quota restrictions and began the orderly gradual reduction of tariffs.

They deregulated airlines, got rid of quite a lot of rural regulation and the superphosphate bounty, reduced taxpayer support for film making, means tested over-70s' pensions, and caused university entrants to pay a little bit for their valuable education.  Taxpayers were saved $1000 million annually by requiring dole recipients to collect their payments in person.  Unemployment benefits for 16 and 17 year olds were abolished.

Keating failed to introduce a 12.5 per cent broad based consumption tax like Hewson's and Howard's GST but he ended the double taxation of company dividends.

The budget deficit was turned to substantial surpluses in 1987/88, 88/89 and 89/90, only for that advantage to be squandered at the end of the decade.  By 1989, Commonwealth outlays had been reduced from 29.9 per cent of GDP at the time of the last Fraser budget to 24 per cent.  By the time of the 1987-88 budget $2.5 billion, net of new commitments, had been cut from outlays.

The rhetoric was changed from "look what we have done for you" to principled defence of what was being asked of the public.

There was no room for the Liberal Party on the collectivist side of Labor but to note only that would be unfair.  Like Labor, it was ashamed of its most recent performance in government.  Despite considerable indecision about leadership, and some lapses, it was not a political harlot for vested interests.  Few Oppositions are so virtuous -- Beazley is not.

Its direction can have been determined only by relatively few dries often led by a more principled John Howard than we know today.

In the 1980s and early 1990s an exceptionally good Opposition allowed an exceptionally good Government to achieve more than it otherwise could have done.  It was not just that Labor could get most of its legislation through the Senate.  The Government did not have to worry about an Opposition wooing vested interests that would see it defeated.  The Greens, Democrats, and One Nation had no such reservations and, in my view unfortunately, gained at the expense of the majors.

THE KEATING AND KENNETT YEARS

Good things end too soon.  In 1993, with a barrage of lies, Keating defeated Hewson and Fightback the most liberal, driest economic package that Australia had seen, or it seems now will ever see.  Even so, the loss of the package itself was trivial compared with the damage done to the belief that Governments could win elections with quality policy.  The slow but steady rise of populism in the major parties dates from Hewson's defeat.

Nevertheless, two-and-a-bit important areas of new reform were to come.  One was the Kennett revolution in Victoria and another was Keating's Competition Policy.  The bit is tax reform -- how public revenues are raised is less important than how they are spent.

The Kennett Government halted the exodus of capital and people from a stagnant declining Victoria.  I don't have time to tell it now but it is a grand tale of political daring-do, of courage, obstruction and flawed heroes.  His defeat in 1999 seemed to finally brake dry political resolve.

The Hilmer Report to which National Competition Policy owed its form had observed:

The greatest impediment to enhanced competition in many key sectors of the economy are the restrictions imposed through government regulation or government ownership. ^[4]

Competition Policy addressed the monopolies and instances of price-fixing that were excluded from the reach of trade practices law as it then was -- the professions, electricity authorities, statutory marketing authorities, railways etc.  Most were the responsibility of State Governments.

Despite the regrettable omission of industrial law, Competition Policy does for internal trade what reducing protection has done for external trade.  Like tariff reduction, it is inimical to privilege.  The protests of vested interests from lawyers to farmers to doctors more or less matched those of the motor and textile industries in the 1970s.

By 1999 electricity prices on the Eastern Seaboard were down by a quarter, WA industrial gas prices by a half, Perth-Melbourne rail freights were down 40 per cent, conveyancing fees in NSW by 17 per cent, air traffic services by 40 per cent and so on.  Such huge cost reductions made substantial contributions to Australia's competitiveness but there is far to go and today competition policy is under serious threat.

Politicians are again more prone than they were at their best to, as Revel put it, misapply political or administrative power outside its proper sphere.

I am not claiming that Cabinets never have hard calls to make.  I am saying that decisions such as the extent of backing for the US in its fight against terrorism is harder than it would be if Australia were still among the four or five wealthiest nations in the world.  It was made harder by past low-quality decisions, not least recent spending.

We had climbed only a small way back up the table of relative wealth when our Governments began reverting to type, again governing for the organised few against the many and again filling the arteries of the economy with the equivalents of fatty material.  We still enjoy excellent economic health but today's self indulgences bring on tomorrow's illnesses.

There is much talk of reform fatigue, but it is our leaders who are tired.  It is true that voters have turned to populist parties but that owes as much to alienation, to being left outside the loop, to being talked down to by the politically correct, as it does to economic freedom or even to change itself.  The electorate would again listen to Liberal and/or Labor leaders who led as they did in the 1980s and early 1990s.  But first they must pay the dissident voters the respect of addressing their opinions, rather than either dismissing or feigning agreement with them.  Pollies too easily assume that electors' votes can be purchased, whereas many individual voters pocket the bribe and despise the briber.

We can't afford reform fatigue, yet our leaders seem even more fatigued than the public.  They are no longer explaining what they and we must do to ensure that the next decade is as satisfactory as the last.  People and parties that once led are no longer leading.  They are again harlots to those concentrated vested interests as we slide into the next long-wave downturn.  Call their failure fatigue;  call it political corruption -- I don't care.  What we should care about is Australia in 2010.

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ENDNOTES

1.  Parnham et al, Distribution of the Economic Gains of the 1990s, Productivity Commission, 2000, Box 3, p xxiii.

2.  I am indebted to Ian Castles, the former Commonwealth Statistician, for these calculations.

3.  Jean Francois Revel, Encounter, March 1987.

4.  National Competition Policy, AGPS, 1993, p xxix.

Taxes -- How to Cut the Cake Differently

"To tax and to please ... is not given to men"

Edmund Burke, 1774

We all hate taxes.  This is a healthy state of affairs.  It is the only restraint on their growth.  It is the principal check on wasteful government spending.  We are entitled to restrain government's passion to spend our incomes and to make more of our own choices.

But we also hate taxes for other reasons.

They are too complicated.  The agonies of GST compliance have been front-page news for more than two years.  The agonies of income tax compliance have been with us for decades.

They are unfair.  High marginal tax rates cut in at ridiculously low income levels -- levels far lower than other developed countries.

They are inefficient.  Collection costs are high and the disincentive effects are heavy -- many of our taxes discourage productive economic activity.

It would be interesting to speculate how the tax system came to be such a mess with so many brilliant minds applied to it for so many years.  But it is more fruitful to consider how matters could be improved.

Four Ways to Make Tax/Life Better

The tax system is a monster.  Apart from the biblical proportions of the Income Tax Act and its Old Testament punitive regime, there are dozens of other taxes at Commonwealth, State and local levels of government.  They are all complex and entrenched.

To propose a reform of the whole system and have it implemented would require, in ascending order of difficulty, many learned papers, an economic summit and agreement among the States.

These are not on any agenda now.  So we propose just four changes to improve matters that are well within the reasonable range:

• Restrain any further growth in the total real tax take.
• Raise and index the income tax brackets.
• Reduce taxes on transactions apart from GST.
• Ease the tax on savings.

Restrain Total Tax in Real terms

This is not an unworthy aim.  Cutting the cake differently should not exclude a bigger slice for those who bake it.  We should be allowed to dispose of as much of our income privately as possible.  That is one of the fundamentals of a free and vital society.

Also, at over 30% of national income, our tax take is by no means low.  Only a restricted group of developed countries have a higher take.

And this proposal does not cut taxes.  Governments, and particularly the Commonwealth government, would budget not to increase the real tax take.

What this implies is that the real level of government spending can be maintained but, if new programs are adopted, savings must be found in existing programs.  Governments and lobbyists would be forced to prioritise.  Adjustments would be made from year to year to ensure the target was observed.

What it also implies is that the individual gets to keep the benefits of any real growth in the economy.  In other words, the private sector share of the national income increases as the economy grows.  This might amount to $5-6 billion a year.  Over the past decades the reverse has been happening.  The government share of growth has increased consistently at the expense of the private sector.

Adjust the Income Tax

If everyone hates taxes, they loathe the income tax.  It all seems so onerous and so arbitrary.  It would be a universal blessing to simplify this tax but the Government seems incapable of doing so.  There is shorter-term option.

Our income tax level is high by almost any standard.  One way to ease public discontent would be to lighten the burden and remove the continuous automatic theft of income that is known as bracket creep.  The latter occurs when rising nominal incomes move taxpayers into higher tax brackets even though their real incomes have increased at a slower rate.

This could be alleviated in two ways:

• Shift up the tax brackets over a three-year period so that they approximate more closely the real tax rates applying at the start of the 1980s.
• At the same time, index the rates to the CPI so that they are annually adjusted to take account of inflation.

These changes would be consistent with the preceding proposal and it should be possible to mesh them so as to avoid shocks to the overall revenue.  They would require resolve over a period of years but would send healthy signals to income earners and government spenders.

Remove Transaction Taxes

We are plagued with a host of relatively tiny taxes that were imposed by governments desperately seeking creative new ways to extract more from reluctant taxpayers.

Many of these were taxes on transactions.  The largest is now the GST.  Owing to the depredations of the Greens and the Democrats, the GST is far from universal or consistent but it is the closest we have to a neutral indirect tax and should be either extended to cover currently exempt categories or, at the very least, left alone.

There are other taxes that we could remove.  Some progress has already been made by the abolition of the BAD and FID, absurd taxes on movements of money.  But there are further taxes which could sensibly go.

The remaining stamp duties, taxes on some insurance transactions and fake user pays charges such as levies on property developments are all taxes that inhibit economic activity.  Many of these taxes are at State government level, requiring compensation from the federal level.  Stamp duties raised $7.3 billion in 1990/00.  Extension of the GST would help offset the cost.

Ease the Tax on Savings

There is a curious ambivalence towards savings in our tax system.

On the one hand, government directs employers to pay increasing amounts into superannuation funds (i.e. savings) for their workers.  Presumably we are collectively too short sighted to do this for ourselves.  Or maybe, for most of us, the public pension is a better option than saving for retirement.  In any case, the super levy is equivalent to a special purpose tax on business, which indirectly will come out of the wages pool.

On the other hand, government has conducted serial raids on the super funds through taxes on contributions, taxes on fund income and surcharges on anyone foolish enough to slip into higher tax brackets.  Superannuation taxes raised $3.2 billion in 1999/00.

So we are being levied (taxed) to save partly so that government can tax and spend those savings now.

Given the increasing burden of the aged population, it would be prudent to maximise superannuation savings.  It might also improve our dismal personal savings rate.  Such savings will anyway be taxed in good time as the benefits are taken.

Government might start by reducing the tax on contributions, which would have immediate effects on the financial flow to super funds and might encourage higher contributions.  Simply reversing the trend to expropriation would boost confidence in this form of saving.  It would reallocate money to private saving from government spending.

If such a measure were introduced in steps it could be accommodated in the restraint on taxation proposed above.

Conclusion

We can reduce the tax slice of the economic cake and redistribute it at the same time.  There are strong grounds for doing so.  It requires two things.  Government resolve to do it and a legislated program applying for several years to make sure it is done.

The Demise of Ansett

Ansett's collapse should send a chill around Australia.  Not just because of its demise, but because of what it says about our work culture and its effects on other industries.

The collapse starkly illustrates the fact that the workplace environment has not changed from the bad old days.  Management still see government as their ultimate protector.  They see competition as something to be eliminated with the help of government, and the workplace as something that is up to the government fix.

The unions are just as culpable as management.  The IR System gives the unions joint control over the management of human resources -- as such, they are effectively part of management.  The unions, however, have accepted the power but reject the responsibility.  As a former Ansett executive stated:  "I can recall on many occasion speaking to staff and union leaders saying, 'If we don't change some work practices, this company is going to go down the drain'.  They never, ever accepted that.  They believed Ansett was a cash cow that could just be bled to death".

The unions were fully aware of the arrangements at Virgin Blue which allowed it to operate at costs 40 per cent below Ansett's.  But when Mr Toomey, CEO of Air NZ/Ansett, came to the unions six months ago with an agenda to make the company more competitive with Virgin Blue, he was spurned.  Even when the firm went bankrupt, the unions continued their bloody-mindedness.  They initially blocked Qantas from taking Ansett's planes by demanding that it match Ansett's more generous wages and conditions.

Their solution is that the government should pay for their folly.  The unions have demanded that government take equity in Ansett despite its being bankrupt with accumulated losses of over $2 billion and in need of a capital injection of over $1.5 billion.  And they are now organising a marginal-seat campaign against the Howard Government for refusing to meet their absurd request.

The demise of Ansett is not, however, a complete disaster.  Although it has caused great harm to many, the long-term, impact could well be positive.  The demand for its services remains unchanged.  Some firm -- with luck, not Qantas -- will buy its assets, hire some of its employees, and service its routes.  The new operator may even reform the workplace culture in the airline industry.

The real concern lies with other industries more open to foreign markets.  Our cancerous workplace culture is killing off what little remains of the textile and clothing industry.  Most clothing manufacturers, even those servicing the high-value, fashion end of the market, have left for overseas.  The few that remain are under attack by unions trying to stave off change.

The food-processing industry, which should be to Australia what the IT industry is to California, is also suffering from the same malady.  Over the last six months, six factories have shut down and moved offshore, and many more are threatening to do the same.  Although competition is driving the industry, the movement offshore is caused overwhelmingly by the "them versus us" workplace culture.

Airline, textile and food-processing are not alone.  Virtually all formerly protected industries are suffering the same fate.  We are witnessing the hollowing out of the Australian economy not by force of global competition but from our own stupidity.

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Just Asking for a Rethink

Like most Australians, I was appalled by the pictures of Palestinians celebrating the terrorist assaults on the World Trade Centre and the Pentagon.  But considering how sections of the Western intelligentsia have responded to the barbarous events of September 11, I will grudgingly acknowledge that at least there was an infantile honesty about the Palestinians' malevolence.

No serious commentator in a Western country could ever openly condone the deliberate murder of thousands of innocent people.  So feelings of satisfaction about the devastation inflicted on the symbols of US financial and military power have to be expressed deviously;  by attempting to place the attacks in a "perspective" which shifts much of the blame onto America itself.  Many intellectuals are acting like the old misogynist judge who says that while rape is a serious offence, the attractive victim must have been asking for it.

John Pilger, expatriate Australian author and darling of the ABC, claimed that the greatest source of terror in the world was the United States, a "fact" supposedly "censored from the Western media".  Warming to his theme, he charged America with untrammelled brutality and greed in defending "power and privilege, known by the euphemisms "free market" and "free trade".

The real wonder, according to Pilger, was "how patient the oppressed have been", because it has taken so long to form suicide squads that would bring home to American the horrors that they themselves have created in faraway places.  True, he did call the attacks on America "atrocities", but this seems to have been only a sop to his more sensitive readers.  His heart was clearly with the Palestinians cheering in the streets.

Of course, Pilger is renowned for his talent in staking out the most demented niches of public discussion.  But the letters pages of some newspapers suggest that his kind of thinking has permeated much more widely than decency and good sense might lead us to hope.

For instance, obviously peeved by an editorial in The Australian that stated "we have witnessed one of the greatest crimes against humanity", Dr Anthony Langlois from Flinders University responded that America and the West were daily involved in crimes of greater magnitude against the rest of the world.

Certainly Dr Langlois, a politics lecturer who specialises in human rights, did not resile from calling the attacks a "moral outrage".  Nevertheless, he claimed that the kind of mind that would inflict such awful harm "is not dissimilar to our own".

According to this prize-winning academic, this is because "every day more people die because of Western policy and our consumption culture than died in the terrorist attacks".  In other words, if you intend to get some fast food over the weekend, or plan to go shopping for electronic gadgets, you are little different from Osama bin Laden and his murderous crew.  Perhaps you should give yourself up to the FBI now, before you cause any more devastation.

The notion that the wealth of the West is built on the exploitation and suffering of the Third World should have died a dishonourable death with the obvious economic failures of communism and related doctrines.  Despite what many intellectuals believe, capitalism and its beneficiaries do best when world prosperity is widespread and increasing.

The barriers to greater prosperity in Third World countries do not stem from "free trade" or the economic system favoured by America.  Rather, they result from the kind of protectionism advocated by Pilger and his fellow travellers in the anti-globalisation movement, as well as local cultural and institutional shortcomings which hinder initiative and the creation of enterprises that can operate successfully within the rule of law.

It is unlikely that anti-Americans in Australia and other countries will change their prejudices as a result of the terrorist attacks.  But within the United States itself there may well be a reassessment of the view prevalent amongst the progressive elites and the anti-Vietnam War generation that America and its institutions are a major source of wickedness.

For the past three decades American security and investigative agencies such as the CIA and FBI have been demonised and undermined, usually by the very people who now complain about the "intelligence failures" that allowed the attacks to proceed without detection.  There has been a corresponding tendency to forgive, and even celebrate, the homicidal New Left radicals who once participated in domestic terrorism, such as the Black Panthers and the Weather Underground.

Indeed, in what is a truly awful and revealing irony, on the morning of September 11 the liberal New York Times published a sympathetic story about ex-fugitives Bill Ayers and his wife Bernardine Dohrn, two former leaders of the Weather Underground.  Titled "No regrets for a love of explosives", it was designed to promote the just-published memoirs of Ayers, who is now Distinguished Professor of Education at the University of Illinois.  Dorhn is the director of the Children and Family Justice Center at Northwestern University and a prominent figure in the American Bar Association.

In 1972, the couple were involved in bombing the Pentagon, though mercifully no lives were lost.  The New York Times article began with Ayers saying "I don't regret setting bombs.  I feel we didn't do enough".  "Enough" was done within a few hours of the story's publication, with Osama bin Laden's fanatics completing the Weather Underground's project.  As America reflects on the terrible events of September 11, it will have to consider why its major universities and other institutions have been so willing to reward unrepentant domestic terrorists from the New Left.

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Economics in One Page

Lunchtime Lecture, Melbourne, 28 September 2001

"What makes [economics] most fascinating is that its fundamental principles are so simple that they can be written on one page, that anyone can understand them, and yet very few do."

- Milton Friedman, quoted in "Lives of the Laureates".

THE above statement by Friedman got me thinking:  is it possible to summarise the basic principles of economics in a single page?  After all, Henry Hazlitt gave us a masterful summary of sound principles in Economics in One Lesson.  Could these concepts be reduced to a page?

Friedman himself did not attempt to make a list when he made this statement in a 1986 interview.  After completing a preliminary one-page summary of economic principles, I sent him a copy.  In his reply, he added a few of his own, but in no way endorses my attempt.

After making this list of basic principles below, I have to agree with Friedman and Hazlitt.  The principles of economics are simple:  Supply and Demand;  Opportunity Cost;  Comparative Advantage;  Profit and Loss;  Competition;  Division of Labour.  And so on.

In fact, one professor even suggested to me that economics can be reduced to one word:  "price".  Or, maybe, I suggested as an alternative, "cost".  Everything has a price, everything has a cost.

Additionally, sound economic policy is straightforward:  let the market, not the state, set wages and prices.  Keep government's hands off monetary policy.  Taxes should be minimised.  Government should do only those things private citizens can't do for themselves.  Government should live within its means.  Rules and regulations should provide a level playing field.  Tariffs and other barriers to trade should be eliminated as much as possible.  In short, government governs best which governs least.

Unfortunately, economists sometimes forget these basic principles and often get caught up in the details of esoteric model-building, high theory, academic research and mathematics.  The dismal state of the profession was expressed recently by Arjo Klamer and David Colander, who, after reviewing graduate studies at major economics departments around the US, asked "Why did we have this gut feeling that much of what went on here was a waste?" (Klamer and Colander, The Making of an Economist).

This is my attempt to summarise the basic principles of economics and sound economic policy.  (Suggested improvements are most welcome.)

ECONOMICS IN ONE PAGE

1. Self Interest:  "The desire of bettering our condition comes from us with the womb and never leaves till we go into the grave" (Adam Smith).  No-one spends someone else's money as carefully as he spends his own.

2. Economic Growth:  The key to a higher standard of living is to expand savings, capital formation, education and technology.

3. Trade:  In all voluntary exchanges, where accurate information is known, both the buyer and seller gain.  Therefore, an increase in trade between individuals, groups or nations benefits both parties.

4. Competition:  Given the universal existence of limited resources and unlimited wants, competition exists in all societies and cannot be abolished by government edict.

5. Co-operation:  Since most individuals are not self-sufficient, and almost all natural resources must be transformed in order to become usable, individuals -- labourers, landlords, capitalists and entrepreneurs -- must work together to produce valuable goods and services.

6. Division of Labour and Comparative Advantage:  Differences in talents, intelligence, knowledge and property lead to specialisation and higher productivity in some activities than in others by each individual, firm and nation.  So it is rational for a doctor not to allocate her (expensive) time to cleaning her office, even when she could do a better job than the cleaner.

7. Dispersion of Knowledge:  Information about market behaviour is so diverse and ubiquitous that it cannot be captured and calculated by a central authority.

8. Profit and Loss:  Profit and loss are market mechanisms that guide what should and should not be produced over the long run -- by showing what is valued more than the resources it consumes, and what is not.

9. Economic Incentives/Disincentives:  If you raise the cost (price) of an activity, you get less of it.  If you lower the cost (price), you get more of it.  So, raising the cost of crime will discourage criminal activity.  Generous tax credits for higher education will encourage more people to go to university.

10. Opportunity Cost:  Given the limitations of time and resources, there are always trade-offs in life.  If you want to do something, you must give up other things you may wish to do.  The price you pay to engage in one activity is equal to the cost of other activities you have forgone.

11. Price Theory:  Prices are determined by the subjective valuations of buyers (demand) and sellers (supply), not an objective cost of production.  The higher the price, the smaller quantity purchasers will be willing to buy and the larger the quantity sellers will be willing to offer for sale.

12. Causality:  For every cause there is an effect.  Actions taken by individuals, firms and governments have an impact on other actors in the economy that may be predictable, although the level of predictability depends on the complexity of the actions involved.

13. Uncertainty:  There is always a degree of risk and uncertainty about the future because people are of ten re-evaluating, learning from their mistakes and changing their minds, thus making it difficult to predict their behaviour in the future.

14. Labour Economics:  Higher wages can only be achieved in the long run by greater productivity;  that is, applying more capital investment per worker.  Chronic unemployment is caused by government fixing wage rates above equilibrium market levels.

15. Government Controls:  Price-rent-wage controls may benefit some individuals and groups, but not society as a whole.  Ultimately, they create shortages, black markets and a deterioration of quality and services.  There is no such thing as a free lunch.

16. Money:  Deliberate attempts to depreciate the nation's currency, artificially lower interest rates, and engage in "easy money" policies inevitably lead to inflation, boom-bust cycles and economic crises.  The market, not the state, should determine money and credit.

17. Public Finance:  In all public enterprises, in order to maintain a high degree of efficiency and good management, market principles should be adopted whenever possible:

1. government should try to do only what private enterprise cannot do;
2. government should live within its means;
3. cost-benefit analysis -- marginal benefits should exceed marginal costs;
4. the accountability principle -- those who benefit from a service should pay for the service.

Who Should Bear the Costs of Workers' Entitlements?

Employee anger over the loss of their accrued entitlements by failed firms should at first instance be directed at Australia's industrial relations system.  In effect the IR system forces employees to give employers unsecured, non interest bearing loans.  Failed businesses physically lose the money but the IR system requires employers to turn employees into creditors against their will.

It works this way.  Through the IR system employers are forced by law to withhold employee income under the banners of holiday pay, sick pay, long service leave, redundancy and other entitlements.  The word "entitlements" is used but in fact the terms "loans" and "mandated worker risk" is more truthful.

The withheld money belongs to employees but takes the form of unsecured loans to employers.  Employees are reliant on the integrity and good management of employers but have no choice over how their money is managed or by whom or if the loans should occur in the first place.

This state orchestrated deal puts employees money at risk all to the alleged benefit of employers and unions.  It's a game!  Employers have a free source of credit and dictate to workers when to take leave at the employers' convenience.  Unions secure negotiable "benefit" issues as points of dispute thus substantiating the legal facade of inequality of bargaining power and justifying their position in the Australian corporate structure.

Even if employers don't want to withhold employee entitlements they can't.  Unions fiercely oppose "cashing out" of worker entitlements and campaign against casualisation.  These well known arrangements pay employees their entitlements in higher hourly and weekly rates than that paid to full time employees.  Entitlements never accrue because money is never withheld and workers are not exposed to credit risk.

Even where entitlements are accrued the problem of losses would never exist if all employers placed the monies in trust funds.  But the standard business practice is to view this as unproductive money.  Where trust funds exit they are inevitably raided and employee money becomes listed as an accounting liability to be paid from future earnings.

The system is clearly unjust.  In no other area of society are people forced to lend someone else money, let alone without security or interest!

It's bad business because when credit is provided without due diligence poor management becomes the norm.

The Ansett debacle is typical.  Through the IR system Ansett employees were forced to provide free credit to bad managers.  If Ansett hadn't had access to $500 million of easy money the reality of the business problems would have been forced to the surface much earlier.  Instead employee credit contributed to problem denial and the downward slide.

The solutions so far offered are inadequate.  Government compensation and the union idea of a nationalised trust fund address problem management but not prevention.  The only solution that gives workers safety is to give workers control of their money by cashing out entitlements.

This is how Australia's 1.6 million independent contractors operate.  They don't suffer employee type credit risk because money is not withheld from them.  If they provide credit to clients it's their choice and not required by law.  Employees deserve similar rights.

IR institutions should not have authority to order the withholding of employee money.  "Entitlement" withholding should only occur on the written authority of each individual employee.  Then employees, like the banks, could exercise their judgement on the credit worthiness of their employer.

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Cause and Effects

Times are difficult for those who seek to demonstrate their moral superiority over other Australians by trumpeting their support for Aboriginal causes.  The shortcomings of the simplistic view in which Aborigines are solely the victims of a "racist" society which is indifferent to their plight have become increasingly apparent.

Things are clearly changing when ABC TV's Four Corners program devotes a whole program to Aboriginal domestic violence -- as it did earlier this month -- without constantly blaming the wider society, and by airing suggestions that some recommendations of the once sacrosanct Royal Commission into Aboriginal Deaths in Custody may have been counterproductive.

In addition, people with impeccable credentials such as Noel Pearson have detailed the debilitating effects of the progressive consensus on Aborigines.  And most ordinary Australians now readily admit that Aborigines suffered great injustices in the past.

All this means that those who wish to distance themselves from their prejudiced fellow countrymen have had to find a new cause to display their virtue.  Thankfully, a marvellous differentiator has recently become available -- the claims of illegal immigrants, or to use the sanitised term preferred by their vocal supporters, "asylum seekers".

The issue of asylum seekers currently offers greater moral potential than that of Aboriginal disadvantage.  Most Australians are genuinely concerned about indigenous poverty and poor health, and the arguments are mainly about the best means of addressing these problems.  But with asylum seekers there is a much clearer divide -- between those who see them as genuine refugees to be greeted with open arms, and those who see them as manipulative queue jumpers who are breaking our laws.

Even better, those who welcome the asylum seekers are a minority.  These individuals must have been delighted to learn of the recent poll showing that 77 per cent of Australians disagreed with them and supported the government's policies to deter illegal immigrants from arriving.  For the righteous, this means that at least three out of every four people they encounter in the street can be contemptuously dismissed as "lacking in compassion", or fearful of "the other", or just plain "racist".

Of course, like the moral campaigns of the past, certain facts have to be suppressed or distorted in order to maintain the impression that those who don't support the clients of people smugglers are wicked.  So we are told that the government is breaching Australia's obligations under the 1951 UN Convention on Refugees and other international agreements.  What is not mentioned is that by travelling to Australia through other countries where they could have requested protection, nearly all the illegal arrivals fail to meet the convention's criterion which requires them to have come directly from the country which they say they are fleeing.

Nor do the unfavourable comparisons with supposedly more humane nations present the true situation in these places.  We are often urged to follow the "Swedish model", in which unauthorised entrants who have sought asylum are detained only briefly, and then released into the wider community until their status is determined.

But Sweden can afford to do this because it requires all residents to carry an identity card, which makes it much easier to keep track of individuals whose requests for refugee status have been rejected and who might be tempted to vanish rather than be deported.  In fact, unlike the current situation in Australia, most of those who seek asylum in Sweden are unsuccessful, their rights of appeal are very limited, and they are quickly removed from the country.

The virtuous defenders of the illegal arrivals are rarely forced to trouble themselves with the implications of their position, which ultimately involves a virtual "open door" policy.  With over 22 million refugees or "people of concern", and perhaps five times that number of individuals in the Third World seeking to relocate to more prosperous countries, the potential demand for entry far outweighs the numbers that Australia could ever realistically manage.

Nevertheless, advocates for the asylum seekers pretend that softening the policies designed to deter illegal entry would have little effect on the attractiveness of Australia as a long-term target for people smugglers.  Such strange logic is forced on at least some of these advocates such as the Greens, because they also claim that Australia's present population levels are too high to be environmentally sustainable.

Certainly, it is likely that some of those who support tough measures against would-be refugees are simply mistrustful of foreigners, particularly those from Muslim countries.  Rightly or wrongly, this week's barbarism in the United States will only increase their antipathy.

Some of this suspicion might be dissipated if Australians were more confident that new arrivals would be strongly encouraged to identify first and foremost with our nation, and to respect and accommodate themselves to our ways.  This was the case in the past, and is arguably one of the main reasons why Australia has been so successful in integrating a large and diverse immigrant population.

But there is another reason for public suspicion towards the current influx of boat people, and it has little to do with xenophobia.  Individuals who learn that they will ultimately be rewarded by breaking our immigration laws, rorting our generous provisions for new arrivals, and threatening violence or suicide unless their demands are met are unlikely to make good future citizens.

Surely this is one public concern that the virtuous should understand.  After all, they are always keen to tell us that they are such model citizens themselves.

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Cheaper Power Calling

Do you remember those evening phone calls inviting you to switch your phone carrier?  Well, within the next few months you find a new horde of callers waiting to entice you away from an existing service provider.

This time the phone marketers will be pushing electricity.  From January there will be full retail contestability.  Households will then be able to shift to a new electricity retailer.  As in the case of changing phone service provider, people switching electricity retailer will still use the same wires.

Most businesses are already able to change supplier.  This has been a great cost saver.  Average price reductions are over 25 per cent.

The enormous cost savings made by the privatised electricity industry has underpinned the price reductions.  However, the better deals were activated by competition, which forces suppliers to find ways of saving costs and offering improved value.  With competition, retailers have to research customer needs, find sources of generation that fit those needs, and package all this together in ways that are attractive -- that is at a cheap price or with great service.

The electricity investment cycle is such that household consumers will not see an early repetition of the price reductions that benefited businesses over recent years.  In fact, a rise in wholesale prices of electricity over the past year is currently placing upward pressure on all customers' prices.

This prospect is spooking the government, which is presently examining whether it should impose caps on the prices to households and other small consumers.

There will be no shortage of consumerist busybodies urging the government to hold prices down, but price caps, while superficially attractive, are dangerous measures.  Prices set too low will thwart competition.  Rival firms won't bother entering the market if they can't make a dollar.

Moreover, prices set close to the bone will automatically make the service to some customers unprofitable.  Unprofitable customers will inevitably see a degradation in their service.  In addition, low prices will make retailers reluctant to negotiate contracts with generators.  This can cause a reversal of the current upward trend in the investment cycle, bringing severe, perhaps catastrophic shortages of electricity within a year or so.

Providing government regulation allows retail competition to do its job, the effects will be highly beneficial.  Although many of us will find the electricity marketers' calls annoying, there will be some excellent deals offered, and many households will switch to the new retailers offering them.  In England fully opening the market to competition saw 27 per cent of household customers changing their electricity supplier.

The beauty of full retail contestability is that it is likely to benefit everyone.  Even those of us who are too lazy or cautious to switch or just don't see enough value in doing so are likely to gain.  This is because the existing suppliers will need to ensure all their prices are competitive simply because their once-captive customers are now free to move.

Armed with previous retailer commitments, the Government prevented electricity price rises to households during 2001.  If, however, it controls prices into the future, it will unravel the electricity reforms returning us to the bad old days of persistently high prices and poor service.

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Markets in the Firm

INTRODUCTION

Why is it that major world economies appear to be enjoying a sustained period of solid growth without the emergence of growth-destroying, wage induced inflation?  Inflation may occur as a result of other factors, but the wage-push dragon appears to have been slain.

It seems to be agreed that structural and continuous productivity improvement is the explanation [1], but why is this happening?  The information technology revolution is often cited as the cause, as is fear of losing one's job.  But neither of these explains or gets to the essence of the welcome transformation in workplace behavior.  Certainly IT has contributed by causing a spectacular collapse of transaction costs.  However, alleged fear of losing ones job is not supported by empirical analysis. [2]

In answer to the riddle the proposition presented here is that market principles have began to penetrate the internal management of firms.  When firms adopt internal markets, as opposed to being run as command and control collectives, the search by their personnel for higher incomes is tempered and constrained by firms' performance in external markets.  When command and control operates, wage reviews are dominated by warlike standoffs between workers and management where each party attempts to capture the benefits of the firm for itself.  Under command and control, external market signals relevant to the firm are ignored as the politics of envy, egotism and winner-takes-all corrupt decision-making and force staff costs up beyond the capacity of the firm to pay.

In societies dominated by command-and-control firms, the combined weight of thousands of firms paying more than their market performance can induce wage-led inflation.  But under markets in the firm, remuneration is not artificially controlled by the managerial elite but rather is the outcome of thousands of small price and other market signals that individuals constantly transmit to one another.  The result is increased income for internal staff, as their self-interested search for higher incomes is self-financed by leading to improved firm performance.  This causes the productivity explosion.  Firms that fail to share their market success with staff lose the staff upon which the success is built and ultimately collapse.  In this model the internal market is as important to a firm's success as the external market.

The debate over the Phillips curve -- "the notion that there was a permanent trade-off between inflation and unemployment, so that policy makers could choose from a menu of alternative rates of inflation and unemployment;  the higher the rate of inflation they were willing to tolerate, the lower the rate of unemployment they could achieve" -- has continued since its debunking by Milton Friedman in 1967. [3]  Friedman noted that it continues to be a popular idea particularly among lay and journalistic commentators.  Friedman introduced the idea of the "natural rate of unemployment" to which "the level of unemployment would tend whatever the rate of inflation" [4] and that to push unemployment below its natural rate required accelerating inflation.

It has since been argued that the natural rate of unemployment no longer applies.  However, Edmund Phelps, one of the inventors of the natural-rate theory, retorts that "The model's inventors never viewed the natural rate as a constant.  It is simply an economic variable determined by non-monetary forces". [5]  Further, "the real forces of enterprise and finance ... are the ultimate drivers of unemployment".

Whatever the merits of the two theories, the general idea is that unemployment has a structural floor (even if shifting) below which it cannot fall without inducing growth-destroying, wage-push inflation.  But if Phelps is right, the trick is to unlock the "forces of enterprise and finance" that allow us all to seek as much work and income as we want without triggering wage-induced inflation.

Is this possible?  Yes, if the principles of free exchange apply in the hitherto sacrosanct command and control zone:  the internal operations of firms.  Further, applying markets within firms is perhaps the final and full development of the non-monetary structural forces that could drive the natural rate of unemployment to zero.  To explore this theme further requires a revisiting of the concept of the firm itself.

THE FIRM AND CONTROL

The modern understanding of the firm starts with Ronald Coase's idea of transaction costs.  Coase famously argued in 1937 that the firm exists because it provides a structure that contains transaction costs.  However, it is less often noted that Coase argued that the containment of transaction costs was dependent on control exercised by an entrepreneur through the master-servant legal employment relationship. [6]  It has been taken for granted that without this right of managers to control employees, transaction costs could not be contained.  The prevailing idea of the market economy, then, is one in which free transactions occur between firms but do not and cannot occur within firms.  This limited view of markets dominated the theory and practice of management throughout the 20th century.

Command and control management won great prestige between the 1920s and the 1970s [7], when the Taylorist or scientific approach to management prevailed.  Taylorists held that it was possible to assess and formally structure every process and action required in a firm and that every employee subordinate to senior management would exercise thought and initiative only to the extent allowed by management.  This approach achieved its apogee of sophistication under Elliot Jacques as late as the 1980s. [8]  Jacques, a psychoanalyst by background undertook detailed studies of human behaviour in bureaucracies, and on that basis constructed a theory of management in which every function in a large organisation could be scientifically analysed for the "time span management" required to facilitate the function.  This made it possible to construct and apply a precise bureaucratic structure.  Under it, staff remuneration and ambition were determined by the firm's bureaucracy, thus establishing order, control and harmony.  Disharmony occurred only when staff sought to break free from the structure.  Jacques' principles continue to be applied in some of the world's largest mining companies, the US military, and elsewhere.  Interestingly, Jacques himself was careful to state that his principles did not apply to small business and in his own experience failed in the academic and education areas.

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The Idealisation of the Primitive

The Culture Cult:  Designer Tribalism and Other Essays
by Roger Sandall
Westview, Boulder, Colorado, 214 pp, $55

Roger Sandall's new book The Culture Cult has generally attracted attention because of the link made between his critique of Romantic Primitivism and the current situation regarding Aborigines in Australia.  To concentrate on just this dimension of Sandall's analysis, however, does not do justice to the richness of Sandall's discussion of the nature of Romantic primitivism, and its implications for an understanding of the nature of contemporary civilisation.

At the heart of Sandall's discussion lies a contrast between those who favour a modern commercial order, with its qualities of openness and dynamism, and those who desire a return to some sort of "primitive", closed communal society.  Sandall correctly traces the modern origins of this dichotomy to the Enlightenment.  On the one hand, the Enlightenment saw the advocacy of "sweet commerce" by Montesquieu, Hume and Adam Smith;  on the other hand, there was the desire to resist the embrace of commerce and return to a social order marked by solidarity and close social bonding, as seen in the work of Rousseau and the eighteenth-century German philosopher Johann Herder.

Sandall connects the cult of primitivism and the "noble savage" with those intellectuals and littérateurs who were disillusioned with the modern world and its commercial values.  The bulk of the book consists of a number of case studies of people who contributed to what he terms the "culture cult":  from Ruth Benedict and Margaret Mead to Karl Polanyi, Isaiah Berlin and Raymond Williams.  What all of these intellectuals had in common was an opposition to modern commercial society and a concept of culture that exalted the primitive and/or closed social order.  They are contrasted with others, including Popper, Hayek and Michael Polanyi who advocated the benefits of an open society.  In particular, Sandall sees early twentieth-century Vienna as the primary battleground over which this intellectual conflict raged.

In many ways, however, Sandall leaves the crucial questions unanswered.  Why are so many intellectuals attracted to visions of an ideal primitive past?  Is it because, as Paul Johnson suggested in his Intellectuals, there are factors of individual psychological pathology at work?  Or is that interpretation too limited?  This is not a new phenomenon.  In late fifth-century Athens, there was an idealisation of traditionalist "primitive" Sparta amongst the aristocratic intelligentsia led by Socrates, an idealisation that has lasted to our time, in the shape of Plato's Republic.  Moving to the modern era, François Furet has described the bourgeois self-hatred that was a feature of Europe in the wake of the French Revolution.

In fact, a deeply ingrained prejudice against commerce, and in favour of "heroic", "aristocratic", or "cultured" values, has been part and parcel of most human societies.  Paul Rahe has convincingly demonstrated that the ancient Greeks, including the Athenians, were motivated by military and political values and saw commerce as at best a means to a military end.  Rome and China kept the men of commerce in their place.  Even England did not so much exalt as tolerate commerce:  the rule of law meant that the state could not plunder the profits of merchants.  Burke believed that commerce should operate within the framework of established civilised, that is to say aristocratic, values.  Until recently the élite in Australian society was turned away from studying commerce in favour of classics or law:  business was something reserved for the less able.

This not to say that many of these societies did not possess qualities of "openness";  rather, it is to observe that the "open society" has always been a tender growth and in need of constant cultivation, because it has never been without its detractors and enemies.  The roots of opposition to the "open society" run deep, and are in need of explanation.  Marcel Gauchet has observed that, for 90 per cent of their history, human beings were locked into a communalism that enforced equality and discouraged initiative.  Only with the development of agriculture did the possibility emerge of escaping this timeless communalism.  Even then, most human beings during the agrarian age spent their time as downtrodden agricultural workers or slaves.  Only in the last two centuries has the possibility emerged of a universal social and political order that delivers both freedom and dignity.  Human beings are plastic creatures, capable of a whole range of cultural adaptations, but they are also prone to a whole range of anxieties and fears.  Perhaps primitivism is a response to some of those anxieties.

It is also worth noting that the bold individualism of fifth-century Athens enjoyed general support, but that Spartan primitivism infected the pro-aristocratic intelligentsia in the wake of the failures of the Peloponnesian war.  Could it also be that "Romantic primitivism" is especially attractive to those who feel left out in an open society, that is, aristocrats and those who believe themselves to be aristocrats of the spirit, in other words, the intelligentsia?  Both the intelligentsia and the aristocracy are profoundly suspicious of ordinary people being free to make decisions, and often advocate means of restricting and regulating that activity.

Whatever may be the cause of the desire of many modern intellectuals and academics to revert to some sort of closed society, the agenda of "Romantic Primitivism" is one that needs to be both exposed and rejected.  Sandall has done us all a great service by bringing together in these essays both a wide-ranging analysis of the phenomenon and a critique of its underlying ideas.  He has also provided us with a warning about the fragility of the open society, at a time when its benefits are so manifest.  Even if openness is a source of anxiety for some people, the alternative is so much worse;  the communalism of 90 per cent of human history may seem attractive now, but at the time life really was "nasty, brutish and short".

Spiritual Eczema

The Life and Soul of the Party:  A Portrait of Modern Labor
by Brett Evans
University of New South Wales Press, 128 pp, $19.95

Amused, amusing and apposite, this book falls short of masterpiece status;  it bears too many signs of haste and sloppy editing ("a political phenomena";  "both of the them") for that accolade.  Yet Brett Evans -- an old-fashioned reporter who, would you believe, reports -- deserves thanks for his investigation of a political movement that, for the first time ever, now seems both electorally unstoppable and ideologically null.

By Christmas, assuming that voters feed John Howard to the same sharks which formed a welcoming committee for Denis Burke and will presumably devour John Olsen, non-Labor government will be unimaginable for at least another decade.  Nevertheless, answers to the question "What principle would Beazley, Carr, Bracks, Bacon, Beattie, or Gallop die defending?" are as elusive now as they ever were.  The hints of conscious social engineering here and there -- Bracks' abasement to Buggery Barn's legislative demands;  Carr's preoccupation with making NSW an "education State", as opposed, presumably, to an educated State -- scarcely mask the absence of those great rent-a-mob causes which abounded as recently as the Kirner Premiership.  Even the pseudo-causes so prevalent among leftist parties abroad (for example, Blair's vengeance upon Pinochet and the British aristocracy) find few if any echoes in ALP breasts.

Of course a Beazley Government would formally ditch the Queen.  But then, so would a Costello Government.  As for the other current catch-cries among Labor's True Believers (Aboriginal activism;  the "Knowledge Nation" that seems, in so far as any topic can, to set Beazley's own ticker racing;  the much-vaunted "right" to IVF for those classes now cryptically known as the "socially infertile"), it would defy even the silliest Obergruppenführer of the Liberals' twinset-and-pearls brigade to imagine that a post-Howard Coalition would wish, or be able, to oppose these shibboleths.

So:  given that between Labor and the other lot there no longer exists (as Alabama Governor George Wallace used to say) "a dime's worth of difference", what sops, if any, can Beazley or his State counterparts throw the baying party faithful?  Well, the politics of envy continue to be a nice little earner, as Evans' research attests.  Supporting Evans' narrative at both ends are two panels, as lovingly detailed as the artwork on a mediæval altar-piece.  Panel One depicts Keating at Sydney's Town Hall in late 1999, spewing anti-monarchist and anti-Timorese invective over an audience that would probably have cheered on a gang-rape, provided the rapists wore ALP badges.  Panel Two depicts John Button, groaning under the weight of his parliamentary superannuation scheme, yet still seeing himself as a battler, and hissing his hatred of Collins Street's "bloody stockbrokers".

Is a Keating's or a Button's inverted snobbery a conscious fraud?  Unlikely.  It seems more like a kind of spiritual eczema, which no personal affluence can soothe.  And when this ailment afflicts the ALP's most economically literate members, conceive of what havoc it must wreak on out-and-out class warriors.  Even Mark Latham, when dilating on the purpose of life, offers no more compassionate or large-minded credo than "Stick to the working class like s**t to a blanket".  The phrase "working class" is, surprise surprise, never defined;  but that it can coexist with the most voracious appetite for tertiary qualifications, and the most outré sexual enthusiasms, the Beazley epoch amply confirms.

Naturally authentic pre-modern boorishness, as well as cheap post-modern imitations thereof, finds a place in Evans' pages.  To read of Labor festivities at NSW's Oban Nursing Home on St Patrick's Day ("You young sheilas enjoying your drink?") is to be transported back to the golden era epitomised by South Australia's long and deservedly forgotten Premier Frank Walsh, whose idea of courteously accepting a Japanese diplomat's present was to bellow "Gee, thanks, Shorty!"  Opinion polling, Evans reveals, played no part in Australia before 1946's Federal election:  with the result that pre-pollster rustics who would not have known a spin-doctor from a spirochæte continued to work their way through the national body politic till the 1970s.

Evans might have explored this fact's ramifications further, since it raises the issue Beazley dares not avoid:  which group does the less harm?  White-bread politicians who at least combine amorality with some economic prudence?  Or entirely sincere, entirely ethical troglodytes who, given a quarter of a chance, would re-regulate absolutely every commercial transaction except two-up?  (Latham tosses off a nice one-liner about re-regulatory obsessives:  "They've tried that approach in North Korea, and they're eating the bark off the trees").  To those who sit around longing for a Curtin or a Chifley to re-emerge among us, like some King Arthur back from Avalon, reminders of the old Jewish proverb are germane:  "Be careful what you pray for.  You might get it".

Certainly, even if neither Curtin nor Chifley has returned, Sir William McKell still runs NSW Labor from the grave.  McKell and his successors controlled Australia's most populous State for 24 years (1941-65) by ensuring a bloc of vacuous but unfailingly amiable Labor backbenchers representing constituencies that should have been Country Party heartlands.  Sixty years on, these backbenchers' Labor successors continue to preserve Carr's administration from all perils save the sheer boredom of invincibility.  Yes, that's right, this is Labor's idea of root-andbranch internal reform.

Evans has great and justified fun with the spectacle of post-1975 ALP apparatchiks demanding the most stringent sacrifices from one community group after another, while Premier after Premier and State secretary after State secretary tosses into too-hard baskets any suggestions (however demurely offered) of an end to branch rorts.  In this context we must note -- and tireless visionaries like Senator Chris Schacht are only too keen to make us note -- that what most people call branch-stacking is not what the ALP calls branch-stacking.  The ALP's rather narrow definition covers only:  (a) such stacking as makes the newspapers;  (b) the subset of (a) excluding fashionable ethnic groups.  Unfashionable ethnic groups are, by definition, "Nazi war criminals".  Thus, whereas Labor's foes "stack branches", Labor is only ever (to quote a choice Keatingism) "engaged in the issues of enlargement".  Got that?

In case the above has not deterred you from joining your local ALP branch, Evans provides useful tips.  Walking in off the street with a declared interest in policy will get you nowhere.  Membership of a vast extended Lebanese family, preferably with potential ALP foot-soldiers in utero, is a much better option.  The Stakhanovite triumph of Australia Day 1999, which saw 2,000 new troops conscripted within 24 hours, has already entered ALP folklore.

Ultimately those of us not among the Elect -- who, that is, have neither joined the ALP nor felt the smallest desire to do so -- must find Labor rites as impenetrably mysterious as those of other secular priesthoods:  Freemasons, surfies, football teams.  Even Townsville Council's Karen "The Spider Woman" Ehrmann (but for whose chicanery Jim Elder would still be Queensland's Deputy Premier and the Shepherdson Inquiry a mere pious hope) appears to have had a genuine sense of mission.  As to what this mission is, and why thousands of otherwise sane people can delude themselves into crediting (say) Senator Nick Bolkus with a cosmic significance that Goethe plus Michelangelo could hardly boast, perhaps we heathens will never know.  But the ALP's innate penchant for public navel-gazing and Howard's seemingly incurable pixillation are both doing everything possible to guarantee that we all soon find out.

The Culture War: US and Australia

The Art of Political War
by David Horowitz
Spence Publishing, Dallas, 224 pp, $50

Ask not what you can do for your country but what your government can do for you.  This inversion of the famous lines of JFK's speechwriter might be the operating slogan of the middle-to-Left ALP, the Australian Democrats, the union bureaucracy, the broadsheet press, allies (and, frequently, close relatives) in the ABC, and the arts/ social sciences commentariat from our leading universities.

This was the cohort which greeted with both incredulity and hostility Peter Costello's recent call for the fostering of civic virtues, such as care for one's neighbours and the donation of time and effort to community activities.

Costello and his Party quickly found that to advance the notions that government is and should be limited, that the interaction of neighbours, families, and community groups is the foundation of the good society, is to open up a vulnerable flank to the slogans of the broad Left, with its practised use of verbal weapons such as "uncaring", "neglecting the under-privileged", "preferring economics to people".

Which brings us to David Horowitz, a name some will remember from the 1960s and 1970s when he led radical movements supporting Mao, Ho Chi Minh, Castro, George McGovern, Jane Fonda, and a student/ blacks revolution in the USA.  He once organised a school for the children of the Black Panther Party.  He was also an editor of Ramparts, the most influential magazine of the American Left.

His autobiography, Radical Son, tells the important story of his progress from radical student activist against pluralism and market economies, to promoter of the good sense in the motives and policies of John Locke, Adam Smith, and James Madison.  (Can any reader let me know if these three greats are seriously taught in any Australian university?)  He is still a regular contributor to the leftist Internet magazine Salon.

The Art of Political War is his latest book on US political life, but much of it applies to the situation in Australia, Britain, or Germany (where the ruling Social Democratic Party is organising a partnership deal with the former Communists of East Berlin).  His urgent proposition is that the US liberal/ socialist alliance is, overall, winning the debate and the strategic power that follows, on a wide range of public policies, from education to public safety to the size and intrusion of the government sector.

A number of his observations, intended to advise American Republicans, have application to Australia:

• Every issue that (most) Democrats contest is coloured in their minds by the larger purpose of redeeming the world through government.
• When Democrats speak politically, every other word is a public device to seem to be on the side of the angels:  an appeal to "minorities", "working Americans", "women", "poor children".
• Republicans, by contrast, tend to speak in abstract language about legalistic doctrines and economic budgets, sounding like lawyers and accountants.
• Through these devices, Clinton trounced the Republicans over vastly increasing the Federal education budget, even though most of the extra spending ended up in the hands of the education bureaucracy and not the children.
• The Democrat leadership doesn't try to wipe its toughest opponents in debate, it aims to wipe out, period:  for example, a litany of false charges against Newt Gingrich, which the East Coast media relentlessly repeated (Gingrich was ultimately cleared on every count, but ruined in the process);  the Democrat attacks on prosecutor Kenneth Starr until it seemed that he, and not Clinton, was on trial;  the smear campaign against Judge Clarence Thomas as a warning to all black leaders not to leave Democrat territory.
• The common understanding that the Constitution sets limits to what government may do has broken down, as "rights" are manufactured, progressives are appointed to the benches, and Democrat lawyers stake out new ground throughout the republic.
• The key Left Democrat program is to redistribute the tax impositions on individuals, families, and enterprises, on the basis of political prejudice.
• The political war as outlined above is also a culture war, as the Left Democrats move through the parliaments, public offices, the media, teaching institutions, and even the benevolent foundations set up by business entrepreneurs.

Australian Liberals and US Republicans suffer another political disadvantage.  As Horowitz explains, US Democrats enter party politics out of socialist-type organisations, trade unions, social crusades about various minority rights, etc.  "They are combat-ready before they begin their political careers".  (See how easily the three former ACTU leaders moved into Canberra Labor's Shadow Cabinet).

Generally, US Republicans want to manage or even roll back the umbrella of political institutions;  whereas Democrats want to transform them.  Republicans want to fix government;  Democrats want to fix the world.

It is interesting that four Australian Federal Liberal Prime Ministers are lawyers.  Menzies was a lawyer, and so were Holt and McMahon.  Each of them is or was skilled in verbal attack and defence.  Menzies and Howard have shown an ability to connect with significant elements of the community:  "the forgotten people", Menzies women's support groups, Howard's "battlers", small business groups (until Treasury and the Tax Office were allowed to take control of BAS, IAS, issues affecting independent contractors, etc).

But none of these leaders has been able to articulate an attack on big Government, or an attack on Labor's social crusades, which connect with the public.  Liberals are good at debating points, but not social issues.  Keeping it simple is not easy.

The connection between fast-rising government spending, inflation, and unemployment became clear to the wider public during the Whitlam/Cairns years, through harsh experience.  The connection between high taxation, government waste, and capital and intellectual flight, is not yet apparent to most people who depend on shortish TV, radio, and newspaper items and headlines for their political intake.

Clearly, "Taxation Breaks for Big Business and Investors" is a policy item which will be savaged and lampooned in the middle-brow media.  But Horowitz demands that conservatives and Republicans make a massive effort to connect.  "Tax Breaks for Families, Cuts in Washington's [Canberra's] Bureaucracy", are the kind of things he would recommend.

Education is one of his prime examples of how Democrats make a plus of a minus.  "Millions of black, Hispanic, and other 'minority' (but not Chinese) youths leave school without being able to read English or multiply 10 by 11".  There are a number of reasons for this, including the public sector education unions refusing tests for children on the way through, as well as their refusal to accept career supervision of teachers.

The Democrat answer is more and more government funding.  The Republican reaction is inevitably reported as "Republicans Refuse Money for Schools" or some such.  Not a winner.  Shades of Australian reports of "More Grants to Private Schools", when the great increase in public funding overall was to government and poorer schools.

As Horowitz points out, although public education is a big Democrat plus issue, none of the Democrat Congress leaders or education policy promoters sends his/her children to a government school.  The attack should be, he says:  why do they condemn the children of minorities to the failed school system which their biggest supporter group runs?  Easily said, but winning that war needs careful policy preparation, a national frontal attack, persistence, and sharp words.

Horowitz proposes that the Republican Party and its general supporter base must fight on a broader cultural front.  Rather than just defending their own views on individual and commercial liberties, and the virtues of the balanced budget, etc., they should be out attacking the Left/Democrat alliance for condemning black children to poor schools and violence ("Guns Don't Kill Blacks, Other Blacks Do");  and for advocating a health system which would abolish the family doctor.

Horowitz doesn't mention it, but a new term called "Capitulation Conciliation" has entered the vocabulary of PR.  The syndrome is also called "Cave-In Conciliation".  If attacked by Greens or radicals of any kind, companies are encouraged to phone their friendly PR company, which will arrange the terms of their surrender.  As one PR director said, "You can't fight them, because they get all the good press".

Large and productive public companies (mostly owned by workers' superannuation funds, middle-class families, and the elderly retired) rolling over to dark Greens, Trotskyites, and even Stalinists:  these do not make a pretty sight, though they are making one that is becoming more common.  It is a lot to ask of Liberal, Conservative, and Republican Parties to carry this extra load.

The parties of the democratic market and limited politics need to harness themselves to community organisations, international traders, smaller business, the professions which have not attached themselves to big government, aspirational voters (who want good schools and lively local scenes), and the independent trades and contractors (fortunately a fast-growing lot).

Above all, says Horowitz, they must recognise that they are involved in a culture war.  Language and symbols are mighty weapons in this war.  The Left has fought hard for the monopoly on "caring", "compassion", "public", "social funding", etc., even though its policies lead to illiterate school graduates, a raft of government benefactions to middle-class cronies, harassment of independent workers and innovators, endless litigation by insiders, and an increase in impersonal bodies and controls.  (Would you rather be cared for by the Department of Social Something or the Salvation Army?)

By "public", of course, they mean "government".  Social funding can mean "caring" policies, like granting educated and vocal operators with some Aboriginal ancestry the funds which should go to poor communities of mostly or full Aboriginal ancestry.  By "compassion" they mean offering heroin-injecting facilities to suffering creatures who need immediate hospital treatment.  All this needs to be said loudly, and better.

Secrets & Lies

Is it possible to distinguish genuine Aboriginal traditions from those that have been invented recently for cynical motives?  Last week's extraordinary Federal Court decision from Justice von Doussa suggests that it is not.

In 1994, Ngarrindjeri Aborigines said that a proposed bridge across the lower Murray between Hindmarsh Island and Goolwa would desecrate secret women's traditions which required that the island must remain separate from the mainland.  They successfully appealed to Robert Tickner, then Minister for Aboriginal Affairs in the Federal Labor government, to block construction of the bridge.

But the following year a diverse group of Ngarrindjeri women said the supposed traditions were a hoax.  In response, the South Australian Liberal government set up a Royal Commission which, after five months of investigation, found that the "secret women's business" had been fabricated.

After legal challenges and the passage of special legislation, the bridge was finally completed earlier this year.  Nevertheless, developers Tom and Wendy Chapman said they had suffered massive losses because of the fabrication, and sued the Commonwealth Government and Mr Tickner, as well as an anthropologist and a lawyer who had prepared reports for the minister.

Initially, it was expected that the Chapmans' action would avoid matters considered by the Royal Commission, and concentrate on alleged offences under the Trade Practices Act.  But as the case progressed, Justice von Doussa indicated that the outcome could depend on whether or not the women's traditions were bogus, and this became a major focus.

The key proponents of the "secret women's business" had boycotted the Royal Commission, which decided not to invoke the powers it possessed to compel them to testify.  However, the proponents did appear in the Federal Court case, strengthening von Doussa's conviction that he heard evidence significantly different to that heard by the Royal Commission.

But although he disparaged the Chapmans for not calling witnesses who might possibly have questioned their assertions, von Doussa did not seem similarly troubled by the refusal of the major "women's business" proponents to appear before the Royal Commission.  He thought the proponents were "credible witnesses", and where cross-examination had shown their evidence to be unreliable, he readily excused them as having made innocent mistakes.

Consequently, Von Doussa said that on the evidence before him, he was "not satisfied that the restricted women's knowledge was fabricated or that it was not part of genuine Aboriginal tradition".  But he also admitted that it was impossible for him to be definitive about whether the "secret women's business" was authentic, and that others "may well come to different conclusions".

My confidence in Justice von Doussa's conclusions is not helped by the faulty account he gave of a paper of mine which had been placed before the court by an anthropologist appearing for the Chapmans.  My paper criticised another anthropologist, Professor Diane Bell, who had written a book attacking claims that the Ngarrindjeri women's traditions had been fabricated, although she had not explained why the Royal Commission had come to its findings and then shown why its arguments should be rejected.

I stated that there were a number of "apparently stubborn and massive facts" that "must either be disproved, or else shown to be compatible with assertions that opposition to the bridge was based on ancient traditions".  But von Doussa simply ignored my first alternative and then incorrectly criticised me for supposedly regarding the Royal Commission's findings as incontrovertible facts.  Only a small matter perhaps, but a revealing one nonetheless.

Von Doussa's own treatment of some of these apparent facts also leaves much to be desired.  For instance, he acknowledges that the timing of the claims about "secret women's business" seems strange to what he calls "the Eurocentric mind" -- a term which suggests that he is unaware that the great majority of Ngarrindjeri, a people who have been actively engaged with mainstream Australia for well over a century, also share "Eurocentric" assumptions.

He acknowledges that at least some individuals who supposedly knew about the women's traditions would also have known of the proposed bridge long before any Ngarrindjeri expressed opposition to its construction.  However, he accepts questionable claims that the women's traditions were only invoked at the last minute because they were so secret.

Furthermore, he does not properly explain why the traditions were not disclosed in the 1930s and 40s, when a series of barrages which permanently connect Hindmarsh Island to the mainland were constructed, and when some traditionally educated Ngarrindjeri were still alive.  Indeed, in the early 1990s, the possibility of converting the Hindmarsh Island barrage to a vehicle bridge was seriously investigated, although this was found to be impractical.

Von Doussa seems to go along with arguments that Aborigines were too powerless to protest at the time.  Nevertheless, anthropologists who were studying Ngarrindjeri culture when the barrages were being built did record protests from Ngarrindjeri traditionalists that various other actions by non-Aborigines were desecrating their country.  But the same anthropologists seem to have heard no complaints about the barrages.  Indeed, a number of Ngarrindjeri were involved in their construction.

While von Doussa's arguments have not convinced me that I should change my mind about Hindmarsh Island, on one matter I sympathise with the proponents of "secret women's business".  If his judgement is taken seriously, building the bridge constituted an injustice against the Ngarrindjeri who claim custodianship of the women's traditions.  Perhaps the South Australian and Federal opposition parties should offer to demolish the Hindmarsh Island bridge as one of their election promises.

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