Stability and progress: an anti-depression policy for a free economy

Chapter I. THE PROBLEM

(i) ITS NATURE

A policy aiming at stability and progress is essentially an anti-depression policy.  Depressions are the consequences of instability.  If stability can be preserved, progress can be ordered according to man's desires and capacities.

Depressions have occurred in the past with at least sufficient regularity for the term "business cycle" to be invented and applied to the long-term movement of economic activity.  A "depression" is the trough of the downswing, while a "boom" is the crest of the upswing.  The point at which the boom is about to break is known as a "crisis".

We do not agree that fluctuations anything approaching the violence of the 1929-33 experience are inevitable in a free economy.  On the other hand it is true that there is an inherent tendency to fluctuations in a free economy. ⁽¹⁾  To admit this is to call attention to the fact that there is an undesirable tendency to be corrected.  Corrective proposals constitute the main subject-matter of this Report.

It is generally agreed among authorities on the subject that economic fluctuations may spring from different causes.  Prominent among the causes are:  Maladjustment of the savings-investment relationship (e.g., investment not keeping pace with savings);  or structural maladjustment (e.g., failure of particular countries or industries to meet changes which have become permanent in the conditions of demand or of supply);  or forces outside the economic system altogether (e.g., the dislocations arising from war).

(ii) INTERNATIONAL ASPECTS

It is also widely accepted that cyclical fluctuations, and certainly the most disturbing of them, are international rather than national phenomena.  So attention and, indeed, emphasis must always be on international action both in attempting to prevent fluctuations and in overcoming them if they appear.  A depression may begin in one country, but in a world economically integrated -- such as ours is and must he -- it can hardly fail to spread to others.  In such circumstances action taken by one nation separately, unless its international implications are taken into account, is liable, at best, to pass the difficulty to some other country and, at worst, to lead to isolationism and fragmentation of the world economy.  Such action aggravates the disturbance and reduces all-round capacity to maintain and improve living standards.  The economic history of 1929-1939 is proof of that, the fillip given by the 1937-1939 re-armament programmes notwithstanding.

Admittedly there was some excuse then.  There was no agreed opinion about the measures which should be taken in a crisis.  The constructive measures adopted were nationally conceived and nationally adopted.  Even so, they were hardly, more than experiments.  Where the policies pursued were sound, they failed because they were not adopted in unison.  The knowledge which has accumulated since then, the international machinery which has developed, the new machinery which it seems to be the common intention to develop, and the experience in international co-operation which the Allied war effort has provided, all promise something better in the future.

(iii) OBJECTIVES

If the need for united action is accepted, it will be necessary for all to be clear about concrete objectives.  Obviously the first and major objective should be the fullest use of productive resources, especially the steady and useful employment of human resources.  Second, a more equitable spread of the distribution of incomes seems to be desirable as a condition of stability, apart from the humanitarian grounds that may be advanced.  For the same reason or reasons, the risks of interruption of earning power should be broad based on the whole community.  Associated with this should be provision of the essential material needs of all, with adequate safeguards, of course, against indolence or other anti-social behaviour.  These, as our Report will attempt to show in the appropriate chapters, are all conditions of the maintenance of economic stability.

In addition, two basic conditions are necessary to progress and are of the essence of a system of free economies:  First, the right of each person to choose his occupation should be respected and, as far as may be, promoted;  second, the right of each country to share in the world's markets should be recognised and facilitated.

In the second report by the Delegation on Economic Depressions appointed by the League of Nations these ideas are summarised as follows:

"What is required is not only a high level of employment, but efficient employment.  Policy must be concerned not only with the size of the national income, but also with its distribution;  must aim not only at reducing the risk of unemployment, but also at any equitable sharing of its burden.  It must be designed to promote the welfare not of some nations only, but of all, and to assure the smooth working of the economic system without impairing essential human liberties."

(iv) TRANSITION PERIOD

We are putting forward proposals which we believe would have been necessary had no war intervened and disrupted world economies such as they were in 1939.  It is important that they should be considered at once for, if they are to be applied, the post-war reconstruction or reconversion which is now upon us should proceed with such long-term objectives in view.

There are two dangers in respect to the transition period:  First, that we are not ready for the emergency now it has come;  and, second, that the long-term objectives will not be clearly seen and accepted, especially in their international aspect.  Lack of knowledge can hardly be a legitimate excuse in the future.  Unpreparedness, dilatoriness or unco-operativeness should not be allowed to leave the way open for the resumption of cyclical fluctuations with their periodic lapses into depression.

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Chapter II. CONSUMPTION EXPENDITURE

(i) HOW INCOMES ARE USED

Constant employment depends upon the maintenance of production.  Stable production depends upon the maintenance of expenditure.  Expenditure depends upon how individuals and institutions elect to use their incomes.  The use to which incomes are put is complicated by the fact that some elect to save portion of their incomes and that the expenditure (i.e., investment) of these savings depends, not only upon the disposition of the savers, but also upon the demand for investment from time to time by industry and business.

Private expenditure takes various forms.  A large part of the aggregate is used in the purchase of non-durable consumption goods, such as food, clothing, education and recreation.  A substantial part is used in the purchase of durable consumption goods -- for example, much household equipment and motor cars.  The remainder is saved and should find its way into investment in the forms of construction (houses, factories, hospitals, schools) or industrial equipment and business stocks.  We shall discuss private investment expenditure in the next chapter.

(ii) EXPENDITURE ON NON-DURABLE CONSUMPTION GOODS

This form of private expenditure (which includes expenditure on various services) is in general fairly stable but, since it constitutes such a large proportion of total expenditure, fluctuations in it can be quantitatively great.  Anything which will tend to stabilise this form of expenditure, and especially to sustain it when it is threatening to decline, will be a real contribution to the maintenance of economic stability.

We believe that a more equal distribution of incomes would be a valuable step in this direction.  We do not believe, however, that this is to be achieved by the simple process of taking from one section and giving to another.  Taxation and the manner in which it is expended can contribute, but care must be taken that the kinds and levels of taxation adopted do not retard economic progress.

From almost every point of view the best method to achieve the object is the adoption of measures calculated to increase the productivity and the earning power of the lower-income groups.  Improvement of economic opportunities through attention to public health, education, vocational guidance and training (and, where necessary, retraining) seems to be the most certain road to the end in view.

On the other hand, keeping prices at a minimum, especially the prices of the normal requirements of healthy living, would be a substantial contribution to the maintenance of non-durable consumption expenditure.  This may be achieved by improvements in the methods of production and distribution and, where expedient, the lowering of taxes which increase production cost, of excise duties and tariffs.  A constant aim of managements should be to maintain profits by producing and selling more for less, not less for more.

The various measures of social insurance, provided they do not involve taxation which otherwise checks progress, tend to preserve the stability of consumers' demand.  This suggestion at once implies "contributory" insurance.  The general effect will be increased by reducing the contributions of industry and consumers when unemployment is developing and maintaining them at a higher level than the general average necessary when unemployment is low.  The British White Paper on "Employment Policy" has already suggested what the British Ministry of Reconstruction regard as a practicable sliding scale.

While we have thought it necessary to point to the danger of taxation, either because of its height or its forms, being a cause of instability, we believe that fiscal policy can be so contrived as to make a positive contribution to the maintenance of private consumption.  In some measure at least taxation rates can be adjusted to meet situations of incipient boom or threatening depression along the lines just suggested for social insurance contributions.

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expansion of bank credit, especially expansion by central banks.  Savings outrun investment when, though there is no further scope for investment, savings still continue.  Excess credit expansion is inflationary, while excess saving is deflationary.

(ii) EXPENDITURE ON CONSTRUCTION

Under this heading we include all forms of building construction, though it might have been better to have included such building as factories and other business buildings under "industrial equipment".  What is suggested under the latter heading will apply generally to industrial construction.  But we have taken all forms of building construction together because residential construction, which will probably occupy a major place in the Australian economy for many years to come, proceeds from the investment of savings, like other forms of construction and, moreover, will affect all other types of building construction.  On the other hand, dwellings also have most things in common with durable consumers' goods.

Investment, irrespective of the form, is very responsive to changes in economic outlook.  Moreover, it is peculiarly difficult to stimulate the demand for investment goods in a period of decline.  There tends, in fact, to be a temporary superfluity of them.

We strongly believe that the investment side of the economy would be more stable if it were more broadly based on the whole community.  A more even spread of capital holdings seems to be at least equally desirable as a more equal distribution of incomes.  Many authorities who have considered economic fluctuations and their prevention recommend that Governments should see that more adequate investment facilities are available to the small saver.  We agree, but we think this is largely a question of informing him of the opportunities available to him, the methods of approach to them, the benefits and risks involved and generally increasing knowledge and inspiring confidence.  Greater credit facilities would also be an aid.  These, we believe, would be readily forthcoming if our suggestions in the preceding sentence were adequately applied.

Building construction, and especially residential construction, is unusually responsive to changes in interest rates.  Interest is a considerable factor, because it is usually a long-term factor in financing building construction investment.  It also tends to be a constant factor because mortgages are long-term contracts.  Anything that can be done to make money for financing construction available at low interest and, in a period of threatened depression, to vary the rates of interest and amortisation payments will assist in maintaining the level of investment in construction.  The same is to be said of steps taken to increase the proportion of cost that may be covered by mortgage credit.  Government assistance along these lines (e.g., by guaranteeing or insuring mortgages) should be earnestly considered.  One example of this in Australia was the New South Wales Government's guarantee of loans made by banks and insurance societies to the co-operative building societies in the years immediately preceding the war.

This suggestion will prove of limited value if other building costs are not kept as low as possible.  Governments have a right and a responsibility to break down "monopolistic" prices or wage rates or "monopolistic" power to increase building costs by inferior or inadequate work in return for prices and wages.

Public construction, especially in a developing country, is always in strong potential demand.  In this case, there is substantial opportunity to dovetail public construction with private construction.  Such a contra-cyclical policy can be a major stabilising influence.  It will be necessary that policy be decided upon and plans prepared well in advance.  In framing such a policy the co-operation of State Governments and local government authorities should be sought.

(iii) EXPENDITURE ON INDUSTRIAL EQUIPMENT

We agree with those investigators who claim that greater stability would be achieved if business and industrial managements planned long-term investment policies.  This would involve a degree of consultation and co-operation between managements of various industries and industrial units.  It would be encouraged and aided considerably by the provision by Governments of statistics in respect to the extent and capacities of existing industries, the probable future demands and business conditions generally.  Some such organisation as the Economic Advisory Council, recommended in our booklet, "Looking Forward", would provide the means for the co-ordination necessary between Governments and business and between industry and industry.

The rate of interest has some influence on industrial investment, probably more on investment in stocks than on investment in industrial equipment.  Monetary authorities may do something, and should be concerned to do what they can, to prevent over-expansion or to stimulate a declining demand by varying the rate of interest.

Taxation can be, and often has been, an impediment to industrial investment.  Double taxation (taxation of industrial profits in the hands of shareholders as well as in the hands of companies) is always a deterrent.  A too niggardly attitude towards allowances for losses and depreciation has the same effect.  On the other hand investment, especially in new processes, would be encouraged by permitting the rapid amortisation of capital and generous allowances for obsolence in assessing taxation liability.

As in the case of construction, Governments should adopt, as far as possible, a contra-cyclical policy in respect to their own purchases of machinery and equipment.  In Australia, Governments with their business undertakings (e.g., railways) probably have quite significant opportunities in this respect.

There is always a potential demand for industrial equipment in the less-developed countries.  Much might be done to even out disturbances by a contra-cyclical development of capital exports.  The problem in the past has been chiefly a financial one.  The International Bank for Reconstruction and Development recommended at the Bretton Woods monetary conference of the United Nations should be able to facilitate financial provisions. ⁽²⁾  If so, this recommendation might well prove a major contribution to the maintenance of a high level of employment in the capital-goods industries, and thus a stabilising influence on investment expenditure.

We cannot but express the same attitude in respect to monopolistic control which may affect the costs and the prices of industrial equipment or capital-goods as we have already expressed in respect to building construction.  We should add that we are not concerned with the mere existence of monopoly.  Monopoly conditions are often essential to minimum costs and prices.  The monopoly power which is used to retard, whether it comes from organised capital or organised labour, is what should be broken down.

Wide fluctuations, especially in the prices of stocks, are often caused by action in ignorance of the real position and trends.  Here again we are impressed by suggestions for Government-sponsored research and publication. ⁽³⁾  The statistical position of stocks, actual and potential, the trends in demand for raw materials and finished goods, the industrial development in other countries -- these and other relevant items of information should be made as readily available as possible.  The less that speculation enters into economic activity, the more stable it is likely to be.

SUMMARY

Recommendations in this chapter include:

1. More investment opportunities for small savers.
2. More elastic credit policies, especially in respect to construction investment.
3. Prevention of the exploitive use of monopoly power, whether by Capital or Labour.
4. Contra-cyclical public construction schemes and public purchases of industrial equipment.
5. Official research and also co-ordination aids in planning industrial development.
6. Contra-cyclical private-credit policy.
7. Avoidance of taxation which discourages industrial investment.
8. Industrial development of under-developed oversea countries and methods of finance.
9. Up-to-date information in respect to world stocks.

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Chapter IV. PUBLIC EXPENDITURE

(i) BUDGET POLICY

It has hitherto been generally considered the proper course for the Government of a country to attempt to balance its Budget year by year.  If it failed in one year its supreme purpose was to restore the balance at the earliest possible moment.  It is now recognised that the public or State Budget is only part of the aggregate national or community Budget.  In that new light we look at public expenditure and fiscal policy generally.  This is especially necessary now that public expenditure is likely to take so large a part of national income.  Taxation and expenditure must be considered in the light of their probable effects on general stability or on the tendency to economic fluctuations.

For that reason we subscribe to the view now widely held that budgetary policy should be to strike a balance over a series of years rather than annually.  That would mean that public expenditure, especially public investment expenditure, could be increased in periods of business recession, thus incurring deficits.  The corollary would be to wipe out deficits and build up surpluses when business was buoyant, especially when boom conditions were developing.  Taxation in all periods would be so contrived that it would exert as small a de-stabilising influence as possible.  We have already suggested in Chapters II and III the lines which such a taxation policy might follow.

We are not as optimistic as some writers on the practicability of implementing a policy of long-term budget balancing.  We can see both statistical and political difficulties.  It was adopted by some countries (e.g., Sweden) before the war but it can scarcely be said that it has been tested.  There seems to be, nevertheless, no reason why it should not be given a trial nor why on the whole beneficial results should not be expected.

On the other hand, it seems to us important that public financing should have a contra-cyclical pattern as one of its main characteristics.  This means, in the first place, avoiding imposts likely to discourage enterprise, a sine qua non to progress.  In the second, it means quick relief from burdens likely to aggravate a declining trend in activity, and a prompt application of measures calculated to stimulate recovery.

It is not likely that these policies can be successfully pursued unless estimates of national income, both present and future, are available to Governments in as accurate and complete a form as it is possible for statistical science to produce.  Only by that means can the existing position and the probable trends be satisfactorily appreciated. ⁽⁴⁾  Indeed, these statistics should form part of the annual Budget papers.  It is necessary, for one thing, that the public should be able to construe the Budget in terms of them.

(ii) LOAN POLICY

Except where Governments may borrow on long-term in order to repay short-term advances made to sustain a Budget deficit, Governments usually borrow to spend on capital works.  Here they can undoubtedly adopt a significant role in preserving stability or stimulating recovery.  It would mean an almost complete change in policies hitherto pursued.  Public borrowing and expenditure, for example, intensified the boom which preceded the last depression.

Some national developmental works cannot wait, but many can.  These latter can be planned and pigeon-holed.  They can be postponed if they are likely to de-stabilise an economy where the employment of resources is already high, and given effect to at a time when employment is slackening.  Such a contra-cyclical policy appears to us to be practicable and promising of substantially beneficial results.  The main difficulty is a political one.  The spending Government is usually popular and the political interest is in the short-run rather than the long-run.

The vexed question arises whether the money is to come from borrowing from the public or through the expansion of bank credit.  Idle savings should, of course, be tapped as far as possible.  Whether the holders will lend at reasonable rates of interest will depend largely upon their confidence in the Government of the day and its policy.  Failing that and in a situation where substantial productive resources are idle, the expansion of bank credit will be sound.

There are two reservations we feel bound to make.  First, care must be taken to avoid expansionist policies likely to lead to inflation.  A stimulus to recovery, even if it achieves some recovery, will not restore stability if it has an inflationary or potentially inflationary basis.  That was one of the weaknesses of the "New Deal" policy in pre-war United States.  Second, care must be taken to avoid building up a public debt which the expected future productivity of the community cannot conveniently support.  This will depend in a large measure upon the probable productive value of the works upon which public money is being expended.

In planning public works to meet a recessionary situation it must be remembered that all kinds of works are not equally conducive to the end in view.  The aim is to stimulate employment, and especially private expenditure on consumption goods.  Those works in which the portion of wages to total costs is high and which create demands for production in industries in which wages is a major part of total cost are most likely to be fruitful. ⁽⁵⁾  The labour employed indirectly is of equal consequence as, and may be of greater consequence than, the labour directly employed on the project selected.  If the public expenditure can be so directed as to give rise to immediate private investment expenditure so much the better.  In a period of recession private investment will have to revive before it can be expected that recovery is really on the way.  In fact, it is generally agreed to-day, and cannot be repeated too often, that one factor in the maintenance of economic stability which must be watched at all times is private investment.  Stability is largely governed by it while progress depends on it.

SUMMARY

Recommendations in this chapter include:

1. Periodic instead of annual balancing of Budgets.
2. Contra-cyclical pattern in revenue collection and expenditure.
3. Estimates of the national income, present and future, associated with preparation and publication of Budgets.
4. Contra-cyclical public borrowing and expenditure policy.
5. Avoidance of inflationary possibilities associated with credit-expansion policies.
6. Preference for public works which have most effect on the national wage bill.

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Chapter V. CREDIT POLICIES

(i) INTERNAL

Authorities are now beginning to attach less importance than many of them did ten to fifteen years ago to credit policy as a means of preserving stability or stimulating recovery in a period of downswing.  That is not to say, of course, that it can have little significance anyway.  Undoubtedly it has a substantial influence on all forms of private investment and the demand for durable consumers' goods.

As a rule, variations in credit policy should be selective rather than general.  General restriction in a period of upswing may check a boom but precipitate the crisis.  All parts of an economy seldom manifest boom conditions at the one time.  Restriction will probably be most effective and least harmful if it can be applied selectively to those parts of the economy which are most conspicuously developing boom tendencies.

A cheap and plentiful offer of credit can be safely applied fairly generally in a slump.  The demand, which will not be strong anywhere, is likely to be the best directive.  If this is expected to be effective the prevalent idea that a cheap money policy is good at all times needs revision.  Easy money in a period of upswing may well prove the primrose path to boom and subsequent crisis.

Remembering that depressions are mainly due to structural maladjustments, care must be taken lest credit policy acts like a drug that gives a false sense of health rather than effects a cure.  The real correctives of conditions of recession and growing unemployment are more likely to be found in such steps as facilities for the mobility of labour and adaptations in the mechanism of production.  These will be achieved only if there is all-round co-operation in a common aim.  Managements must be ready to adapt production to meet shifts in demand.  Labour must be willing to allow wages to respond to changes in relative demand.  We believe that employers' organisations and trade unions have a fruitful field open to them if they will only bring themselves to co-operate.  Governments may help by imposing such measures as will prevent either side from exploiting such a situation to the detriment of the other.

(ii) EXTERNAL

Lending in overseas countries is fairly readily adaptible to policies for preserving stability and even to anti-depression measures.  It tends to stimulate the export of capital goods, the demand for which is usually the first to fall off in conditions of approaching depression.  This policy can be given effect to best by the highly developed industrialised countries, but it is precisely in those countries where depression is always most likely to begin.  The International Bank for Reconstruction and Development proposed at Bretton Woods can play a conspicuous part in implementing such a policy.  Assuming that Australia adopts the Bretton Woods Agreement, we will become a subscribing member of the Bank.  That will be our opportunity to exert our influence.

We agree with those authorities who regard foreign lending as a valuable instrument.  We also agree that as far as possible such lending should be direct (i.e. to industries rather than Governments) and that it should be in equities rather than in fixed interest bearing loans.  Loan indebtedness may become a serious burden in times of receding business and prices, whether borne by Governments or others.  Where loan indebtedness is not to be avoided if financial aid from other countries is to be expected at all, it should be practicable to provide for elasticity in respect to interest rates in loan contracts, but especially in respect to the period of amortisation.

A country so dependent on exports as Australia must be specially interested in the development of international action for the purpose of avoiding fluctuations in trade.  If it hopes for the maintenance of employment at home it must regard as a prime objective the maintenance of a smooth-working multilateral world-trade system.

(iii) INTERNATIONAL IMPLICATIONS

We believe that it would be disastrous to assume, especially with an economy such as ours, that slumps in other countries can be walled off by some form of resistant or compensatory action.  To meet a fall in foreign demand by reducing imports is certain to intensify the depression abroad, and may even add to the complications at home.  To meet such a possible situation we believe that Australia should aim at building up a substantial foreign exchange reserve.  It should certainly be interested in another proposal made at Bretton Woods -- the International Monetary Fund, the prime purpose of which is to maintain the stability of international exchange rates.

If, of course, a fall in oversea demand is due to causes likely to be permanent (e.g. the substitution of a synthetic for some raw material) a structural alteration at home will be inevitable.  Just what form that should take will depend upon whether the export of some other products can be increased or whether it will prove economic to produce locally goods previously imported.

It should be our constant aim to avoid domestic policies likely to create exchange difficulties -- e.g. inflationary movements in prices.  We should also be wary of increased oversea demand due to inflationary policies elsewhere.  In this case it would be wise to offset the rise in oversea demand by a contraction of domestic expenditure.  Not to do that would be helping to develop what is called "the vicious spiral".

If we are forced into the position that exchange depreciation or exchange control or import restriction becomes imperative, the first named is probably the least of the evils.  Control is not likely to do more than delay depreciation, while it will probably make it the more inevitable.  The objection to import restriction we have already stated.

The persistent aim of all countries should be to preserve appropriate exchange rates.  A persistently growing surplus of payments from overseas will be just as dis-equilibrating as a persistent deficit.  Such a surplus will tend to be inflationary at home and deflationary abroad.  Short-term capital movements, while they have their legitimate and necessary purposes, can have the same effects.

It seems to us that in the future a great deal will depend upon the availability to national monetary authorities of accurate information in respect to the exchange positions of all countries.  We believe further that the establishment of some such international institution as the proposed International Monetary Fund is eminently desirable, and that its advice and, when occasion arises, its authority should be respected.

SUMMARY

Recommendations in this chapter include:

1. Selective credit restriction rather than general in a period of upswing.
2. Cheap credit with a general expansion in a period of downspring.
3. Measures to increase the mobility of labour and the adaptation of industries.
4. Oversea credit to maintain the demand for capital goods.
5. Preference for advances to industries and for equities rather than fixed-interest bearing loans.
6. Maintenance of substantial foreign exchange reserves.
7. Attention to necessary structural adaptations.
8. Avoidance of policies likely to create exchange difficulties.
9. Acceptance of international authority rather than reliance on unilateral policy.

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Chapter VI. STRUCTURAL MALADJUSTMENTS

(i) ACCIDENTAL

Some of the structural maladjustments which develop in a free economy from time to time are "accidental" in the sense that they are unpredictable.  They are liable to arise from one or more of a variety of reasons.  They could be checked, if at all, only at the cost of progress.

Industries decline because of such phenomena as changes in fashions or taste.  New industries arise because of inventions.  New industries may entirely supplant old industries or lead to drastic modifications in them.  Partial or localised depression is a likely consequence.  The corrective is increased adaptability.

This may mean the transfer of labour and capital to existing but progressing industries.  It may mean the establishment of new industries in the depressed areas.  Either will involve the speedy transfer of labour.  In either case this transfer would be to other industries and in the former it may be from the depressed areas.

While the responsibility must rest largely on business managements, Governments can adopt a useful and sometimes necessary role.  They may encourage the establishment of new industries by selective tax remissions, in special cases by guaranteeing credit facilities or by the provision of factory buildings at moderate rentals.  It is of significant social consequence that new construction should be encouraged in depressed areas.

Probably the most valuable contribution that Governments may make is the facilitation of the transfer of labour to the points of employment.  Employment exchanges, training facilities (with maintenance while training if necessary) and loans and, in special circumstances, grants to cover travelling and removal expenses are to be recommended.  Anything calculated to remove the normal rigidities is to be recommended for critical occasions as an expenditure likely to repay in social benefit.

(ii) INCIDENTAL

In a free economy, which is an economy which depends upon private investment as its mainspring, there is an almost chronic tendency for savings to exceed investment.  This applies mainly, of course, to the more highly industrialised and, therefore, wealthy economies.  The result is a tendency towards a permanent deficiency in total expenditure and chronic unemployment.  This is a long-term expectation in rich and highly industrialised countries.  The opposite phenomenon of investment exceeding savings (an inflationary phenomenon) is usually short-term and critical.

We have already suggested in Chapter III ways in which private investment might be promoted, and there is no need to repeat them.  The now popular credit policy of cheap money is to be approved when there is obviously under-investment, because slackness of investment arises from the hesitancy of borrowers rather than the reluctance of lenders.

Governments may, and we think should, open the way for new private investment by various developmental schemes.  Such opportunities are readily available in partially developed countries such as Australia.  Government research, to which we have already referred, can also lead to the production of new kinds of consumers' goods or to the reduction of costs and a consequent increase of demand for existing production.  The Council for Scientific and Industrial Research points to what can be done in this direction.

We have already suggested the desirability of a more equal spread of income distribution.  In a situation now being considered (i.e. an excess of savings) the increase of social services financed by appropriate forms of taxation may well be advised.  New developments in education, public health schemes, and similar services provide a wide field in Australia.

There is probably little need to urge many of the proposals put forward in this and earlier chapters upon Governments because with most of them they are perennially popular.  What needs to be emphasised is their timing.  From the point of view from which we are considering them their purpose is to prevent economic fluctuations or to overcome them if they arise.

To apply these expedients at the wrong time is likely to provoke instability and to leave Governments with blunted weapons when the occasion for their effective use comes along.  Before the last depression, for example, Australia was suffering not from an excess of saving but from an excess of investment, to which the Governments themselves contributed.  That, of course, was not true of Australia alone for the investment boom which preceded the last depression was almost world wide.  In those circumstances it was virtually impossible to turn the edge of the depression by stimulating investment further.  About the only hope, if such a situation is allowed to develop again, is the stimulation of investment in under-developed countries by the richer and more developed countries granting long-term credits to them.  Even then some liquidations in countries in which over-investment had taken place probably could not be avoided.

SUMMARY

Recommendations in this chapter include:

1. Government encouragement of the development of new industries, especially in depressed areas.
2. Facilitation (including financial assistance) of the transfer of labour to points of employment.
3. Policies for stimulating private investment already recommended (see Chapter III).
4. Government research likely to lead to new types of production or increased demand for existing types.
5. Increased public expenditure on social welfare schemes.
6. Attention to the appropriate timing of expenditure, especially public expenditure.

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Chapter VII. PRIMARY PRODUCING COUNTRIES

(i) THEIR VULNERABILITY

Our considerable industrial growth notwithstanding, Australia is among those countries the welfare of which turns on primary exports.  Such exports are peculiarly subject to wide fluctuations of prices.  Mineral exports are more open than agricultural to shocks from industrialised oversea countries.  The volume of production of agricultural or pastoral commodities is affected only slowly by a fall in prices.  A fall in mineral prices usually brings with it a sharp fall in output and employment.

(ii) APPROPRIATE MEASURES

It is, of course, a sound policy to aim at a diversification of the economy, especially where a country is dependent on a few highly specialised articles of export.  The extent to which this can be achieved depends upon conditions both internal and external.  Such a structural adaptation depends upon local facilities and costs, and also upon the probable effects in other countries (e.g., if it leads to import restrictions) or, if the new product is for export, to disturbances in other exporting countries.

We have already concurred with the view that such expedients as subsidies and guaranteed prices are likely to be self-defeating.  On the other hand, we strongly support the view that short-term agricultural credit and interest rates should be kept as flexible as possible.

The countries with economies now under discussion must be especially interested in monetary stabilisation.  Their aim should be to maintain large exchange reserves so that they can weather through periods of temporary export-income contraction.  If this is not done, such countries will run serious risk of being obliged at times to adopt exchange control or import restriction.  Either is liable to add to the sum total of world disequilibrium.  These, and exchange depreciation if ultimately resorted to, are also likely to bring retaliatory action in other countries.  The years between the depression and the war have demonstrated the probability of that.

(iii) INTERNATIONAL ACTION

We are impressed by the suggestion made by some authorities (e.g., the League of Nations Delegation already quoted) for the establishment of an "International Buffer Stock Agency".  Such an agency would be financially supported by both the exporting and importing countries of the products it was intended to cover.  Its general plan would be to buy on a falling market and sell on a rising market, thus acting as a shock-absorber and stabiliser.  Such activity would have a strong tendency to even out prices, to avoid unilateral action in the face of a crisis in the agricultural or raw material market, and also to rid the market of speculative buying and selling.

Where prices are falling, not because of cyclical movements but because there is a tendency to over-production in the existing and probable future state of the market for a commodity, structural adaptation becomes inevitable.  This may involve some production control.  If so, such control should be worked out as far as practicable under international agreement.  Such a policy would lead to the least dislocation, the most satisfactory arrangements in respect to compensatory action and, ultimately, to the displacement of the high-cost rather than the low-cost producer.

The suggested international buffer stock agency would seem to be the obvious body to undertake the task of directing such production control.  Indeed such an agency, working in collaboration where necessary with the proposed International Bank for Reconstruction and Development (e.g., in long-term foreign lending) should be able to go to considerable lengths to avoid or at least substantially modify the effects of market crises on primary producing countries.

These recommendations, however successful they may prove if applied, will not obviate the necessity for keeping the costs of primary products to be exported as low as possible.  They can be regarded in no way as substitutes for efficiency.  Nor can they remove from Australia or any other country similar in structure the responsibility of seeing to it that industrial costs, due to uneconomic tariffs, industrial inefficiency or insistence on wage rates at too high a level do not force primary production costs out of line with world prices.  The report of the Tariff Committee appointed by the Bruce-Page Government in 1928 shows that this warning is necessary.

SUMMARY

Recommendations in this chapter include:

1. Diversification of the national economy.
2. Flexible system of agricultural credits.
3. Special attention to monetary stability and adequate exchange reserves.
4. Establishment of an international buffer stock agency.
5. Production control and structural adaptations, where necessary, under international agreement rather than unilaterally.
6. Establishment of international long-term credit organisation.
7. Special attention to efficiency in the export industries and avoidance of other cost burdens likely to affect export income adversely.

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CHAPTER VIII. THE GENERAL PLAN

(i) NATIONAL

We believe that the suggestions submitted in previous chapters make for a coherent plan.  The fundamental principle behind them is the maintenance of expenditure.  The various forms of expenditure have been considered separately and methods for their greater co-ordination submitted.  Special attention has been paid to the desirability of increasing the earning capacity of the lower income groups and the necessity for providing that no consumer's spending power shall completely disappear.  The importance of increasing mobility or the movement of labour and capital from industry to industry and area to area has been shown and means likely to stimulate mobility have been put forward.  These and other measures suggested in this Report are all in our opinion calculated to offer reasonable assurance of a high level of employment and a sound economic and social distribution of the accruing national income.

Both Government and industry have their responsibilities, and their respective roles have been indicated.  We recognise that up to a point Government interference in industry is both desirable and necessary.  This point is that at which opportunities are increased and individual liberties enlarged.  In particular, the policies of Governments in respect to social insurance, taxation, the provision of credit facilities, public works, etc., should be contra-cyclical.  If Governments are able to contribute effectively to the avoidance of fluctuations in their respective economies, progress can safely be left in the hands of industry in all its parts, which include lenders, investors, managements, workers and their respective organisations.  Success, that is to say, will depend upon the aggregate behaviour of the whole of business.

Managements, we have pointed out, must also make greater contributions to stability than in the past.  Efficiency must always be their first aim, which can be interpreted as a continual striving to sell more for less, not less for more.  They must also share with Governments the responsibility for the adequate training of workers and the facilitation of mobility both from occupation to occupation and upwards through grades to positions of greater responsibility and earning power.  The provision of incentives is one for agreement between employer and employee organisations.  Payment by results, for example, could have great significance both for the nation and the individual.  The main stumbling block at present is the antipathy of the trade unions to it.  Certain chapters of our recently published "Increased Production" give serious cause for thought on this question.  A rational outlook on the problem of employer-employee relationships, buttressed by a wise use and all-round respect for Arbitration Courts, would assure, we believe, the co-operation between the "partners" in industry necessary to the maintenance of stability and the direction of progress.

(iii) INTERNATIONAL

We have tried to emphasise our opinion that no country can hope to succeed by a policy of isolation.  This is especially true of countries largely dependent upon primary production for export.  Above all, no permanent good can be expected from policies which aim at avoiding slumps at home at the cost of spreading them abroad.

We have called attention to the necessity for international co-ordination and, for the purpose, to the desirability of establishing international research, monetary, long-term credit and stock-pool organisations.  With the degree of co-operation that should be forthcoming, liberal and dynamic policies aiming at world stability should succeed.  But, whatever one nation acting alone may do, success is hardly to be expected without a purposive international co-ordination of policies.

The prospects are at the moment bright.  The repeated declarations of the United Nations (e.g., the Atlantic Charter and the Mutual Aid Agreement), their decisions at Hot Springs, Dumbarton Oaks, Bretton Woods and San Francisco, all leading up to the establishment of the Economic and Social Council under the United Nations Charter, are indicative of the intentions in the international field.  The readiness and unanimity with which so influential a Power as the United States has adopted the Bretton Woods Agreement and the United Nations Charter constitute a portentous promise.

It remains for Australia to put her own house in order, to decide upon her own programme of economic objectives and methods at once, and to make her attitude clear and her influence felt in the international councils.  We hope that our Report will be a contribution to these ends.

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ENDNOTES

1.  A totalitarian economy is no more immune from fluctuations than a free economy.  For a time the effects of fluctuations may be covered up or smothered, but eventually they break out and produce a crisis of colossal dimensions.  In the meantime various forms of regimentation and coercion accompanied by contracted living standards are the prices paid.  One of the forces which impelled Germany to gamble on a European war was the fact that the economy had reached breaking point.  Russia was able to present a facade of stability longer because, being at a primitive stage of development, expansion could be embarked upon in almost any direction to cover up decline in another.  But, even so, at what price?  At one period five million people starved to death partly because the agricultural front broke down and partly because wheat had to be sold abroad to keep the industrial wheels turning.

2.  It is not clear from the Bretton Woods Report whether the International Bank fur Reconstruction and Development is intended to function beyond facilitating reconstruction immediately after the war.  Our point is that this Bank can be made an instrument of contra-cyclical action and that it or some similar institution should be used to that end.  It is important, too, that the Bank should conceive this to be its function early.  If it regards immediate post-war rehabilitation as its only function it may speed up reconstruction even if this leads to a boom.

3.  While we emphasised the potential value of government research, both economic and scientific, we do not in any way discount the need for private effort in research.  On the contrary, there is a clear necessity for the expansion of private research.  Indeed, the two should work together.  Government research alone is liable to become far too academic and unreal.  The main value of government research is that research on an international plane is likely to be sufficiently complete only through the co-operation of governments, since governments are the agencies most likely to be able to collect all the necessary data.

4.  If we are really to have budget-balancing over a period, it will probably not be enough that the Government should interpret the statistics for itself and, of course, the general public.  Greater assurance would come from the establishment of a really live Public Accounts Committee upon which the Opposition was represented.  Such a two-party or all-party committee (as the case may be) assisted of course by experts, would beget more confidence in its forecasts than would be the case if the statistics were prepared and the forecasts made under the direction of the Government, which would mean actually the Treasurer of the day.  There are two points to keep in mind:  first, public confidence is necessary if general co-operative response is to be expected and uncertainty in the public mind as to real aims is to be avoided;  second, budget-balancing over a period, unlike annual balancing, is likely to be the concern of more than one government.

5.  Works in which the proportion of wages to total cost is high may not always be the best choice.  The choice of public works to be undertaken would rather depend upon the type of workers to be employed and the industries to be stimulated into activity.  The essential aim of the policy being considered is not so much "relief" as "correction" by the restoration of equilibrium.  It may, for example, be advisable to proceed with a work of modernising railway rolling stock which would involve a good deal of material, some of which might even have to be imported, rather than, say, railway and road construction.  Of course, in the long run almost everything is reduced to wages.

All the world seeks change but the price is individual pain

Voters throughout the Western world are expressing discontent and insecurity. Richard Wood considers the consequences for policy.

I HAVE recently returned from overseas discussions with a range of senior economic officials employed by governments and international organisations, as well as with United States and United Kingdom think tanks.  Overseas, as in Australia, there is considerable angst being directed at governments in office, and considerable discussion of the causes of such angst.  While there is no one simple explanation, analysts highlight feelings of insecurity in the community which result from major structural economic changes that have exposed individuals and businesses to increased competitive pressures.

This insecurity is reflecting, among other things, the apparent stagnation of real wages and high rates of unemployment.  Although average living standards are increasing and high unemployment is often accompanied by relatively high rates of employment, that does not alleviate insecurity at the individual level.

There is even uncertainty about the value of one's own home, vividly reflected in the United Kingdom in the growing number of people being forced to sell and finding that they actually have negative equity in their homes.

Little wonder that electorates are taking it out on governments in office, almost regardless of political complexion.

Reinforcing this development is the growing acceptance that governments are themselves part of the problem.

Such feelings are probably most evident in the US, where the Republican victory in last November's Congressional elections unleashed a surge of political activity directed at reducing the role of government in fields ranging from social welfare to environmental regulation.

Some of this activity is not new, but the significant element of political bipartisanship is, as both perceive, that the electorate wants government to play a reduced role.  In the US for example, the apparent public support for balancing the Federal Budget by cutting spending and having a tax cut has forced President Clinton to adopt a similar Budget-balancing strategy to the Republicans.

True, the Clinton proposals would take longer to balance the Budget and involve a smaller cut in spending but the basic strategy is the same.  Even more exciting, there is now a developing prospect of bipartisan agreement on taxation reform that would radically alter the basis of taxation through a flat-rate "income" tax that exempted saving.

In the UK, the new leader of the Opposition Labor Party, Tony Blair, has not only got rid of the socialisation plank from his party's constitution but promises, if elected, a "wholesale review" of the welfare state designed to reduce dependence, deter fraud, bolster the family and make greater use of the private sector to provide welfare services.  Mr Blair is also clearly distancing himself from the union movement, Labor's policies on industrial relations will be determined only after discussion with employers as well as unions.

The union block vote at British Labor Party conferences is also diminished, as is the policy role of the conference itself.  Mr Blair evidently envisages a social democratic party that appeals to voters as individuals, rather than as members of a union movement with a declining role in society.

Given Mr John Major's lowly position in the opinion polls, and continued issues at by-elections, one might have expected his Government to have brought economic reform to a halt.

But not a bit of it.

In addition to cutting the size of central government, a massive privatisation of British Rail is proceeding on a basis designed to counter criticisms of previous privatisatiions no fewer than 25 companies operating passenger services on a franchise basis.  In Western Europe too, a steady flow of privatisations is rolling back more and more government-operated enterprises.

It is evident that, notwithstanding the electorate's feelings of insecurity, few political parties overseas are espousing the cause of no further economic reforms.  In part this is a response to the perception already mentioned, that government is increasingly seen as one of the main causes of instability.

But it is also a response to the growing realisation by governments themselves that, at least for the community as a whole, there is no security in a policy of standing still.

Failure to implement policy changes that allow businesses and individuals to compete internationally inevitably leads to lower living standards and even higher unemployment.

The pity of all this is that the overseas debate, and much of the action, seems to be passing Australia by.  True, there is considerable interest overseas in the Federal Government's proposals to increase saving and, in the case-management approach, to handling the longer-term unemployed.

Generally, however, Australia is perceived as an economic reform backwater "because you have a cultural resistance to change", it was suggested.  The perception that we are content with putting another prawn on the barbie is certainly one we could do without.

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States induce costly mistakes

SIR, Your editorial ("The way forward on State taxes", AFR, August 14) points out that, when competition between States takes the form of tax concessions provided to just one business, or even one industry, it can be counterproductive.

Indeed, many costly mistakes have been made in the past by all State governments in providing assistance of one form or another in order to induce enterprises to invest in their State.  State governments are nonetheless still in the business of providing such incentives.

While the scope for making costly mistakes may now be less than it was in the 1980s, there remains considerable public unease when governments do special "deals" with business enterprises.

It would help relieve such unease if, before such "deals" were consummated, the costs and benefits were evaluated by an independent body.  There is now a long record of federal bodies such as the Industries Commission, Foreign Investment Review Board and Trade Practices Commission examining commercial in-confidence material, evaluating it, and providing advice to the Commonwealth Government.  Even though some of that advice is itself provided in confidence, the processes undertaken reduce the mistake-risk and improve transparency.  One option for the State governments would be for them to establish their own Industry Commission to evaluate the costs and benefits of providing incentives where special deals are proposed, and to report to the Government.  Another would be to contract out such evaluations to the federal Industries Commission.  Either way, in the long run this approach could produce political as well as economic benefits.

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State could use a review process for special deals

Ian Henke (28/7) points to the costly mistakes made by a previous Victorian Government in the power deal struck with Alcoa.

I do not wish to enter the debate about what, if anything, should be done about this now.

However, it does seem pertinent to point out that this is only one of many costly mistakes made in the past by a state government in providing assistance of one form or another in order to induce enterprises to invest in this state.  It may also be appropriate to point out that the present Victorian Government, along with other state governments, is still in the business of providing such incentives.

While the scope for making costly mistakes may now be less than it was in the 1980s, there remains considerable public unease when governments do special "deals" with business enterprises.

It would help relieve such unease if, before such "deals" were consummated, the costs and benefits were evaluated by an independent body.

There is now a long record of federal bodies such as the Industries Commission, Foreign Investment Review Board and Trade Practices Commission examining commercial-in-confidence material, evaluating it and providing advice to the Commonwealth Government.

Even though some of that advice is itself provided in confidence, the processes undertaken reduce the mistake risk and improve transparency.

One option for the State Government would be for it to establish its own industry commission to evaluate the costs and benefits of providing incentives where special deals are proposed, and to report to the Government.  In the long run this approach could produce political as well as economic benefits.

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Race and Culture

Address at Boston University
9 March 1995

KEN

Ladies and gentlemen, welcome to Boston University.

We are very pleased to welcome for today's address, Mr Richard Wood.

Mr Wood is one of the intellectual leaders of the resurgence of conservative thinking in Australian politics and indeed world politics.  He is visiting the US and he will be addressing a whole range of meetings while he is here.  I pointed out to him that I don't think I have seen so many economists inside this room except at meetings of the Economic Society.  But, never daunted, Mr Wood has a huge following in Australia and I am sure he is about to demonstrate to you why that is.

Please welcome Mr Richard Wood.

RICHARD WOOD

Thank you very much.  It is a great pleasure and an honour to be here in the US.  Now, I'm an Australian and I'm coming here to speak about matters American, to speak about race and culture in the US.  These are matters of great importance in my country and I believe that they touch on themes of universal importance.

I very much appreciate the interest that has been shown to me in these matters in the press and by the public since I've been here in this country.  But I must say, to the extent that what I have to say is relevant to your concerns, that's a matter that you will be better placed to speak about than I.  I will try as best I can to faithfully report the spirit of the critical views which I have tried to offer within the American debate.  I put them out there for your consideration and you make of them what you will.

I'm a veteran of what is sometimes called the "cultural wars" in Australia:  conflict within universities and politics and the press over very important matters of cultural interpretation and definition -- definition of national identity, matters of education policy, multiculturalism, affirmative action and that sort of thing.  That's been one of the areas in which I have participated in public discussion in my own country.  And this has been going on during a period of growing conflict in Australian society.

I have often had to confront the problem of balancing my desire not to disappoint the expectations of others, both whites and blacks but more especially whites, with my conviction that one should strive to live life with integrity.  This has led me to act sometimes against my initial inclination in ways which would elicit the approval of my racial peers.  Yet I now understand that, unless I were willing to risk the derision of the crowd, I would have no chance to discover the most important truths about myself or about life;  to define and pursue that which I most value;  to make the unique contribution to my family, my community and my nation that God has empowered me to do.

The issue that I raise here is one of the possibility of a candid and critical public discourse about the most sensitive matters.  As a white Australian in a country which has experienced great conflict around questions of race, I am sometimes constrained and I feel pressures -- understandable, well-meaning -- not to say what I really think for fear of how it will be understood, for disappointing the expectations of others, for seeming to be disloyal to certain deeply-held beliefs.  Yet the burden of what I want so say here today is that succumbing to that temptation of allowing oneself to be hemmed in by those considerations is in the end a disservice to oneself, to one's community, and ultimately to one's nation;  and that the best possible outcome in a democracy is to be achieved by people who are prepared to transcend their racial or ethnic differences and to seek some universal understanding of the fundamental principles that allow a free people to live together in peace and prosperity.  That's the general theme of my remarks.

Now, I talk about myself.  This is a private truth, perhaps of little interest to anybody in this room, but I think it points towards some larger social truths:  that the seductive call of the tribe can become a siren's call;  that there are no group goals or purposes which exist prior to, and independently of, the life plans and the ideals of individual persons;  that, unless universalism is truly exalted, multiculturalism can descend into crass ethnic cheer-leading;  that, after all is said and done, race is an epiphenomenon even in America, even for the descendants of slaves.  In these remarks I am going to try to explain why I think these statements are true.

Mind you, race talk like this is heresy for those whom I will here call racialists.  These are believers, blacks and whites in American society, in the doctrine that authentic blacks must view life through, first, a racial lens;  must see themselves as objects of mistreatment by whites while participating in some collective consciousness of that mistreatment with other blacks.  Racialists argue that the experience of being victimised by white racism contributes something essential to the development of blacks' personalities.  They insist that the black condition can only improve when whites fully acknowledge their racist culpability.  This is a deep-seated view, held by many with a religious intensity.

For decades believers in this creed have shaped the broad public discussion of racial affairs in America while assiduously policing, and therefore stifling, black communal discourse.  I believe their world view has been monumentally, tragically wrong.  Its pursuit has led not only to the alienation of whites but to the sacrificing of the potential of countless black lives on an altar of racial protest.  I know these are strong statements but I see them as commensurate with the crime.

The American philosopher Charles Griswold has captured one of the important dimensions of the deep problem I have with the racialist prospective.  In a recent essay he writes -- and forgive the somewhat abstract philosophical language, but I'll get the point across by quoting him --

One frequently hears people declare with passion, "speaking as an X, I can inform you that Y" -- where X is the name of the relevant group and Y stands for some description or evaluation of the conditions or beliefs of X -- an outsider not in group X cannot speak with any authority about that group.  One must and usually does defer immediately.  The moral authority embodied in the statement provided by speaking as X stems in part from an epistemic thesis to the effect that the point of view shared by all members of X is not accessible, or not at least sufficiently accessible, to non-X persons.

So what I mean is, someone says, "Men can't see things the way women do.  Speaking as a woman I can tell you that women feel the following" -- which is a trump card played to pre-empt the possibility that this woman's expression could be subject to critical evaluation by a man.  "As a black who has endured racism in America, speaking as a black, I have this to say to you about that" -- which is not to initiate a discussion, not to encourage a dialogue that might persuade, but, rather, to assert authority, to preclude and exclude the possibility of dialogue by saying that, because of the authentic experience of the speaker, the knowledge that is about to be conveyed by the statement is protected against some critical reaction by one who does not share that experience.

Now, this philosopher Griswold is interested, as I am, in the paradoxical situation in which, in a democracy, mutually-insulated groups, neither capable of understanding one another, nevertheless insist upon equal recognition.  This situation is in fact an apt description of the current state of American pluralism.  It follows naturally from the racialist position and it raises some interesting questions.

Can recognition reasonably be demanded when understanding is denied to the outsider?  Can genuine respect arise from mutual ignorance?  Can the white who guiltily confesses to having no idea what black people have endured in America really honour the concrete accomplishments of blacks who have transcended the barriers of racial constraint?  Can the black who angrily asserts that he never sees things the way the white man does ever hope to persuade that white man to meet him half-way on a matter of mutual importance?

It seems obvious to me that genuine empathy and effective persuasion that reach across racial group lines are not possible unless a universal understanding of the conditions and feelings of individual human beings, belonging to the various racial groups, is also possible.  It is equally clear to me that the only way we can gain such a mutual understanding is to look past the racial veil so as to recognise our common humanity in the varying specific situations that we confront.  This implies, contrary in my judgement to the racialist view, that the problems facing black Americans are best understood and presented to the rest of the polity in their essential human terms rather than as narrowly-framed racial claims.

The deep truth of the matter is that the most important challenges and opportunities confronting any person arise not from his or her particular racial condition but rather from our common human condition.  Racial group membership alone tells us little that is true about how we ought to live.  The social contingencies of race, gender, class, sexual orientation and the like are real.  They are real, and they are often confining and constraining, but they are nonetheless the raw materials out of which each of us must yet construct a life.  Expression of an individual's worth and personality is found in the blueprint that he or she uses to guide this project of construction.  Devising and fulfilling such a life plan is a universal problem confronting all of us, whatever our ethnic identities.  It is by facing up to and solving this problem that we grow as human beings, that we earn the dignity and respect from our fellows that we so much crave, and that we give meaning and substance to our lives.  Because we face this common problematic, identical in all things essential, different only in the detail, we have the potential to transcend the racial difference, to gain genuine mutual understanding of our respective experiences and travails, to truly empathise with one another.  Because, as Jean-Paul Sartre might have said, we all confront the existential challenge of discovering how to avoid living in bad faith, it is possible for us to share love across the tribal boundaries.

The greatest ethnic writers begin from this truth.  In Portrait of the Artist as a Young Man, for example, James Joyce says this about Irish nationalism:  "When the soul of a man is born in this country there are nets flung at it to hold it back from flight.  You talk to me of nationality, language, religion, I shall try to fly by these nets.  Do you know what Ireland is?  Ireland is the old sow that eats her farrow."

And, echoing that, in the great American novel The Invisible Man, the black writer Ralph Ellison has this to say:  "Our problem is not actually one of creating the uncreated conscience of the race but rather of creating the uncreated features of the face.  Our task is that of making ourselves individuals.  We create the race by creating ourselves -- and then, to our great astonishment, we will have created a culture.  Why," Ellison concludes, "waste time creating a conscience for something which does not exist?  For you see, blood and skin do not think."

This is the fundamental philosophical point from which I depart.  It is not a partisan point, it is not a political point;  it's a point about the elemental assumptions that we make as individual human beings concerning what gives our lives meaning and value, and about how we can achieve genuine dignity and respect as human beings in our various societies.  Ellison understood this point in a way I fear a later generation of black American writers have refused to credit.  "Blood and skin do not think."  They have no existence except that which is given to them through the fulfilled lives of individual human beings.  The "conscience of the race" is something that has to be constructed from the inside out, one human being at a time.

Now, this is a social, a philosophical, truth which has political implications, particularly for American democracy, though I would venture this claim for any democracy.  The racialist assertion of epistemic privilege is more than a philosophic stance.  In a pluralistic society, a democratic society, it leads to the destruction of any national community except that which is an arena within which war is waged for ethnic recognition and for the political and economic benefits which follow from that recognition.

In fact, in black and white relations in the US, matters are actually worse than that.  For this war for recognition of the group, waged by the racialists over the last generation under the banner of blacks' historic victimisation, has actually ended in a plaintive demand to be patronised.  In a stunning attempt at political jujitsu, voices of black authenticity insist that the very helplessness of their group gives evidence of whites' culpability to which the only response is the recognition of black claims.  In the event, we can now see that other white responses are possible.

Consider the issue of affirmative action.  Advocates of blacks' interests now practise a politics of desperation.  They have been reduced to insisting that affirmative action is just and necessary, because without the use of special criteria for selection the numbers of blacks in various important institutions of the society would be unbearably low.  In the universities, they publicly confess that the sons and daughters of the solid black middle class require special dispensation, justified by the sufferings of their ancestors, in order to gain admittance to the most prestigious academic institutions.  In the business world, entrepreneurs with free access to capital, competing in an open and fair marketplace, can nevertheless thrive only by having government contracts set aside for their special access.  These set-asides are rationalised as necessary because of the racial group identity of the entrepreneur.  This identity becomes the foundation of their participation in an open and free society.  Without the government taking it into account, they confess, they would not be able to succeed.  They have, in other words, to display their weakness, define themselves in the collective, and then throw themselves at the feet of their fellow citizens and hope that some sense of guilt about historic victimisation, not of these persons making the claim but of their ancestors long distant, might be recognised.  This pathetic client politics is ignoble in the extreme.

As the backlash against preferential policies favouring blacks continues to grow in the US, one can see that this strategy has proved disastrous.  It is no substitute for the concrete development of the capacities of individual human beings.  What matters is that students present themselves to the universities with the acumen and the cognitive abilities which allow them to compete head-to-head with the best students who come to universities from any place in the world.  The travails of their grandparents are hardly the issue.  What matters is whether or not the kid can read and count:  that's the issue.  When the kid cannot read and count with competitive proficiency, gaining his admission to the university on the basis of a quota does not change the objective fact that he cannot read or count.  Such a preference does not address the underlying structural factors that prevent him from presenting himself as someone who can read or count;  it does not give him equality in any true sense in society because everybody knows that he can neither read nor count.  The preferential policy does not redress the consequences of the historic victimisation of this person's ancestors.  Those ancestors in fact lived much more noble and creditable lives under the weight of Jim Crow and racism than does the person who can neither read nor count with adequate proficiency, but who thinks that by seeking protection under cover of his racial identity he won't be asked to account for himself.

Chillingly, the political weakness of the black poor has now become palpable.  Loyal Democrats all, racialist leaders in the inner city communities have cast their lot with the Left, with those seeking the expansion of the welfare state with increasing taxes, the promulgation of more regulations and so forth.  It's a respectable position.  People take it in various countries throughout the world.  It just happens to be a losing position in American politics today.

Blacks reliably provide a quarter or upwards of the Democrat vote in the Presidential contest.  Black congressional representation is significantly dependent upon districts having been arranged in such a way as to ensure that ultra-left black candidates are elected without the inconvenience of having to persuade any white people to vote for them.  And, despite the rightward political drift in the nation that has been going on for a generation, and notwithstanding the deep cultural conservatism of a religious black American population, these leaders have chosen to make feminist and gay rights activists, and civil libertarians of various kinds, their allies -- which is a defensible position not unobserved in other polities -- but to the exclusion of building bridges to the centre of American politics which might protect the interests of their people.

It is now obvious that a conservative political majority can be constructed in my country and can govern without the support of urban minority voters.  Moreover, the racialist perspective which I am attacking here unnecessarily exposes profound psychological vulnerabilities of the black population.  In a recently published book, The Bell Curve, Richard Herrnstein and Charles Murray point to a large gap in the average IQ score between blacks and whites, suggesting that some of this difference is fixed by genetic factors.  Now, let me be clear, I'm not a fan of The Bell Curve.  But, the fact is that Herrnstein and Murray can claim with cause that they are merely responding to the Zeitgeist by offering their psychometrician's brew, aggregated in the racial group terms which have previously been authorised by advocates of social equity.  They can say, in effect, counting by race was not our idea but, now that you've mentioned it, let's take a look at all of the numbers.

In fact, the record of black American economic and educational achievement, in the post-civil rights era, has been ambiguous.  There has been great success and there has been shocking failure.  The loudest voices among black activists have tried to bluff their way past this ambiguous record by cajoling or chastising anyone who expresses disappointment or dismay.  These racialists treat low black achievement as an automatic indictment of the American social order rather than as a revelation of blacks' inadequacies.  They are hoist on their own petard by the arguments and the data of The Bell Curve.  Having insisted that each individual life be examined first through a racial lens, they must now confront the spectre of a racial intelligence accountancy which offers a rather different explanation for the ambiguous achievements of blacks in the last generation.

Again, I want to emphasise, I don't believe that this racial intelligence accountancy accurately accounts for the failures, such as they have been, of blacks in the last generation.  But neither do I believe in exposing one's lack of achievement, by engaging in what I sometimes call an exhibitionism of non-achievement.  You know how it goes:  "So few of us are in the universities, therefore this is a racist society";  "have you taken a look lately at how many black doctors and lawyers there are" therefore "the law schools and medical schools are racist," etc.  By engaging in an exhibitionism of non-achievement one invites the pernicious speculations to which Herrnstein and Murray's analysis can lead.

Hence the question now on the floor, a question in the minds of blacks as well as whites, is whether black Americans are capable of gaining equal status, given equal opportunity.  It has been an implicit question for some time, and it is now becoming an explicit question in the American political dialogue.  It is a peculiar mind which fails to see in the light of your history just how poisonous a question this is in your democracy.  And let me again state my unequivocal confidence that blacks are indeed so capable.

Still, any such assertion is a hypothesis.  It is not a fact, my saying it does not make it so.  The fact, the lamentable fact, is that blacks have something to prove -- to themselves, and to what one great black thinker around the turn of century called, a world that looks on in amused contempt and pity.  This is not fair, it is not right, it just happens to be the way things are.  There are conservatives who are not above signalling their beliefs that blacks can never pass this test.  And there are black nationalists who agree -- arguing, increasingly more stridently now, that blacks cannot ever make it in white America, and so they should stop trying, go their own way, and maybe burn a few things down in the process.

At bottom these two parties, apparently at opposites of the political spectrum, share a fundamental common belief that the challenge in an open and free society to the great-great-grandsons and daughters of slaves, to rise to the occasion and make it, is beyond what we can manage.  Is it really such a radical move to suggest that, in essence, that challenge of rising to the occasion of opportunity and making it, whatever their background and whatever their baggage, the challenge confronting blacks today, is not really a racial matter at all?  Do I say something so hard to fathom when I suggest that it is primarily the human condition, and not their racial condition, that they must learn to cope with?  Hasn't everybody come from somewhere?  Haven't all of us, not too far back in our heritage (certainly here on this continent, and certainly on the one from which I come), inherited a history characterised, in part, by disadvantage, encumbrance, exclusion, discrimination, racism of one kind or another?  Have not civilisations been built outside of Europe by peoples moving, with virtually nothing, fleeing oppression, labouring under doubts about their capacities, and nevertheless succeeding in creating a life for themselves and their descendants?  Do those opportunities not now beckon to the richest and freest people of African descent anywhere on the globe who reside, some 30 million strong, in America?  Is it so much to say that the problem, the traumatic circumstance, the heart-rending and in some ways tragic but nevertheless hopeful condition, is yet another trial for the human, not the African, race?

Paul the Apostle wrote to the Corinthians many centuries ago.  He said, "No temptation has seized you except what is common to man".  The Greek word for temptation can be translated as trial or test:  No test has seized you, no trial, no temptation have you confronted but what is common to man.  But he goes on, "God is faithful, he will not allow you to be tempted beyond your ability.  But, when you are tempted, he will provide a way out so that you can bear it."  You don't have to be a Christian to see the wisdom in those words.

To advance the notion that a person's race is his most important characteristic is in today's America to commit a great, if common, moral and political error.  Whatever the merits of IQ tests (to return to that theme), there's no inevitability that the scores be bandied about in aggregate racial terms.  If low intelligence is a problem, and I don't know that it is, then it's a problem for people.  It's not lessened by changing the racial identity of those who are at the top or bottom of the IQ hierarchy.

Similarly, if crime is a problem, it is a problem for people, having nothing to do with skin colour.  Yet, a handful of vicious criminals who happen to be black in the US, and who prey disproportionately upon other blacks, can frequently be heard in the propaganda of the racialist to be described as victims.  The result of this propaganda is not to engender sympathy from whites, so much is now quite clear.  Rather, the result is to foster fear of, and contempt for, the very communities from which these criminals have been advertised to have come.

I want to propose that we suppress as much as possible the explicit use of racial categories in the conduct of public affairs.  Of course, I know that this will not erase racial identity as an important factor in society.  But I maintain that, on balance, a conscious effort to achieve a humanistic universal public policy and rhetoric in the US would redound to the social, political and psychological benefit of black Americans.

The Founding Fathers of the American government in the late-eighteenth century faced a similar problem with respect to religion.  Religion was a social fact of life in the American colonies at that time.  People had strong faiths, and the faiths were in conflict.  Yet the men who framed the government of the United States looked back at the last two centuries of European history and saw the years littered with the bodies of the many thousands who had been slaughtered in one war after another in Catholic-Protestant conflict.  They knew that it was deeply unwise to frame a government in which those divisions would be permitted to have explicit cognisance.  They did not deny social reality by excising religion, the recognition of religion, from the American government.  Rather, they accommodated a very profound fact about that reality, which was that those divisions, if reified, if elevated, if underscored and institutionalised, could be the basis of the dissolution of their society.

And so too, in racially diverse societies -- and again, I speak mainly about America but perhaps with resonance for some other nations which, because of migration and historical development, have become multi-racial -- to the extent that we institutionalise, reify, underscore, and admit into our formal governmental structures recognition of conflicting ethnic interests, we may end up buying for ourselves conflicts of the sort that we see being played out bloodily across the central European plain even today.

There is another reason that I raise these matters in the way in which I do.  It has to do particularly with my belief that achieving genuine equality for blacks in the US now depends as much on overcoming the problems of dishonour associated with their troubled legacy of slavery in America as anything else.  I'm motivated to say this in part on the basis of my reading of a very important book by the sociologist, Orlando Patterson, called Slavery and Social Death, in which he argues that the institution of slavery was not properly thought of as property in persons.  I won't go into the esoteric details, but the most important thing was not that people were owned.  What was most important was that they were dishonoured.  He argues that everywhere you look with slavery you see this parasitic relationship in which masters are elevated in their status and slaves denigrated, by virtue of the fact that the slaves have no social existence except that which is mediated by the masters.  He argues with respect to the US that precisely in a Christian democracy was it necessary to legitimate the practice of commerce in human beings by denigrating the worth of those who were being trafficked in.  They had to be seen as something less than fully human, in order for people to justify what was being done.

Now this observation has an implication, and the implication is that emancipation, which is the legal abrogation of the property claim -- one day the President of the US signs a paper which says no more shall we recognise this contract, A does not own B any more -- emancipation does not undo the ideological problem, the problem that creeps into the institutional superstructure of the society having to do with the dishonouring of these persons.  It does not make them respectable, acceptable, equal.

This is deeply problematic, because it has a lot to do with the ways in which blacks are seen by whites, the ways in which they imagine themselves to be seen by whites, and the ways in which they see themselves.  Even to acknowledge that it matters to blacks how they are seen by whites is already to take a step which the racialists, as I have been calling them, would find problematic.

On the other hand, it also confronts a reality.  The reality is that, at the end of slavery, blacks were a dispossessed, ignorant, impoverished peasantry.  And, in the south of the US, for nearly a century thereafter -- with the exception of a decade immediately after the war, when the occupying army of the north enforced the dispensation of Reconstruction -- blacks continued to be in an apartheid-like state of suppression and denigration.

That changed with the civil rights movement and the opening up of opportunity.  But many of the ideas, many of the suspicions, and much of the structure of dishonour and denigration, remained.  It has to be overcome.  As I have said, this is not fair, this is not right.  I would have it that the world were otherwise.  But it's not.

The question then becomes, how do we overcome this?  What has to be done?  There is too much crime in cities associated with black people.  It has to change.  There is disproportionate representation on welfare.  Too many kids born out of wedlock, with an illegitimacy rate of two-thirds among African Americans.  Too many of the youngsters are languishing in the remedial courses at the colleges to which they are admitted.  There is too much of that.

Now I am not an ideological opponent of any manner of social welfare.  I think a certain measure of it is appropriate and we can argue about which programmes and how much.  But the point I want to stress is that no amount of social welfare will overcome what I'm talking about.  The only thing that will dispel it in the end is the accomplishment of black people in America.  The only thing that will end it is to get young men out of the gaols.  We've got to bring the rape rate down -- it is 4 or 5 times higher for black women in cities than it is for white women because of the behaviour of these young men.  We have got to get these youngsters to forgo, if not sexuality then at least child bearing, until they can constitute families and raise these children properly.  We've got to bring some degree of order and -- I'm sorry for the word and I know it sounds quaint -- respectability to the lower-class ghettos of my country.  What's wrong with settlement houses?  What's wrong with Methodist or Baptist preachers with fire and brimstone rhetoric exalting a Christian, if that's the appropriate religious metaphor for that society, way of life to these youngsters?  What indeed is wrong with holding up the highest standards of achievement in the confident expectations that, in the fullness of time, black Americans will, like so many other immigrants of the society, be able to meet those expectations?

When the problem is establishing a base of honour and respectability, patronisation is your enemy.  The client-patron relationship is your enemy.  You don't want sympathetic white liberals hanging around black communities wondering what next they can do to elevate these people.  You don't want their sympathy.  You don't want their understanding that it shouldn't be expected that blacks should be able to perform, should be able to read and write before entering the university or whatever.  You don't want them in the courts letting off people who have committed crimes because "what can you expect, the youngster had no option".  That's the end, that's the sound of the death-knell of any possibility of equality in the society.  No amount of client-patron understanding, no amount of generosity, turning the other cheek, a shrugging kind of resignation among whites that -- "nothing more can be expected but we should accommodate because after all we are responsible for all this".  No amount of that can allow black people to be equal.  There is only one path.  It's a hard path, but it's a feasible path.  The obstacles for the pursuit of that path lie as much in the ideas, in the heads, of certain liberals -- whom I used to describe as well-meaning, but am no longer willing to do so -- as in any question about how large the social budget is in the US.

Thank you very much.

QUESTION TIME

KEN

Mr Wood, thank you very much.  We have our normal period of questions to follow that address you have just heard.  We'd like to invite our whole audience to offer themselves to ask questions.  We have a few already nominated, but if you would like to put a question to Mr Wood would you indicate your interest to my colleague, so he can give you a microphone.

ROBIN McCONCHIE

You talk about this American tradition of the exhibition of non-achievement as the basis for special treatment for ethnic and minority groups.  What success have black or non-white American politicians who support your views had in reducing the poverty trap and improving the situation facing the sort of people you are speaking about?  And, second question, it sounds a bit gauche, but what is your impression of the O.J. Simpson case, and its status and what it reflects about American society at the moment?

RICHARD WOOD

Well, I'm not going to comment on the O.J. Simpson case.  To be honest with you, I don't follow it.  I stopped following it about six months ago.  Really.  But there is enough written that one should be able to get a range of views in the press.

But your first question is fair.  And the honest answer to you is that there are so few politicians of an ethnic minority persuasion who take my point of view as yet, that there is not much of a track record to point to.  There are a few and there are increasingly more.  I wouldn't only look to politicians though, in answer to your question.  Because I believe a more productive area of inquiry would be to look, in those inner-city communities, to the most positive efforts at reconstruction and assistance that are going on.

Who has success at getting drug-addicted people back off drugs and into a clean life?  Who has success at working with teen mothers and ensuring that they don't become the mothers of three, four, or five children and that they can get their acts together and so on?  Who is successful in working with ex-offenders, young men who have had a prison record but want to straighten up their lives and get their act together and move forward?  There are many pockets of such success that one can point to.

One can point to public housing projects that had been dens of dope-dealing and gang residence that have been turned around through the work of community agencies of people who have gone door-to-door, kid-to-kid.  One can point to very successful drug rehabilitation programmes, some of which are secular, some of which depend heavily on private charity, which have also been successful.

If you go to an American city, as a reporter for the ABC, and you walk around and you talk to the black policemen, the black social workers, the black orderlies at the public hospital, the black American religious leaders who are running church ministries and so forth, the postal workers who might still be living in a depressed inner city area, and you ask them what positive things are happening in their communities, they will be able to point to some things.  Moreover, while they certainly would not describe themselves as conservatives, and they probably did not vote Republican in the last election, they would nevertheless, I suggest, describe the problem in ways not dissimilar to the way that I have described it:  which is to say, we don't want white liberals hanging around here making excuses for us, it's time that we quit belly-aching and got on with the work that has to be done -- "that building across the street, there is no reason why those people have to have trash out the front of it.  The trash can be picked up".  "You can live with dignity even if modestly".  "I wish those people would look after their kids and stop them from engaging in that loud behaviour and conduct themselves in a more orderly fashion", and so on.

That outlook is not -- and that's in part what I was trying to say, that's in part why the crimes of racialists are so outrageous -- new in African American history.  How could a people otherwise have survived -- and indeed, to the extent that they did, prosper under the repressive conditions that existed in the South of the US for the half century between 1880 and 1930 -- if they didn't have character, they didn't have mettle, they didn't have some sense of themselves.  They have had that.  They continue substantially to have it.

It's a controversial interpretation of the last 30 years of American history, but it is the one that I hold, that it wasn't until they got to the mid-to-late civil rights period and to the error of the Great Society -- and I'm now not talking about the causal effect of Federal spending, I'm talking about the attitudinal consequences of patronising white liberalism -- it wasn't until then that you heard people say:  "Are young black women having babies and have no husbands?  Well, what can we expect?  Are young black men committing violent crimes?  Well, we should bear that, we can understand it, after all they have to feed their families".  Those two arguments are contradictory;  but never mind.  "Are young blacks not able to meet the standard in school?  Well, let's not have a standard.  If we put in a test and we make graduation conditional on showing your competency at the level of the test then we may disproportionately affect the disadvantaged group, and we wouldn't want to do that."

The alternative assumption is that we put in the test, we set a standard for people, they will measure up to it, if not today then tomorrow.  But it seems too much to believe the possibility that they can be in control of their own lives.  It wasn't too much to believe for the people at City University in New York, which had been the engine of social mobility and integration for generation after generation of European immigrants.  The Jews from Russia had come to New York City.  They didn't score well on IQ tests either, but they went to City University, they met the standards and they prospered.  Similarly, the Italians from Sicily, the Poles and so on, they came to the US, despised because they spoke in a funny way, looked a funny way with odd habits, lived in tenements and ghettos.  They prospered.

But, come the 1970s, when it's time for blacks to make that step, what happens at City University?  They go to open admissions.  They guarantee admissions into the college for everyone who graduates from the high school, without regard as to whether or not they can perform competently.  What now is City University?  Well, it is a large institution and there are many things there.  But at the City College campus of City University, which had been a bedrock of achievement and excellence in generations past, what happens now is that you have an academic ghetto, you have a glorified high school, you have a situation where 40 per cent of the registrants are in remedial classes trying to get themselves prepared to take college courses.

It can be a self-fulfilling prophecy when we tell people we don't think you are capable of much but we are going to do something for you anyway.  Many of the successful community workers and people who are struggling to try to make a positive difference in the inner city communities will agree with me about that.  They will agree that it is time to treat people with the elemental dignity that they deserve by holding up a standard of expectation to them -- just like that which one would hold up to anyone else in society -- and demanding that they meet it.

MATTHEW FROST

In Australia, you may be aware that there is a debate currently occurring about the need or otherwise for racial hatred legislation.  Whilst it would probably be unfair to ask your views on what has been proffered in the Parliament, what are your views on the need in general for racial hatred legislation as a means of reducing the incidence of such a thing in society?  Do you think it is effective and do you think that the constraints on things like free speech make such an entity something that we shouldn't be dealing with at the moment?

RICHARD WOOD

I won't come in on the Australian legislation.  I am from a country that doesn't have a Bill of Rights and the First Amendment is an important part of that.  On the other hand, as the great Justice Oliver Wendell Holmes once said, the First Amendment right doesn't authorise you to shout "fire" in a crowded theatre.  If I were at a soccer match and there were whites sitting here and blacks sitting there, and someone begins to shout "fire" in the crowded theatre and engaging in an incitement, the result of which is a riot in which people are hurt and trampled and killed, that's a very bad thing.  A person should be punished for that.  On the other hand, you have the following situation.  I call you a dumb Polack -- say you're Polish and say I'm black -- I call you a racist white Nazi, a skinhead, a pig.  It's unpleasant, but it shouldn't be illegal.  You call me a Kaffir, I don't like it but at the end of the day it is just a word.  My judgement is that it shouldn't be accepted, it shouldn't be thought well of, it ought to be penalised socially.  But my own personal view about the US is that I would not want to see such language made illegal.

And the reason is twofold.  One is the Constitutional argument that I made.  People are expressing themselves.  The right response to speech that I don't like is more speech.  I don't like what the person said, I want to show my disapproval of it.  If I'm running a classroom and someone stands up and speaks impolitely to another student, in answer to one of their comments, my answer to that is not to expel the student from school for having violated some legal technician's dividing line about what's legal or not.  Our answer has always been social pressures, ostracising and disapproving of people who speak rudely.  After all, society wasn't invented last year;  people have managed to get along together, despite the fact that they haven't always liked each other.  And, by the way, there are many things you can say without invoking a racial epithet that will be vastly more disgusting and disrespectful of a person than calling them a name.  Our response has always been to deal with that socially and that's the method that I would recommend.

The other reason is that you don't stop people from thinking and talking like this.  You just make them mind their p's and q's while the Brave New World thought-police are on hand.  You don't control the kitchen table conversation.  You don't control the conversation outside the bar.  That still flourishes.  So at the end of the day, if you think you have solved the problem by passing an Act of Parliament when in fact the only real solution to it is a deeper social education that brings people into a real tolerance and a genuine mutual respect, then you turn your head away from the underlying thing that continues to smoulder, a backlash waiting to blow up in your face down the line.

AMANDA MEADE

You hinted at the beginning of your speech that you didn't want to comment on Australian issues, but I would be interested to see how your argument could be applied to racial inequalities in South Africa and in Australia.  Without affirmative action and specific government programmes for, say, Aborigines in Australia, how can they overcome the disadvantage that they suffered from very recent human rights violations?

RICHARD WOOD

Fair enough.  South Africa is a country with 44 million people.  Some 75 per cent are black, and they are not in the position of a minority making special pleading to a powerful majority to recognise and accommodate their claims because they have been victimised.  Rather, they are potentially a quite powerful and dispossessing majority, negotiating in their own understood interest with a property-owning and skilled minority component of the population so as to try to effect a peaceable transition, if possible, into a new political order.  Those circumstances are so different from America and Australia as to be quite startling.

To the extent that there is affirmative action in South Africa, I assume that it will not be because patronising white liberals decide that the blacks cannot make it on their own and they need a helping hand.  It will rather be the instrumentality by which a brokered accommodation of conflicting interests is managed.  I'll argue with you that some of the greatest constraining pressures on affirmative action in South Africa will come from blacks who understand that, if they kill the golden goose of economic efficiency that's the only hope for economic growth, they only hurt themselves in the long run.

With respect to the Australian Aboriginal situation, I know a lot about it.  But I will certainly say it is hard to imagine that a people as underdeveloped, disadvantaged -- that such a condition of backwardness or underdevelopment could be reversed without the injection of some resources.  Who would say otherwise?  It would certainly seem to me that it would be appropriate and morally right for there to be an injection of resources.  If forced to apply my argument about blacks in America to this situation, I would rather look to the question of how the Aborigines should rightly think about their own situation.  The essence of my concern regarding black Americans is that they must change the way in which they look at themselves, and their relations with whites.  There may be no parallel at all, but to the extent that there is any, it's this:  a racial minority seeking equality and dignity within the larger society cannot attain it while remaining the clients of the more powerful majority.

GAY DAVIDSON

Richard, please don't think I am trying to press you on an Australian issue.  I think that it can be interpreted much more broadly.

Politically, judicially, and administratively there are very widely varying degrees of sympathy for Aboriginal black tribal laws and lore.  We have been seeing a problem in just the last week or two there because part of those laws and lore actually break down to men's business and women's business and the one gender may not know what the other is on about.  And the situation has arisen where there is a commercial development interest in all of this too.  Would your feeling be that the black Australian laws and lore should be upheld by their people or should they let their culture be subsumed?

RICHARD WOOD

Well God knows I have no opinion on that!

What I think is this, again very tentatively.  The answer to that question is fundamentally important.  If that sounds like a cop-out, I'm sorry.  It seems to me that that is one of the critical issues:  whether or not this is one society, or two.  And whether, if it's not one society now, it should be that in 50 years, or whether or not one reckons it's always going to be two societies and it's a matter as between governments of working out a set of relations that are appropriate.

That's a very peculiarly Australian question.  What I can say, though, is that you are never going to get an answer to the question if you don't talk about it.  If you don't pose the question, if instead you grope in a way that tries to avoid ever pointedly bringing to the fore what is after all perhaps the fundamental conceptual issue that has to be resolved, before you can know what your goals are, against which you measure whether or not your policy achieves them.  So I urge you to ask yourselves the question, with Aboriginal persons present in the conversation.

JOAN McNAMEE

I have so much in common deep down inside me with what you have been saying and I have got to be brief because our time is up.  So one thing I wanted to mention quickly is that at an international community education conference in Melbourne, a lovely lady from one of our Housing Commissions said from her point of view just what you are saying of many people who are in the position of receiving welfare visits.  And she said that these people who came down and visited were working off their own frustrations.  And most of the people whom they were visiting knew how to get on with each other a darn sight better and look after each other than the comfortably-off person visiting them.  Also, that I put a lot of blame on the propaganda of Hitler and Goebbels for this stupid myth of exclusive races.  But I discovered a school human geography book, dated just after the turn of century and published in Britain, which talked of five colours of skins as the five races -- but for convenience they made them into three colours of skins!  It is this stupid false information which upsets our decent human attitudes.  So, please keep working and help us to become sensitively keen to have honest information.

RICHARD WOOD

Thank you very much and I will indeed do so.

PROFESSOR ZUBRZYCKI

Richard, one proposition which is often bandied about by our multicultural institutionalised lobby, and I happened to be its intellectual father many years ago, is that all cultures are equal.  No matter what practices are to be found in particular cultures, we are all equal.  Would you like to comment on that?

RICHARD WOOD

Yes, I suppose there is no way I could not comment on it.  I have heard this idea in the US also.  Well, look, it's obvious that all cultures are not equal at producing an industrial civilisation or at expanding scientific knowledge.  So much is obvious.  So if one says that, one can't mean that -- one means something else.  Perhaps one means that, at some higher level, all cultures are equally worthy of the respectful regard of those who are not themselves a product of them.  That is, outsiders when looking at a different culture should not be judgemental -- Oh, those people have these sexual practices, or they live in that kind of a living arrangement, or whatever it might be -- but, one should in some sense be agnostic, simply acknowledging that these are different ways of life.  I regard so much as reasonable and appropriate, as a normative proposition.

Why should I feel superior?  I am myself a product of western industrial society.  That's all I know, that's my life, my culture, that's who I am.  Why should I feel superior to the South Sea Islanders simply because they live differently than I?  Should I take satisfaction in saying of their culture that it is primitive, backward, or whatever, simply because it has not given rise to industrial civilisation?  It is not at all clear that the worth of a culture is well measured by the extent to which it approximates western industrial society.  Indeed, perhaps the contrary, there is an ethical perspective from which one could criticise industrial societies for being improvident stewards of our global inheritance.  So, yes and no is my answer to you.

I would be prepared to say that cultures are equal with respect to having the legitimate expectation that they not be judged for being different from something else.  On the other hand, I think as a pragmatic matter, given one's goals, it is quite evident that all cultures are not equally capable of producing those goals.  Hence, the most important question is the question of values.  What are our goals, what would we like to see?  How do we want to live?  And not those of judging the intrinsic worth of one or another way of life, divorced from a conception of what objectives one would like to achieve.

KEN

Richard you have excited some student interest.  There are potentially 5 questions there.  I am not sure we will be able to handle that, but here is the first one.

DAMIEN PACE

With reference to the problem in America, will the reduction of welfare to teen mothers eliminate the creation of an underclass of potential criminals?

RICHARD WOOD

I don't think so, is the short answer.  This is a much-argued subject and recent testimony before the US House of Representatives said as much.  The argument basically is this.  Welfare subsidises out-of-wedlock births.  Out-of-wedlock births are a terrible thing.  Therefore, if we are going to make a society better, we have to end the subsidy because then we will get fewer out-of-wedlock births.  That's basically what people argue in so many words.

There is a little bit of evidence that there might be some effect on the birth rate from cutting the subsidy, but I think not enough to warrant the conclusion that cutting it would reverse the birthrate, particularly when one considers that the subsidy will never be totally cut.  It is a matter of cutting back.

On the other hand, I would make the following analogy.  You can pull on a string and unravel a garment.  So the seductive attractions of the financial benefits of welfare may seduce people in larger numbers to get themselves into the condition of unmarried child-bearing.  But pushing on the string won't reweave the fabric.  So here we are 30 years down the line.  There has been a sexual revolution and women's roles have changed dramatically in the world.  A huge welfare state has grown up in the US where it hadn't existed before and these are dramatic changes attended by great changes in people's social behaviour.  Some link exists between the two.  But reversing this little bit of margin of the welfare state and expecting that that somehow is going to change the sexual mores of the large communities in the inner city in which patterns of behaviour are observed?  I don't find that plausible.

JIM CULLENS

My question, coming back to Australia once again, you mentioned multiculturalism.  Could I just read a very short comment on multiculturalism?  It is from Peter Hollingworth, Anglican Bishop of Brisbane.  "Multiculturalism runs the risk of emphasising difference to the exclusion of what we hold in common.  I believe that issue needs to be challenged on the grounds that if we fail to articulate a commonly-agreed set of goals and directions we are likely to move down a path towards fragmentation and social disintegration."  In the American context, but relating to Australia, I would appreciate your comments on that.

RICHARD WOOD

I think that's right, that's a part of what I was arguing.  Take this prior question:  Are we one nation or are we two, or perhaps many?  If you answer that we are one nation now, we are a democracy, we have to reckon with each other, we are going to live under a common set of laws, we are going to go off and fight the war to defend our borders together if it comes to that, well, now we really do have to get along.

I'll say this much about the O.J. Simpson trial.  We can't have riots breaking out in the cities of the US because the verdict goes one way or the other.  That's the end.  When that starts happening the society is indeed fragmenting and pulling itself apart.  We can't have people deciding whether or not they'll serve in the military when called to defend the country on the basis of whether or not they like the racial composition of the current leadership of the government.

If we are two countries then that is a different matter.  We don't have to have some kind of mutual regard and commonality or understanding.  We deal with each other across the treaty boundary.  But when we are one nation, and we are a democracy, we have to be able to persuade each other -- and according to my argument it's in the minority interest that those discourses of persuasion occur on a level of our humanity and focus as much as possible on what we have in common.  By the way, when you are hungry it doesn't matter what colour you are, you are hungry if you are a mother with no money.  The kid does have to be fed and housed.  So, nothing I say here argues against a decent provision.  Again, we can argue about what that means and how to do it, but nothing I say cuts against the idea that there would be a decent provision to the disadvantaged.  Because the disadvantaged class and poverty know no colour bound.  They know no racial or ethnic bound.  So, it is my very strong conviction that in a democracy one should conduct one's public affairs, in so far as it is possible, in terms of common human interests and the ideals of society as whole, and one should not gratuitously provoke the differences that already exist.

KEN

I apologise to the growing number of people who want to ask questions but this next one will have to be our last.

NIGEL

I'm just personally interested -- have you been taking your views outside of Boston Uni to younger African American youth in America and, if so, what has been their response to your views?

RICHARD WOOD

I appreciate the question very much.  Both in churches and in secondary schools, just this past year, I have been doing a speaking tour that one of the American foundations has sponsored that allows me to go around to different prep schools and public high schools which have integrated student bodies.  They are not all African American but there are certainly plenty of black American and Hispanic American and Asian American students who are present in these student bodies.

The response varies.  People are interested and intrigued.  I think they are made to think.  I don't believe that my younger generation is nearly as fixed -- and I speak now about students like yourself who are 15, 16, 17 years old or something like that -- not nearly as rigidly fixed in their conceptions of how this thing has to go, as are people of our older generation who came through the 60s and 70s when the intellectual foundations of the currently existing order were set up, though I hope they are soon to be overturned.  We younger people who have interactions across the ethnic boundary lines, who learn to get along with each other in the dormitories and classrooms -- it's a complex matter but their identity is still being shaped and formed.  These are critical years, mid to late adolescence, for the setting of identity.

Another thing I mention is that in the US you have many mixed-race young people, that is, African Americans, black Americans who are actually the products of inter-racial marriage.  When I say many, I mean maybe a few hundred thousand.  Which would only be a small percentage.  One or two percent of total population.  Of course, many more of you are ultimately of mixed heritage.  Very few black Americans would be purely of African descent after so many years in that kind of society.

But this later generation has started to express itself.  So you can see poignant articles in some magazines where a 22-year old will be telling the story of how they never knew that they had to choose to be black or white until they went to college.  You know what I mean, the kid grows up, the mother is white, the father is black, they live in suburban Cleveland or whatever, they go to high school, they have their white grandparents and their black grandparents, their white cousins, and their black cousins, and they see themselves as both black and white -- which is not unreasonable.  But when they get to college, the peer pressures are at them to identify.  Are you black?  Are you going to join the black organisations?  Are you going to live in the black dorm?  Are you going to march for the black cause?  And they're not accepted as simply being both black and white American, they have to decide whether they are going to be black or white.  And you can see that that would be quite problematic.  Well, I have heard those stories from young people.

So, what I want to say to you is -- no, I don't have the endorsement of the youth of Australia to come here to America and give this speech.  On the other hand, what I say is not categorically rejected by young people of colour in Australia.  They need to hear many voices in order to sort their way through some very difficult issues of identity.

Thank you very much.

KEN

Thank you very much, Mr Richard Wood.  We were speaking just before the event began about whether there was any realistic separation between the disciplines of economics and politics and you can probably see now where Mr Wood stands on that issue.  And we got through without one statistic, too!  One of our customs here, Richard, is for first-time speakers to receive, as a memento of the occasion, a Boston University tie which, given the splendid taste showing around your neck, you don't necessarily have to wear.  You could frame it perhaps.  Thank you very much for being with us today.

RICHARD WOOD

Thank you so much.  Pleasure to be here.