RefiewThe Institute of Public Affairs October

December289 Flinders Lane

1969

Melbourne, 3000

Telephone 636558 Vol. 23, No. 4

Editorial

The 100th "Review"

IT takes a long time for a quarterly publication to reach its100th number — 25 years.In the last 2 5 years, the world has been transformed and

Australia along with it. Few would dispute that the quarter ofa century since World War II has been, in many senses, the mostsignificant in our history. The Australian nation has begun toassume the look and to acquire the feel of maturity.

During these years "Review" may claim to have madesome contribution to economic policy and understanding, andto the changes that have occurred in the political climate andin public attitudes. Most thoughtful people do not need to betold what the letters "I.P.A." stand for: that this is so isprobably attributable to "Review" more than to anything elsethe Institute has published or done.

Back in the 1940's when "Review" was hopefully launched,the Australian economy was one of modest living standards,shortages, rationing and controls, sluggish productivity, andembittered industrial relations. On the political front there wasa fierce, unyielding confrontation between socialism and privateenterprise. Naturally, these were the issues with which "Review"was primarily concerned in its early years.

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The 100th "Review" (continued)

Today, Australia is a country not of scarcity but of plenty,a vastly increased and rapidly increasing population, greatmodern industrial complexes, and an almost unbelievableminerals bonanza. Economic progress has gone forward bygiant strides. The success of the economy and its prospects forthe future have attracted the money of investors and the atten-tion of governments and peoples throughout the world. Theover-all improvement in living standards and the success of fullemployment have taken a lot of steam out of the political con-flict between socialism and free enterprise.

Whether the mass of the people are positively enthusiasticabout free enterprise may be arguable; perhaps they just take itfor granted. But one thing is certain: they are very lukewarmabout large-scale schemes of nationalisation and governmentplanning. They know from first-hand experience that thepresent system, whatever its imperfections, is delivering thegoods. The Institute was established in the faith that free busi-ness enterprise, strengthened at its weak points and assisted andguided by wise government policies, would be capable of doingjust this.

It has been the purpose of "Review" throughout to con-tribute towards the improvements in over-all economic manage-ment and to the changes in business attitudes necessary for freeenterprise to function successfully. We have never deviatedfrom the view that free enterprise would be judged by its per-formance; no amount of propaganda, no amount of publicrelations, however cunningly contrived, would save the freeenterprise system if it failed to satisfy the needs and aspirationsof the mass of the people.

We have never looked on "Review" as a means just of con-veying information, however interesting. "Review" set out tobe a journal of opinion and its primary concern has been toinfluence thinking, especially the thinking of those whosedecisions and attitudes affect the economic development ofAustralia and the progress and welfare of its people.

For this reason "Review" has aimed at a limited circulationamong leaders and prospective leaders throughout the com-munity. It is not intended to be a publication for mass con--sumption. The first print of "Review" was 10,000 copies; todaythe circulation is 21,000. This circulation is distributed among

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members of parliament, both State and Federal, influentialpublic servants, businessmen, trade union officials, professionalmen, the press and, last but not least, university and schoolteachers and senior students. Probably the greatest growth ofinterest in "Review" in recent years has taken place amongeducational institutions. Today we are able to claim, ratherproudly, that "Review" is used in senior classes in about1,000 schools throughout Australia, in universities and seniortechnical colleges, and in the training of teachers. "Review's"main concern is, of course, with economic problems. But it isnot written just for economists. It has always tried to deal withcomplicated economic issues in a manner comprehensible tointelligent people without professional training in economics.

The contents of "Review" are, naturally, tailored to meetthe requirements, and serve the interests, of those who read it.Many articles are written with our large school and universityreadership specifically in mind; others to meet the particularneeds of the businessman. Still other articles, and these wewould possibly regard as the most important, are directed atthose carrying the arduous responsibilities for government,chiefly at the national level. For this reason the most significantarticles that have appeared in "Review" have been those designedto influence policies on major national economic problems. Inthis vital sphere the contribution of "Review" cannot, of course,be precisely assessed. But there can be no doubt that, on therecord, "Review" may claim to have had an impact on many ofthe major economic controversies of the last 25 years.

"Review's" policy has been based on a passionate belief inthe virtues of economic freedom and of imaginative, creativebusiness enterprise. But it has never pushed the barrows of par-ticular interests.

"All thinking is, in a manner, biased." No journal — justas no individual — can attain the purity of complete im-partiality because the reasoning of all of us is inevitablyinfluenced by our own innermost convictions and beliefs."Review" strives to be objective, but naturally it cannot avoidsome measure of personal inclination, some element of subjec-tive predisposition, in its material. But there is a world of differ-ence between a case conscientiously and scientifically reasonedand sustained, and a case argued by methods that exhibit a reck-

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The 100th "Review" (continued)

less disregard for the truth and for the accuracy of supportingdata. It is the difference between the educator and propagandist.The educator would be more than human if he were able toprevent his personal prejudices or predilections from influenc-ing his teaching in some slight measure; he will, nevertheless,treat with a wholesome scorn those weapons which comprise thearmoury of the propagandist. Journalism that has no cause topromote, or journalism in which the subjective factor has beenruthlessly suppressed, is almost certain to be passionless, devoidof colour, and without real life; and its influence is likely to benegligible. We hold opinions, we hold them strongly; and forthis we tender no apologies. Where "Review" makes errors offact or of logic, they are made in good faith.

None of us should hold our beliefs so tightly as to becomeincapable of seeing the merit in opposing ideas and of changingour viewpoint when the weight of argument or experience isagainst us. In the words of a great American, Justice LearnedHand, "the spirit of liberty is the spirit which is not too surethat it is right". This attitude, indeed, lies at the heart of theliberal faith and it is the attitude we have tried to bring to bearin the production of "Review".

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A TributeLord Casey has kindly written the following

generous tribute to "Review" on the

occasion of its 100th Number.

AM glad indeed to write somethingI for the 100th number of the IPA

Review, which I regard as a most use-ful publication. It is carefully and in-telligently written and is understandableto the average reasonably well-educatedperson. This is notable and necessaryas financial and economic matters arenot normally given much attention bythe average Australian. They are so_ im-portant to the economic and social healthof Australia that it is most necessarythat they should be understood. In this,the Review fills an obvious gap, whichis much to be welcomed—and thoseresponsible for its compilation warmlycongratulated.

Although the Review has been not-able in having produced a number ofarticles on Inflation, I have the feelingthat our present rate of inflation inAustralia is not, in my view, regardedgenerally as important and as deplor-able as it should be. Inflation in varyingdegree is a world-wide problem. It is aproblem for governments. Individualsor even companies cannot affect it. Itsincidence in Australia is more or lesscamouflaged and offset by wage andsalary fixation and by alterations insocial service payments from time totime—although not its unfortunateeffect on those on fixed incomes whohave no means of defending themselves

from the effects of inflation. However,its effect on our export industries can-not be offset by acceptable or likelyaction by governments. Public opinion(or perhaps more rightly "publicisedopinion") or even the pungently ex-pressed opinion of our principal exportindustries, may have some effect.

Over the last 60 years, inflation has,strangely enough, been of round aboutthe same approximate order of magnitudeand of increase in Britain, America andAustralia—relatively unimportant untilthe last 25 years, when it began to getthe bit in its teeth in the post-war world.

However inflation is only one of thesubjects on which the Review is il-luminating and timely. Other subjectshave been—productivity, investment fromoverseas, balance-of-payment problems,the machinery of • wage fixation, tariffs,import restrictions, economic planning,and taxation.I hope also that the Review will con-tinue to present contributed articles byselected overseas men of financial andeconomic knowledge and insight, per-haps particularly by men who have someknowledge of our Australian conditionsin addition to their wider knowledge.

I wish the Review and those who areresponsible for it all good fortune for thefuture. It is a public service of high im-portance.

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Recapturing the SpiritElection Postscript

'THE huge swing against the Government in the October

Elections was the most serious blow struck at the LiberalParty since its formation a quarter of a century ago.

There has been no lack of theories pretending to offer anexplanation of the causes of what was perilously close to adebacle. It is impossible to say which of the theories comesnearest the truth. They are opinions and no more.

The electoral set-back to the Government must, however,cause grave disturbance among those who rest their faith inthe principles of liberalism.

But regardless of their political philosophy, thoughtfulpeople must be concerned whether, under the fierce, relentlessexposure of television, the so-called "popular image" of theleaders is not playing far too big a part in modern elections, inAustralia and in other countries. It is a great advantage for thepeople to be better acquainted with political figures vying fortheir favours; but is the television spotlight so harsh that itdistorts the image it claims to present? There is a furtherdanger. Leaders, even the greatest of them, are human beings,and if their weaknesses are thrown up too starkly, people maylose their respect for those they are called upon to follow. Theessential mystique of leadership would be destroyed. The Vice-President of the United States, Mr. Spiro Agnew, recently drewattention to the threat to democratic government inherent inthe growing tendency of the communications' media to in-dulge in attempted intimidation of political leaders.

Politics is being presented by the communications' media,not so much in a serious vein as an absorbing entertainment, acontinuing weekly drama. Politics has become the "civilised"blood-sport of the modern day, with the over-candid camera

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enabling the millions of viewers to gaze first-hand at themanoeuvres and discomforts of the protagonists. T.V. pro-vides an unparalleled means for stimulating a healthy interestin politics and making the people better informed about thepolicies offered for their choice. But is it being used in thisway? The purpose of the incessant, often discourteous, inquisi-tions seems not so much to clarify issues as to create sensationand cause the maximum discomfiture to those under thehammer. Ideas are taking second place to the cult of person-ality. It is the policies of the contending parties which will, inthe end, affect the people for good or ill, rather than whetherMr. A. looks more appealing or appears more smooth-talkingthan Mr. B on T.V. screens in countless drawing-rooms.Politics is not just another "Miss Australia" quest.

THE I.P.A. has, of course, always been a champion of liberalideas in economics and in other fields. We believe that this

stand has been overwhelmingly vindicated by the remarkableeconomic strides made under policies which have, in the main,been of a liberal inclination. In the small space of two decades,Australia has risen from a society of comparative scarcity toone of general abundance, and it is clear that the best is yetto come. The basic political and economic principles which liebehind this extraordinary advance should not now be aban-doned, mauled or put into reverse, no matter what partyoccupies the seats of government.

The central core of liberalism is its faith in the individual,in his ability to look after himself and his right to fashion hisown life according to his own lights. The undying hostility ofliberalism is to authoritarian or paternalistic systems of govern-ment and therefore to political and economic policies whichdepend for their implementation on the increasing power ofthe State. The role of the State is not to determine how theindividual shall live his life: it is to provide the opportunitiesand conditions under which the individual can make the mostof himself and shape his own destiny. This over-riding conceptprovides the test which should be applied by liberals to thepolicies which they advocate, or, if in government, to thosethey are pursuing.

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recapturing the Spirit—Election Postscript (continued)

The liberal must oppose the increasing disposition ofgovernments to interfere with the working of the marketmechanism, which provides the most effective means fordetermining the allocation of resources and the most economicpattern of production and distribution. On the other hand,he will strongly support the principle that the State shouldunder-pin the weak. Also, in the modern era of technologyand exploding urbanisation, the liberal will concede the needfor governments to concern themselves most actively withthe total physical environment in which the individual mustlive.

Under true liberal policies, the economy will be loaded infavour of the enterprising, the hard-working, and those withskills of high value to the community, striving to climb theladder of ambition. But, at present, income tax scales are sosteeply graded that it is uncommonly difficult for people togreatly improve their economic situation out of the productof their labour.

In the modern day, the true liberal must be an inter-nationalist. This does not mean that he will not have a decenthealthy pride in his own country. But in a world of jet planes,H-Bombs and space exploration he will recognize narrownationalism, either in economics or in foreign policy, as adangerously destructive and antiquated concept. Neitherinterference with the free flow of capital and enterprisebetween countries, nor the refusal so far of Australia to signthe Non-proliferation Treaty, makes sense to those of liberalinstincts, who see the future in terms of a steady approach to adeveloping world community. Those of the liberal faith wouldalso wish to see a bigger, more generous approach to the wholeproblem of foreign aid.

Liberalism should aim at abolishing poverty by providinga "floor" below which no one should be allowed to fall. But thegrowing tendency to hand out lavish amounts of state aid todifferent sections of the community, often indiscriminatelyand regardless of the real need of the recipients, is a trend thatthe true liberal must oppose. This is seen today most vividly inthe year-by-year increase in the financial assistance provided tothe primary industries. This has led to a farcical situation ofover-production in particular fields, and to a grossly uneco-

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nomic use of the nation's resources. And, by a strange contra-diction, the people getting the bulk of the assistance are notthose who need it most but those who need it least, and manyof whom do not need it at all.

Promiscuous government aid, not based on need, is alsobeing extended to other areas of the economy. In education,for instance, comparatively wealthy private schools are receiv-ing assistance on the same basis as schools in dire straits. Withinthe State educational system itself, schools are subsidised on a$ for $ basis (according to what parents provide) which onlyserves to increase further the disparity in educational standardsbetween the poorer and well-to-do areas.

In social services and health benefits there is a similar trendtoward providing blanket assistance for all — surely an absurdanachronism in the affluent society — rather than concentrat-ing state aid where it is really needed. The Labor Party is thestrongest offender in this regard with its policy of total aboli-tion of the Means Test and the virtual nationalisation of medi-cine.

In the field of civil liberties Australia is lagging painfullybehind larger and more mature countries overseas. It is timefor a bold advance in such matters as capital punishment andpenal reform, and in laws relating to abortion and the adminis-tration of censorship. This would be in tune with basic liberalphilosophy.

It is difficult to avoid the conclusion that the turn againstthe Liberal Party in October was at least partly caused by avague but general feeling that it was moving away from thebroad liberal concepts which inspired its foundation, toward arather stodgy conservatism. The remedy is in its own hands.The Liberal Party needs to recapture the crusading spirit of itsearly years and to relearn the true essence of the liberal faith.If it is to move boldly forward into the 1970's (as it movedboldly forward into the postwar era in an earlier time) itwill need to up-date its attitudes to accord with the needs anddemands of today's world.

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Address to IPA Annual Meetingby Sir Colin Syme

Chairman, The Broken Hill Pty. Co. Ltd.

TRANSPORT

WHEN your President asked me to ad-dress you, he suggested that I

might want to talk about steel or mineraldevelopments, but he kindly gave me alatitude to talk on any subject of import-ance to BHP. I am taking advantage ofthis latitude to talk about transport. Itis a subject in which we have a very largeand varied interest, and this interest, Ibelieve, mirrors that of the nation atlarge.

I don't have to remind you of thevital role which transport has played inthe history, economic and otherwise, ofthis nation. The story has been mostlucidly set down by Geoffrey Blainey inhis "The Tyranny of Distance". As hesaid in his opening paragraph — "Dis-tance is as characteristic of Australia asmountains are of Switzerland. By sea-lanes or airlanes most parts of Australiaare at least 12,000 miles from westernEurope, the source of most of theirpeople, equipment, institutions andideas. The coastline of Australia alsostretches for 12,000 miles and the coastencloses as much land as the USA, exclud-ing Alaska. The distance of one part ofthe Australian coast from another, or thedistance of the dry interior from the coast,was and is a problem as obstinate asAustralia's isolation from Europe."

Australians have sought to overcomethe handicap of distance in two ways.We have, since the days of Cobb & Co.and earlier, tried to minimise transport

costs by operating highly efficient trans-port undertakings.

We have also, perhaps less consciouslybut no less importantly, sought to keepdown the transport component in ourtotal cost structure by the siting of ourplants and cities. That the vast majorityof our people live on the coast is not justbecause the rainfall is higher there oreven because they enjoy the surf. Livingand working on the coastline not onlyminimises the costs of our exports andimports; it also enables us to make themost of one of our most vital internallines of communication, coastal shipping— so much so that in 1967-68 58% ofdomestic freight traffic measured in tonmiles went by sea.

It is this adaptation to circumstanceswhich explains the rather surprisingstatistic that transport and communicationonly represented 8% of our gross nationalproduct in 1966-67. I say "rather sur-prising statistic" since many people seemto imagine the figure is much higher.Indeed a figure as high as 25% waswidely quoted some years ago, although infact the percentage has remained moreor less constant in the 60's, havingactually risen slightly in the late 50's.

Though international comparisions canbe as misleading in this field as others,the Australian percentage appears to com-pare quite favourably with comparablecountries such as Canada and SouthAfrica, both 9% in the latest availablefigures.

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On the other hand, we are still havingto devote a high proportion of our re-sources to transport and communicationscompared with many of the more thicklypopulated industrialised nations. InFrance, the proportion is a mere 5%.In the United States and West Germanyit is 6%. In Italy 7%. And it wouldbe higher in Australia were it not thatwe left others to carry our foreign tradefor us.

This may represent a proper use ofour limited resources, but it is addingconsiderably to the current account deficiton our balance of payments. By 1968-69the transportation deficit had reachedalmost $300 million, debits of $688million far exceeding credits of $394million.

There are therefore no grounds forcomplacency. Even if 8% were in somesense a reasonable proportion for a nationlike ours to earmark for transport, itstill represents a very large sum of money— $1,624 million in 1966-67.

Certainly we in BHP cannot regard thecosts of transport as being at all insignifi-cant. We estimate that of the selling priceof our products at least a seventh ismade up of transport costs. 9.8% isattributable to sea transport, 4.2% torail transport and sizable costs are alsoincurred on road transport and in movingraw materials and semi-finished steelwithin the works.

Of this 9.8%, the cost of shipping rawmaterials represents 4.7% of the finalprice and the cost of shipping steel pro-ducts represents 5.1%. Of the 4.2%that goes on rail charges, 2.4% is onaccount of steel products and 1.8% is onaccount of raw materials.

A significant proportion of our trans-port needs are met by our own fleet ofships, which in 1968-69 carried 4.2million tons of cargo for the Company.

In addition, however, we required out-side-owned vessels -to move a further 7million tons round the Australian coastand to move 3 million tons internationally.

As a result, of all the raw materials,goods and services BHP buys in, trans-port is easily the largest item. We have topay outsiders $60 million a year for theuse of their sea, road and rail transport,or fully twice as much as we spend onsteel scrap, fuel oil and refractories com-bined. And all this, I emphasise, is ontop of the considerable costs involved inrunning our own fleet.

Thus you can see that no company inAustralia is more concerned to minimisetransport costs than BHP by one or otherof the two methods I mentioned earlier.The siting of our plants and the choiceof suitable vehicles in which to carry ourraw materials and finished products arecrucial to our profitability.

The location of our steelworks is largelya matter of the relative costs of movingmaterials and products. The balance ofadvantage here is not constant. When itrequired two tons of iron ore and fiveof coal to produce a ton of finished pro-duct and when it cost almost as much perton mile to shift the raw materials as thefinished steel, it was more economic tosite steelworks near their sources of rawmaterials than their markets. The locationof many of the older plants in WesternEurope and North America reflects thebalance of advantage as it once was. Inour own case the location of our plantsat Newcastle and Port Kembla had muchmore to do with their proximity to coalthan to the customer.

But this balance, as I say, is changingas it becomes possible to produce steelwith a great deal less coal and to moveraw materials in bulk at much lower costthan prevailed in the past. Hence prox-imity to markets is becoming more im-portant, provided always the markets are

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Address to IPA Annual Meeting (continued)

sited near to ports which can accommo-date large bulk carriers.

This, of course, is one of the attractionsof Westemport. Not only is it near toMelbourne; it offers a depth of 47 feet,sufficient to take ships of almost 120,000tons. It is also an excellent natural har-bour.

But we are not contenting ourselveswith siting new plants in such a way asto keep down freight costs. We are allthe time looking for ways of reducingthe cost of existing hauls. Spectaculareconomies have been achieved in themovement of bulk materials, so much sothat it now costs about 1/5th as muchper ton mile to move, i.e. load, ship anddischarge materials as it does finishedproducts. Even allowing for the fact thatit requires roughly three tons of rawmaterial to produce a ton of finished pro-duct, this is a fairly glaring contrast andwe are well advanced on plans for re-ducing this discrepancy.

We are working on the design of aproduct carrier based on the roll on/rolloff principle, which we hope will beideally suited for the special require-ments of the Australian steel industry.There is, after all, no other steel industryin the world with quite the same patternof coastal trade as our own, involvingas it does a continuing and considerabletraffic in pig-iron and semi-finished steelbetween steelworks, as well as in finishedproducts between producer and consumer.

The carrier we have in mind — and weare currently thinking in terms of em-ploying three such ships in the early seven-ties — will incorporate various specialfeatures. For instance, the ramp usedto give access for mobile equipment willbe ship mounted in the stern quarter ofthe vessel itself, that is at the stern butslightly to one side, with a view to per-mitting the use of conventional berthssuitably strengthened. The usual roll on/roll off vessels have a stern door right at

the back and can only be handled atspecially constructed berths.

These carriers will thus be in the trueAustralian tradition of intelligent adapat-tion to circumstances. This is somethingwe should seek to perpetuate. My onlyworry about this is that some of the cir-cumstances to which we are having toadapt are not so much the laws of natureas the policies of government. Contraryto a popular misconception, BHP is notthe government of Australia and has towork within an environment moulded asmuch by politics as economics.

There are many respects in which theinfluence of government, Commonwealthand State,- has been inimical to low trans-port costs. Take, for instance, the mannerin which State governments have obligedmineral developers to set up processingplants within their own boundaries as aquid pro quo for the right to mine de-posits. The steel industry is not alone inthis regard, but other industries, e.g.alumina and nickel, have rarely beencalled upon to carry the upgrading pro-cess past the stage at which the productcould be shipped in bulk.

They have also been largely export-oriented and exports can be as readilysupplied from the north-west of Aus-tralia as the south-east.

In the case of steel, however, thispolicy of enforcing local upgrading hasinevitably raised the price of steel viaits effect on transport costs and this in-flationary effect has been growing as thecost of moving products rises relative tothe cost of moving materials.

There may well be a case in terms ofdecentralisation for subsidising industryaway from the main centres of population,but it certainly does not follow from thisthat steel users should pick up the tab.Moreover, while some inflation of pricesmay be tolerable for a company in a

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semi-monopoly position like BHP (andI stress the qualification semi since weare all the time competing with othermaterials as well as imports) thingswould look very different if we were tobe faced with direct competition — un-less of course any competitor was similarlyhobbled!

But it is not only State governmentswhose policies seem oblivious to the needto keep down transport costs. The Com-monwealth Government's attitude to ship-ping shows small regard for the need forlow freights and the contribution theycould make to strengthening the balance ofpayments, both by keeping down the priceof exports and enabling Australian manu-facturers to compete with imports.

There can be few, if any, countries inthe world which give less financial assis-tance to their shipowners, either by way ofgrants or low interest loans or accelerateddepreciation. And just to add to the hardfeelings of Australian shipowners, theyhave to pay more by way of initial capitalcosts than overseas owners to the extentthat the subsidy on Australian-built ships(a maximum of 33-1/3%) is frequentlyinadequate to cover the difference in pricebetween the domestic and foreign-builtvessel.

You may well wonder how, in that case,Australian shipowners survive. The an-swer is that they do so by being pro-tected from competition on the Aus-tralian coast. This may be some consola-tion to the owner, but it is often verylittle solace to the user who has to payexcessive freights in consequence. Thatcoastal freights have been inflated by thehigh standard of accommodation re-quired by Australian seamen has beenwidely commented on. The factors re-ferred to earlier however represent a muchgreater handicap to Australian shipownersand more particularly to the ship users towhom their high costs are ultimatelypassed on.

An illustration from our own experiencewill show how these higher costs canaffect freights and thereby reduce the com-petitiveness of the Australian product. Toship limestone the 1,000 miles from RapidBay in South Australia to Newcastle costs$2.65 a ton. To ship limestone 4,500miles from Japan to Newcastle costs $1.53a ton. Part of this difference is explainedby the size of vessel used, but the over-whelming part is due to the financialhandicaps suffered by Australian ship-owners.

Almost everywhere we look, we seegovernmental indifference to the incidenceof transport costs. The attitude of Stategovernments to road transport is anotherexample — the penalties they have im-posed on intra-state transport have addedto costs and distorted the location of in-dustry which has sometimes gone to ab-surd lengths to take advantage of the in-ability of the States to impose similarrestraints on inter-State transport. Andindifference characterises the general at-titude of authority to the need for betterports. In other countries not even themost dedicated believer in private enter-prise challenges the right of governmentto own and develop ports. In this countryit can be a major problem getting govern-ments to accept their responsibilities inthis regard.

It is interesting to speculate on thereasons why governments set such a lowpriority on cheap transport. One un-doubtedly is their own involvement—over35% of gross fixed capital expenditureby public authorities in 1968-69 was intransport — and their felt need to safe-guard their own investment, or at leastthat part of it which can earn them afinancial return. Too often this involve-ment has caused governments to lookaskance at the need for cheap transport.It has also tended to distort investmentpolicy.

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Address to IPA Annual Meeting (continued)

We live in an age when it is fashion-able for all men of goodwill and modera-tion to subscribe to the virtues of themixed economy. Sometimes, however, allthis means is that we get the worst of bothworlds with the umpire siding with oneof the teams. The Australian transportsystem with all its different degrees ofgovernmental interest may be a case inpoint.

It was therefore very welcome to hearthe Prime Minister announcing in hispolicy speech last month that "we shallset up a Bureau of Transport Economics,to analyse the costs and economics oftransport in Australia, and, in co-opera-tion with the States, where necessary,will seek to take measures to reduce suchcosts".

Such a body is long overdue. For everytransport economist in this country theremust be ten mineral economists and ahundred agricultural economists (I noticethat at this moment the Bureau of Agri-cultural Economics is advertising in Bri-tain for yet more agricultural economiststo add to its staff of 150 graduateeconomists). This disproportion bears norelation whatever to the relative import-ance to Australia of transport on the onehand and all forms of primary industryon the other.

The need for economic analysis is orshould be closely related to the amount ofcapital expenditure being devoted to aparticular field of activity. (The presentallocation of our economic resources is

very largely the product of previous in-vestment decisions). In 1965-66, thelatest year for which we have comparablefigures, gross fixed capital expenditure ontransport and communication excludingthe post office came to $900 million com-pared with $465 million in primary pro-duction and $236 million in mining andquarrying. The mining figure will haverisen substantially since, but so will in-vestment in transport. It is safe to predicttherefore that it will still exceed the othertwo combined. Perhaps therefore thetime has come for economists to assesstheir own productivity a little moreclosely.

Such a body is not going to enable usto get by with a significantly lower pro-portion of our national resources devotedto transport, but it could well ensure thatour investment is better directed and thecosts of existing users reduced in conse-quence. If it also has the effect of en-couraging the greater use of transportfor good economic reasons, this too willbe no bad thing in so far as it promotes amore competitive and less insular environ-ment.

Mr. President, the views I have ex-pressed are my own and not necessarilythose of my Company. They are biased infavour of lower transport costs and somemay think that they are unfairly biased.But I do hope and believe that they bringup matters of sufficient importance towarrant the attention of The Institute andits members.

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"Review" and Economic Policy

OVER the years "Review" has tried to play a constructivepart in the great continuing debate on the major issues

of national economic policy. Our concern has been that thesepolicies should provide a favourable climate for business enter-prise, rising productivity, rapid development, improvingstandards of living and economic stability.

Not infrequently "Review" has found itself out ofsympathy with ideas that, at the time, were widely accepted.It has not hesitated to criticise trenchantly those policies orviewpoints with which it has disagreed. Looking back, it mightfairly be claimed that "Review" has influenced thinking onmany vital economic policy questions and has contributed tochanges in apparently well-entrenched ideas.

Here is a selection of what we regard as some of the moreimportant things "Review" has said, culled from the 100 issuesthat have appeared since the inception of the publication in1947.

ProductivityWith the achievement of full employment and the

beginnings of the Welfare State during the War, higher pro-ductivity, in the I.P.A.'s view, became a first objective of post-war economic policy. The Institute drew attention to thecentral importance of productivity in a booklet, "IncreasedProduction", published in 1945. This theme was subsequentlyrepeated in a number of articles in "Review".

What "Review" said

January-February, 1949"Production is not yet a first priority of economic policy in thiscountry. We are still bogged down in and obsessed with the problemsof social security and social justice — of taking something from the

III

"Review" and Economic Policy (continued)

other fellow, instead of making more for ourselves. But it is now clearthat at our existing levels of productive capacity and achievement nofurther great advances in social security and social services are practi-cable.A sound and adequate system of social security cannot be supportedon a foundation of industrial inefficiency. On the contrary, effectivesocial security depends entirely on the attainment of a high standardof production."

July - September, 1953"Production depends on people. It will not flourish in an unsympatheticmental environment. There is no guarantee that the most efficientmachinery, manned by the best technicians, will produce the bestresults unless behind them are the drive, the urge and the will whichcan be supplied only by the human spirit. It is, in literal truth, faiththat moves mountains even when it employs bulldozers."

Economic Growth Without InflationIn the early 1950's "Review" was almost a lone voice in

opposing economic growth achieved at the cost of inflation.Today, opposition to inflation is general and most authoritiesaccept stability in the price level as a necessary condition ofmaximum economic growth.

January-February, 1950"Inflation is now the crucial problem of Australian economic policy.It is no exaggeration to say that if the problem of inflation can besolved, all economic problems will be solved; and, conversely, unlessinflation is conquered, all problems will remain unsolved."

January-March, 1960"Unfortunately in recent years there has not been a really vigorousattempt to build a national opinion hostile to inflation. For quite agood part of the last decade we have been under the influence of abrand of economic thinking which went close to suggesting that in-flation didn't matter. Doubts about the validity of this doctrine beganto appear some two or three years ago; today it would be hard to findany responsible authority in the Western World who really believes init. Moreover, apart from die undesirable economic and social conse-quences of long-continued inflation, it is clear that the great majorityof people have become heartily sick of rising prices."

The Balance-of-Payments' Crisis of the Mid-1950's.

The Commonwealth Government's policy to deal with thebalance-of-payment's crisis of the mid-1950's was based on thepremise that the economy was suffering from excess expendi-ture on consumption. "Review" argued, on the contrary, thatthe cause of inflation and the weak balance of payments wasto be traced to an over-ambitious rate of development andmigration. This article, along with several subsequent articles,played a part in the re-thinking which eventually took placeon the problems of growth in Australia.

October-December, 1955"If the level of consumer spending in relation to the needs of theeconomy is excessive, then it is, in the main, only so because incomesand standards of life are greater than the economy can afford . . .The strongest single influence on total consumer spending in Australiatoday is the development and migration programme of the Common-wealth and State Governments. Indeed, at no time in Australianhistory, except perhaps in the gold rush days of nearly a century agoand for a few years in the late 1920's, has there been a period of develop-ment remotely approaching the present. The rate of population increasehas been faster than that of any comparable country . .. Thisdemands a corresponding concentration of resources on investment toprovide employment, houses and a wide range of community services."

Growth Depends on Exports

During the 1950's, when repeated balance-of-payments'difficulties constituted a threat to Australia's development ob-jectives, many argued that the solution was to be found inpolicies of import-replacement. "Review" maintained that thisargument was fallacious. It contended that continued develop-ment could be assured only through the rapid expansion ofexports. This doctrine began to achieve general acceptance ingovernment and business circles by the end of the decade.

July-September, 1955"It is doubtful whether, in the long run, import restrictions and highertariffs assist the balance of payments, unless they are so severe as to cutdeeply into standards of living or to cause substantial unemployment.

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"Review" and Economic Policy (continued)

If import restrictions simply give rise to compensatory attempts toexpand local production to replace imports, the policy would in theend be self-defeating. The new industries set up in Australia wouldinevitably lead to the need for greater imports, although of a differenttype to those excluded . .. In particular, the idea of savagely re-stricting imports of consumer goods — even if that were feasible —to permit the continued importation of so-called essentials is so muchnonsense. It would react disastrously on the balance of payments. Theimportation of capital goods to promote industrial expansion and giveemployment would, unlike the import of consumer goods, generatesecondary demands for imports and would promote development at theexpense of a deteriorating balance of payments."

April-June, 1956

"It is of the greatest conceivable importance for Australians to realisethat the rate at which the development programme can be continuedwill be largely determined by the rate at which export earnings can beexpanded. We could with advantage adopt the slogan, "Developmentdepends on exports". Theoretically it might be possible to maintain arapid pace of development by progressive cut-backs in living standards.But it should hardly be necessary to emphasise that this process couldnot in practice be taken very far. From any practical point of view,development means development without any noticeable reduction incustomary standards of life."

Arbitration Reform

In the first decade after the war, the machinery of arbi-tration was creaking badly and giving rise to widespread dis-satisfaction among employers and trade unions and the com-munity generally. The long-drawn-out legalistic proceduresof the Commonwealth wage-fixing authority were contribut-ing to industrial unrest, and the decisions of the Court werepartly responsible for the runaway inflationary trends of theearly 1950's. "Review" advocated the re-constitution of theCommonwealth Court of Conciliation and Arbitration as aCommission so that the tribunal could operate in a non-legal-istic atmosphere and with simplified procedures. The Courtwas, in fact, re-constituted as a Commission in 1956. Tominimise the danger of inflationary wage decisions, "Review",in 1960, put forward the concept of the Total Wage. This was

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seven years before the Commission replaced the Basic Wageby the Total Wage as its basis for adjusting wages for changesin economic conditions.

July-September, 1955"The arbitration system provides a suitable instrument for the adminis-tration of a more or less uniform national wages policy. But againstthis it has manifold defects. The main one is that it engenders anirresponsible attitude on the part of both employer and employeerepresentatives; moreover, the very fact of its existence in the forefrontof industrial relationships tends to emphasise the divergence, ratherthan the unity, of interest between employers- and employees.The Arbitration Court should be reconstituted as a standing IndustrialCommission prepared to undertake periodic reviews of wages, if needbe on its own initiative.A disadvantage of the present machinery is that it is slow-moving,cumbersome, costly, round-about, and wedded to a procedure ill-suited to the determination of major industrial and economic issues.These defects are what the critics have in mind when they speak ofthe need for 'streamlining' the existing methods. There is a strong,and justified, feeling that the machinery could be simplified and theadministration of industrial justice greatly expedited with advantageto all concerned."

January-March, 1960

"The present principles of wage fixation are the product largely of anearlier and very different era of industrial and economic conditions.With the rapid advance of technology, the need for at least maintainingthe position of the skilled worker is today even more important thanbefore the War. In all democracies the objective of cost and pricestability has come to be of major concern — second only in importanceto full employment. It is of special significance in Australia where thelevel of exports will largely determine the standard of living and thepace of future development. The Commonwealth Conciliation andArbitration Commission may need to pay even more regard to theeffect of its decisions on the price and cost structure than in the past.To assist the Commission to do this, the principles and methods of wagefixation should be such that the danger of inflationary wage decisionsis reduced to a minimum. The abandonment of the basic wage conceptand the proportionate adjustment of all wages at a single hearingwould be the simple, logical, and sensible way of promoting theseobjectives."

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"Review" and Economic Policy (continued)

Overseas Investment

In the great debate of recent years on overseas investment,"Review" argued that overseas capital and technologies wereof vital importance to Australian economic development."Review" uncompromisingly opposed the introduction of con-trols on the inflow of overseas capital.

April-June, 1965

"While it is entirely right that we should be taking a careful analyticallook at the economics of foreign capital inflow, it would be regrettableif the analysis were to be clouded and distorted by considerations thathave more to do with emotion than with realistic economics. Themiracle of development we have achieved in the last decade or twoshould, be bringing with it a growing maturity of outlook rather thana disposition to nationalistic self-assertion.But, these things apart, it would surely be the height of folly to turnour backs on one of the most important of the factors which have madethe miracle possible. For, whatever the critics of overseas investmentnow contend, it is perfectly certain that, without the great inflow ofcapital that has nourished the Australian economy since the War, ourpresent industrial stature would be a puny thing compared with therobust dimensions it has assumed.Developments in automation, electronics, computers, in medicine,synthetics, supersonic travel, nuclear and space research, are transform-ing the world with which we are familiar. Whether we like it or not,the basic research, the pioneering of these new developments and theirapplications to industrial processes and to everyday living will becarried out, for years to come, in the larger advanced countries, becausethey alone have the financial resources and the scientific and technicalfacilities on the scale required.There are exciting times ahead. But, we are not going to participate inthem, and travel in step with others along the twentieth century roadof technical and scientific progress, by erecting walls around ourselvesand by telling the rest of the world to keep out."

Economic PlanningIn the early 1960's economists, financial writers and,

surprisingly, some businessmen, frustrated by "stop-and-go"policies, were turning to over-all government planning as a .means of ensuring steady growth. These views were stronglyassailed in a series of articles in "Review".

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January-March, 1962

"Some people seem to be thinking these days in terms of an idealeconomic world, in which there are no fluctuations in employment; inwhich prices never rise (or, presumably, fall) ; in which there are neverany shortages or bottlenecks slowing down production or develop-ment; in which no serious difficulties ever arise with the balance ofpayments; in which the annual national rate of growth never variesfrom 4, 5 or 7 per cent or whatever target is set; in which every in-dustry expands (or contracts) at precisely the right rate — whateverthat is; in which wages and profits never get out of line with prod-uctivity which always rises rapidly and by precisely the same amounteach year; and in which (in Australia) the annual migrant intake nevervaries from a set figure. In other words they visualise an economy inwhich the sun is always brightly shining, or, to change the metaphor,whose health is always robust and nothing ever occurs to disturb theeven tenor of its ways. All this, we are told, is ours so long as we ac-cept the magic talisman of economic planning.This has a strangely familiar ring. We were told almost precisely thesame things in the years round the end of the War when planningalmost assumed the emotional appeal of a new religion."

October-December, 1965

"The growth of the Australian economy will not be accelerated byGovernments or civil servants establishing some arbitrary figure andthen fooling round with the main economic aggregates — investment,consumption and the such-like — in pursuit of the objective they haveset themselves. At the root of it lies the disposition to plan the futuredevelopment of the economy and the standard of living in such a wayas to try to make them conform more or less precisely with the subjec-tive notions of those who do the planning. The exercise is futile andwill be far more likely to impede growth than to promote it. Thesensible course for Government is to concentrate on dealing with prob-lems as they arise, to try to keep the economy reasonably balanced andhealthy, to maintain a general environment conducive to enterprise andexpansion, and to leave the rate of growth to take care of itself. It is anoutrageous and arrogant presumption to suppose that an unpredictableand uncontrollable future can be predicted and controlled."

Taxation and Fiscal Policy

"Review" has published many articles on the dangers ofextra-heavy government spending and excessive taxation. Ithas strongly opposed the view that (in a situation of high tax-ation) the cure for inflation is still more taxation. Morerecently "Review" has concentrated on the difficulties now

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"Review" and Economic Policy (continued)

being created for the middle-income groups by an outmodedtax structure. The progression of the Commonwealth incometax scale has not been fundamentally altered since the intro-duction of Uniform Taxation in 1942. Australians in themiddle-income ranges are now among the most heavily taxedin the world because inflation has pushed them into incomecategories (in money terms) which were "upper bracket" aquarter of a century ago.

April-June, 1960"The idea that increased taxation is necessarily anti-inflationary isbased on a peculiarly static view of the economic process. It assumesthat if the government imposes higher rates of taxation or additional(new) taxes, the extra revenue represents money extracted from thecommunity and to that extent the community's spending is reduced.But this approach ignores entirely the dynamics of the matter — itignores entirely how the community is likely to react to the additionaltaxation which it now finds itself compelled to pay. The communitydoes not submit passively to higher taxation. It finds the increased taxesirksome, and *the natural irritation which it feels is translated into adesire to do something about it. In one way or another the differentsections of the community eventually take action to counter the effectsof the increased taxes on their own pockets. And this activity inevitablygives rise to inflationary consequences."

October-December, 1966"Over the last two decades, inflation, rising productivity and fullemployment have led to a great increase in incomes throughout thecommunity. Progressive income tax now vitally affects a high propor-tion of income earners. For people carrying heavy responsibilities inbusiness, the professions and public administration, marginal rates oftax range from 53 cents at $8,800 to 68 cents at $32,000. For thosevirtually dependent on their salaries, taxation at these rates really startsto hurt. Those people with skills and qualifications, or with abilitiesabove the average, who make an indispensable and important contri-bution to the well-being of the whole community, should not be un-justly penalised."

Social Welfare

"Review" has opposed attempts to replace our presentsystem of selective government benefits for those most in need

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with a universal government system of health benefits andretirement insurance.

April-June, 1969"In an increasingly affluent society, the Australian emphasis on selectiverather than universal benefits has much to commend it. This concen-trates the direct responsibility of the Government on the poorer sec-tions. But the rest of the community is still assisted indirectly throughgrants to hospitals, subsidies to voluntary health insurance funds, andliberal tax concessions for contributions to life assurance and superannu-ation funds. Experience with the British system of universal benefits forall, regardless of the circumstances of the recipient, must surely causeAustralians to hesitate before they lightly abandon their present systemin favour of an alternative which leads to the all-embracing WelfareState. Maximum welfare, it needs to be understood, is not by anymeans synonymous with the Welfare State.

The British system of universal benefits, by definition, is incompatiblewith efforts to give most help where there is most need 'Across-the-board' pensions and services in such areas as health and education,merely spread the butter too thinly to bring material help to those whoneed it, and appear out of place in a youthful, vigorous, rapidly-developing Australia."

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Farm Subsidies Call ForReview

TH: crisis of over-production in theheat industry, and the 50 per cent

increase in the superphosphate subsidy inthe last Budget, are generating wide-spread misgivings about the whole systemof financial support for the rural indus-tries. Farm subsidies and price supportsare costing the Australian public about$500 million a year, in round figurespossibly $2,000 per farm.

With falling world prices and risingdomestic costs, the economic position ofmany farmers is deteriorating and theneed for some degree of financial as-

sistance is not in question. Apart from thefact, however, that the cost to the com-munity is becoming excessive, the way theassistance is being applied is seriouslydistorting the pattern of production, in-creasing land values and raising costs,and is leading to grave inequities as be-tween farmers themselves. A review ofthe entire apparatus of farm supportsshould be among the first priorities ofgovernment policy.

Most of the rise in direct farm sub-sidies from the Commonwealth Budgethas taken place over the past 5 or 6years, as shown in the table below:

GROWTH IN DIRECT FARM SUBSIDIES BY THE COMMONWEALTH GOVERNMENT

1964/5 1966/7 1967/8 1968/9 1969/70$ Mill.

Wheat 1.9 16.2 15.5 42.9 • 40.0 (estimate)Dairying 27.9 27.9 27.7 27.6 28.8Sugar - - 23.8 -Cotton 1.9 2.8 4.0 4.6 3.6Fertilizers 23.4 33.8 34.6 43.5 67.2Petroleum Products - 16.0 17.6 19.3 22.2Tractors 2.8 2.2 2.5 2.2 2.2Devaluation

Compensation 21.0 35.0 29.0

57.9 98.9 146.7 175.1 193.0

Source: Commonwealth Budget Papers.

* The estimated figure of $40 million for the wheat subsidy in 1969/70 will be met in the first instance by a ReserveBank advance, but eventually will have to be found by the Treasury.

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. Subsidies are only a part of the financialsupport provided by the community to thefarmer. Fixed home consumption pricesfor sugar, butter and cheese, fruit, rice,wheat and other products well aboveprices ruling in world markets cost theconsumer possibly an extra $100 milliona year. Some services are supplied tofarmers by government instrumentalitiesat a cost far below their true cost. Forexample, deficits on irrigation worksthroughout Australia are now over $80million a year, and railway deficits ex-ceed $100 million a year. A large part ofrailway losses are incurred on countryfreight and passenger services. Certaincapital items within farm properties suchas irrigation channels and drainage works,are supplied free of charge by govern-ments.

This is not all. Farmers enjoy moregenerous tax concessions than any othersection of the community. Investmentallowances, various capital developmentexpenditures (normally only allowed tofarmers) and special estate duty reliefon farmers, now involve a loss of taxrevenues approaching $30 . million a year.Farmers who lose their crops throughrain, hail, drought and other disastersusually get government relief — in directcash payments, in kind or in loans at lowinterest rates. Over the past 4 years, $80million has been paid to Australian far-mers in drought relief.

The main arguments put forward tojustify subsidies and other financial sup-ports to the farming industries are:

First, to guarantee the farmer atleast a "living wage", the same asthe wage-earner obtains through theArbitration Commission.Second, to introduce a measure ofstability into farm incomes whichfluctuate widely because of seasonalconditions and the vagaries of ex-port markets.

Third, to keep people on the land inthe interests of decentralisation.Fourth, to improve agricultural long-term investment prospects and henceexpand production of primary pro-ducts.Fifth, to promote exports to helpfinance the import needs of the non-rural industries and the nationaldevelopment and migration pro-gramme.Sixth, to redress the balance betweenfarming and protected secondaryindustries.

Agricultural economists and expertsshow a wide,divergence of viewpoint overthe problem of financial support for thefarming industries. Professor F. Gruen ofMonash University contends that financialhelp to farmers, preferably by way ofsubsidy, is economically justified by theexistence of protection to the rest of thecommunity. The most trenchant andeloquent opponent of subsidies and pricesupports is Dr. B. R. Davidson of SydneyUniversity. In a recent paper he goes sofar as to claim that no dire consequenceswould flow from the complete abolition offarm protection. The real economic posi-tion of most farmers, he argues, wouldstill be better than that of the urban com-munity, and the volume of rural outputwould not decline. Davidson says thatwhen the cost of operating a motor vehicleand perquisites such as meat and milkare included, unsubsidised small farmers'incomes would still be greater than theminimum wage. He agrees that the remov-al of protection might cause small farmersto leave agriculture, but their farms wouldbe absorbed into larger, more efficientunits. Dr. Davidson also points out thatthe main effect of subsidies is to increasethe income of the larger producers and toprevent resources being used in agriculturein their most efficient manner. He writes,"The small farmer with the lowest pro-duction receives the least subsidy. The

Farm Subsidies Call For Review (continued)

large farmer, who does not need thesubsidy, receives the largest share".

Davidson also attacks the general beliefthat farmers are severely penalised bytariffs which protect secondary industries— an argument much used by representa-tives of the primary industries. He esti-mates that tariffs increase farm costs byless than 4 per cent, and decrease farmincomes by less than 7 per cent. Davidsonbelieves that the total effect of tariffs onthe farmer is probably cancelled out bythe special taxation allowance of 20 percent made for new purchases of plantand machinery. One of the major argu-ments for protection for secondary indus-tries is that manufacturing is a large em-ployer of labour. This argument does notapply to farming where employment issteadily declining.

A serious disadvantage of subsidies andprice supports is that they divert resourcesaway from the most efficient uses, anddistort the pattern which would occurwith the free interaction of supply anddemand. The present over-production ofwheat throughout the world provides aclassic illustration of the inherent dangersof government interference with marketforces. Although good seasons and risingproductivity in Asian countries are partlyresponsible, the main cause of the world-wide wheat glut is to be traced to thefact that in Canada, the United States, theEuropean Common Market and Aus-tralia, farmers have been encouraged toplant grain by an absurdly inflated pricestructure set by governments. ProfessorMilton Friedman of Chicago University(perhaps the leading conservative econo-mist in the world today) says that govern-ments made a grave error in believing thatthe law of supply and demand did notapply with rigour. He points out thatfixing the price of wheat "only a littletoo high, is enough to bring about a tre-mendous surplus. Why? Because the

prices will simultaneously discouragebuyers and encourage sellers." The sameargument, of course, applies in somedegree to other subsidised farming pro-ducts.

France, for example, now has $1000million of surplus subsidised wheat, but-ter and other farm products. Butter sellsat 80 cents a pound on the domestic mar-ket, so that only wealthy people can buyit. Mr. Paul Fabra, the brilliant Eco-nomics Editor of the famous FrenchJournal, "Le Monde", in a recent articlein the London "Times", roundly con-demned the Common Agricultural Policyof the European Economic Communityfor guaranteeing higher prices to farmersfar above what they would recieve hadthey been subject to the "law of supplyand demand". Fabra points out thatprice guarantees have not enabled thefarmers in the Common Market to obtainthe desired "parity" of income with otherworkers. The volume of their agricul-tural surpluses gets bigger every year, andas Fabra says, "they can only be got ridof by selling them dirt-cheap on the in-ternational market".

The American Government is nowspending the equivalent of $US2,000 perfarm in agricultural supports. In the viewof one leading expert (Mr. M. Clawsonin his recent book "Policy Directions forU.S. Agriculture"), America's farm pro-grammes are at cross-purposes. He saysthat "With one hand the federal govern-ment pays farmers to restrict acreages andthus limit the output of price-supportedcrops. Meanwhile, in response to an in-dustry lobby, it subsidises the price ofhalf the lime used in the U.S., thereby en-couraging farmers to boost their yields peracre." Shades of Australia! In the lastBudget the superphosphate subsidy wasboosted by 50 per cent per ton in thevery same year as wheat quotas wereintroduced. Clawson maintains that sub-sidies and farm supports, instead of rais-

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ing the level of farm income in the U.S.,are actually reducing it: poor growers onsmall properties get little of the subsidyand quotas are also artificially pushing upthe price of land, and thus costs. Thesmall farmer has almost disappeared fromAmerica's wheatfields, while corporationswith the capital to apply modern massproduction methods to large areas arereaping most of the benefits of a multi-million dollar price support scheme. This,too, has its counterpart in Australia. Since1958/59, farm income attributable tocompanies has doubled, but unincorpor-ated farm income has risen by only athird.

In Australia the Wheat StabilisationPlan was introduced in 1948 largely toguarantee a "living wage" to the wheat-grower and thus avert any repetition ofthe 1930's when the slump in exportprices reduced most growers to the breadline. The Plan aimed at smoothing outfluctuations in the income of wheatgrowerscaused mainly by sharp changes in worldprices. Growers were to get at least "costof production" for all sales on the homemarket, and also for a proportion of ex-port sales. It was intended that thegrower himself should pay for this as-surance of stability. A $60 million fundwas built up over a period from the pro-ceeds of a 15 cents a bushel export taxon wheat. However, by the mid-50's,costs had overtaken prices and since thenwheatgrowers have been drawing from theWheat Stabilisation Fund. The Fund wasexhausted in 1959/60 and over $150million has since been paid from Con-solidated Revenue to meet the govern-ment guarantee.

In 1968/9, the Reserve Bank extendedcredit of more than $500 million to theAustralian Wheat Board to finance pro-gress payments to wheatgrowers beforethe wheat is sold. Proceeds of wheat salesat home and abroad go to reduce thedebt due to the Bank. As wheat stocks

already stand at about 250 million bush-els, and another 420 million bush-els could be harvested this year, theWheat Board faces the problem of dis-posing of a record 670 million bushelsof wheat, nearly twice the amount sold in1968. With the prospect of 200 to 300million bushels of unsaleable wheat, pro-duction quoats have been introduced forthe current season. The Wheat Board isto pay a first advance of $1.10 per bushelonly on 357 million bushels of "quota"wheat. Growers can expect an eventualpayout of $1.71 per bushel ("cost of pro-duction") for about 50 million bushelssold within Australia for human consump-tion, and $1.45 per bushel on stock feedsales and the first 200 million bushelsof export wheat. However, the remaining"quota" wheat could return growers aslittle as $1.25 a bushel. The outlook forthe surplus "non-quota" wheat, over andabove the 357 million bushels, appearsgrim indeed.

Government guarantees to the wheatindustry have led to a marked diversionof resources to wheat growing as com-pared with wool and other farm crops.In 1956/7 wool prices were high and thearea of wheat sown in Australia was aslow as 7f million acres. But with thecontinued decline in the fortunes of thewool industry because of steadily risingcosts, many graziers and mixed farmershave turned their attention to wheat grow-ing. As a consequence, the area of landunder wheat has soared to 26.6 millionacres in 1968/9. Production jumpedastronomically from 98 million bushels in1957/8 to 540 million bushels. Exportsreached a peak of 287 million bushels in1963/4, but have since receded to under200 million bushels with the fall in salesto Red China.

Over-production is not the only distor-tion resulting from massive assistance tothe wheat industry. Wheat subsidies arefavouring the large growers and not those

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Farm Subsidies Call For Review (continued)

who most need help. Last year Aus-tralia's 55,000 wheatgrowers were paid atotal subsidy of $43 million, or an averageof $780 per grower. But the top 10 , percent of growers received an average sub-sidy of $2,000 each at the expense of thetaxpayer. During the past decade therehas been a relatively sharp rise in thenumber of big wheat holdings, particularlyin Western Australia and New SouthWales on grazing properties and new landproducing wheat for the first time. InWestern Australia the proportion of wheatfarmers growing 700 acres or more hasrisen from 10 per cent in 1955/6, toover 40 per cent; the biggest grower crops250,000 acres.

The present method of allocatingquotas on past production also undulyfavours large, established growers. Onthe other hand, small producers, sharefarmers and young men with heavy debtshave been allocated insufficient quotasto earn them a "living wage". Over thethree years 1964/5 to 1966/7, four-fifths of farms growing wheat earned over$3,000 a year (about average male earn-ings). Nearly a third earned between$10,000 and $20,000 a year, and a tenthover $20,000 a year. The wheat sub-sidy thus appears to be assisting a greatproportion of farmers to earn well abovethe "living wage" envisaged by thefounders of the Wheat Stabilisation Plan.As currently operating, the Plan, allied toquota restrictions, is primarily assistingthe large and not the small grower.

Subsidies and price supports in thedairying industry have for many yearspropped up inefficient producers. Des-pite massive financial assistance, now cost-ing over $50 million a year, less than halfAustralia's dairy farmers earn an incomesufficient for them to operate efficientlyor build up capital to diversify. The Com-monwealth Government is only nowadopting the recommendations of the1959/60 Committee of Enquiry into

dairying that marginal producers be easedout of the industry. $1 million has beenallocated in this year's CommonwealthBudget as the first instalment in an $80million scheme to shift one-third of Aus-tralia's 62,000 dairy farmers into otheroccupations, and to improve the efficiencyof those remaining.

Subsidies in Australia have had the un-fortunate effect of becoming capitalisedin the price of land. A subsidised dairyfarm, a wheat, sugar, fruit, cotton, tobaccoor rice farm with a production quota,sells for much more than exactly thesame land next door with no subsidy orno quota. Rising land values have madeit difficult, if not impossible, to assist thepoorer farmer — particularly new en-trants often bogged down with debt.

High land prices make it difficult torejuvenate run-down properties andseriously handicap young, vigorous menwith ideas but with little capital to carrythem out.

The Commonwealth Treasury isseriously concerned at the obvious dis-tortions in the economy resulting frominterference with the free interaction ofsupply and demand. In the 1967 Eco-nomic Survey, the Treasury pleaded fora greater emphasis on the allocation ofresources through the mechanism of themarket. The Treasury says that "to workeffectively this mechanism needs to befree as possible from obstructions tomovement. Further than that, the aimmust be to have the economy as a wholemanaged so as to preserve flexibility.Over all, this is in no small way a matterof keeping supply and demand in balanceand avoiding the excesses and rigiditiesthat hinder the response on the supplyside to the changing patterns of demand."

Subsidy and price' support schemes areclearly causing anomalies in the use ofresources and serious inequities as be-tween farmers themselves. Farmers plant

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subsidised wheat but ignore feed grainsand other un-subsidised crops for whichthere is a market at a lower price. Mar-garine restrictions to help the butter in-dustry are limiting the market for oil seedcrops. Quotas in some primary industriesare raising the costs of efficient farmersby reducing their output, and are enablinginefficient producers to stay in business.Huge, unsaleable stocks of wheat arebeing created, causing government moneysto be diverted to building storages whicheventually could become useless.

Indeed, the over-production crisis inthe wheat industry is threatening to un-dermine the whole Wheat StabilisationScheme by black-market sales of non-quota wheat. Some growers are alreadymaking forward sales as low as 60 centsa bushel.

In a world of rapid changes, pro-ducers ought to be encouraged to usetheir initiative in developing new linesand reducing costs to meet overseas com-petition. Subsidies and price guaranteesbased on cost- of production do the veryopposite: they encourage high costs andfreeze resources into existing, uneconomicpatterns of production.

It is against this background that Aus-tralian Governments should be doing a

lot more hard thinking about the futureof subsidies. Reports that the Govern-ment intends to grant a subsidy of -$7million a year to the wool industry tofinance the new wool marketing schemeare disturbing. Once wool gets a sub-sidy, this leaves meat as the last remain-ing rural industry of consequence stillstanding on its own feet.

The present practice of making addi-tional, indiscriminate handouts to therural industries, year by year, almost asa matter of course, should stop. Farmers,like any other section of the community,are entitled to assistance from the publicpurse where the need can be establishedon economic or humanitarian grounds.But the subsidising of well-to-do pro-ducers, at the expense of the community,constitutes an uneconomic use of publicfunds and draws resources away from in-creasingly urgent urban requirements. Thepresent methods of assistance have led toa farcical situation of over-production,uneconomic diversion of resources andgross inequities as between farmers them-selves. Market forces must be allowedto exercise a bigger role in determiningthe most economic forms of rural pro-duction.

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Our Own

Crisis

by

SIR JAMES DARLING

As Headmaster of Geelong Grammar School in Victoria for 30 years.Sir James Darling became one of the great figures of Australianeducation. In 1961 he resigned to become Chairman of the AustralianBroadcasting Commission.

Sir .James has always had a deep interest in community affairs and hasbeen a leader in many fields. He was the foundation President of theAustralian College of Education. He is currently Chairman of theAustralian Road Safety Council and the Australian Frontier Com-mission, and is a member of the Commonwealth Immigration Ad-visory Council.

A former colleague at Geelong Grammar wrote of him: "Sir JamesDarling has pre-eminently the talents required of one who wouldserve in the wider fields of Church and State. For he is sensitive andyet tough; he is a scholar, yet down-to-earth; he has a trained andbrilliant mind, yet knows and is capable of translating into speechand action the impulses of the human heart".

MY theme is this. There was a time,not so long ago, when there were

so many obvious and urgent things tobe done for a society which had beenblasted by the Depression that therewas no time for analyzing the causeswhich had brought about the need foraction. In such a crisis as that men of

good-will have to man the fire hosesand put out the flames, not search forthe origins of the fire. In some sense thisis what was done and what social serviceorganisations continue to do. The situ-ation is different today. The flames areless evident, but the menace of possibleconflagration remains. We still have a

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bit of time left, though no one can sayhow much. This is the day for thinkingand analyzing and inquiring, for lookingat the way things are going and tryingto make out where they are leading us.If we do not like the look of the future,we still have time to do something aboutit before it overwhelms us. This impliesdeep thought, set free as far as possiblefrom prejudice and pre-conceptions anduninfluenced by considerations of im-mediate self-interest. It is a hard thingto do and the process may be painful;but truly responsible people are thosewho look for long-term objectives anddistrust short-term expedients.

Such an attempt to think may wellhave the effect of offending the innateconservatism of an apparently affluentsociety.

I made a speech in Adelaide the otherday. After it an old boy of GeelongGrammar came up to me and said, "Weheard all that in the Sixth Form." Thatwould have been in about 1937 and hemay well have been right, because Ithink that I was then a bit hot on thatvery up-to-date sociologist, the prophetJeremiah. Prophets are only by im-plication people who foresee the future.They are men and women—seers isanother word for them—who see moreclearly the present and the consequenceslikely to follow from a failure to under-stand it.

Jeremiah was particularly good at thisand it didn't make him popular. He hasthe reputation of having been a pes-simist and this is a most unfortunatething to be, especially at a time wheneveryone else thinks that everything isgoing pretty well. Seers usually have tobe pessimists when times seem good andoptimists when they seem hopeless. It isthe function of the long-sighted to pre-serve a balance. In Jeremiah's time theminute country of Judah was precar-iously placed between the great powersof Egypt and Babylon and the whole

Eastern world was in ferment. Hisargument was that the only hope forthem was in the preservation of theirown identity and integrity; for him andthem this meant faith in the God whohad looked after them in similar circum-stances in the past, had delivered themfrom slavery and had enabled them todevelop as an independent nation. Theywould lose this identity if they conformedto the habits of the heathen nationswhich surrounded them and lost theirown sense of moral values. Things aren'tso very different today and in thiscountry. Conformity with the world pat-tern and the rather desperate search forstronger allies in a world essentiallyselfish is very rarely an effective policy.He was not popular and few peoplelistened to him. This is the usual fateof those who see more clearly than thecrowd.

We also live at a time of crisis. Therevolutionary changes in the worldduring the last hundred and fifty yearsand particularly during the last twentyhave created this crisis; Australia'sgeographical position and even itspresent burst of prosperity make itpeculiarly vulnerable. Externally thefuture is precarious: internally it is con-fused and alarming. "Conditions existnow which have never existed before,conditions dangerous to all of ussimply because they are uncontrolled.It is no longer possible to goblindly ahead and meet these conditionshead on. They must be anticipated to becontrolled, and controlled parallel withtheir development, if Australian society,as we know it and want it to be, is tosurvive." Furthermore, the tempo isevery day becoming more rapid, and thetime for consideration and for makingplans is running out.

I am not alone in saying this.The most distinguished people have inrecent speeches sounded notes of warn-ing. The Duke of Edinburgh in his

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Our Own Crisis (continued)

opening speech to his CommonwealthConference has pointed to the dangersof a society which increasingly tends toforget that it is made up of human beingsand can only succeed with their co-operation. In a message to my ownorganization he has said: "Two thousandyears ago our Lord declared that Mancould not live by bread alone. It is evenmore important in our day to recognizethat we cannot live by technology alone.It may be more difficult but our primaryconcern must be for the total quality ofour existence and the continuing re-lationship between Man and his en-vironment."

Mr. B. B. Callaghan, Managing Dir-ector of the Commonwealth BankingCorporation, has said much the samequite recently.

In a recent speech at the opening ofANZAAS the Governor-General haswarned us against the progressivedespoliation of the country which we areallowing to happen without protest, andSir Macfarlane Burnet has taken a ratherpessimistic view of the future of thehuman race.

The Primate of the Anglican Churchmore optimistically, because he spokefrom a basis of faith, neverthelessrecognized, as did the Lambeth , Con-ference and the World Council ofChurches at Uppsala, that we live in atruly revolutionary age, which is al-ready in a number of areas having con-sequences that are rapidly moving out-side our understanding or control.

To say that we live in a period ofcrisis is not to make us unique. Man hasalways thought that he did so, and hehas always been right, because this isa dynamic world, continually changingand moving. Only in retrospect does itbecome clear that it is moving in a con-sistent direction and sometimes it is onlyafter a very long time the direction can

be discovered. In history there areperiods of comparative calm, evenstagnation, and there are periods ofdrastic revolution, periods of collapse anddespair, periods of excitement and hope.The end of Athenian democracy was oneof despair. So must also have been thebreak-up of the Roman Empire. Seenat least from the standpoint of the Re-formers, the Reformation was of theother sort, as also that of the FrenchRevolution. In fact the birth of the newcan always be seen as the death of theold and vice versa. Do we live in aperiod of collapse or of renaissance orboth? This is for us to decide. There areelements of both in the situation, and thismakes it a time of crisis automatically,that is, of judgment. By judgment re-sponsible men and women share in themaking of history; only by neglect oftheir responsibility do they become itsslaves.

There is not time to do more than toremind you rather superficially of theparticular symptoms of this end of thetwentieth century. We are involvedphysically in the full working out of theIndustrial Revolution with the enormousimplications which have followed fromit. We are witnessing the change froma society, largely isolated in countriesand based on village communities, intoa world made one by fantastically rapidcommunications and moving, at leastin all the older countries, towards anintense urbanization. When the popu-lation of the world reaches 10,000 million,as will soon happen, this mass of peoplewill for the most part be concentrated inhuge cities. It has almost happened al-ready in Japan. Within the highly de-veloped countries we are seeing theconcentration of industry into great-global concerns, the elimination of thesmall family business with its ease ofhuman -relationships. We are approachingan age of computerization and auto-mation almost designed to make man

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unnecessary and as a by-product to re-duce the working week and make theuse of leisure a major pre-occupationfor us all. As far as work and welfareare concerned we are already on theverge, almost intentionally, of an ant-heap or beehive concept for society.

Politically the changes have beenequally revolutionary. In the age ofWestern Imperialism responsibility bothfor internal order and for protection fromenemy attack was vested in a few greatEuropean powers. That age is ended andin its place we have the intense, some-times bitter, nationalism of the de-veloping nations. On the other hand,while these newly born states have thrownoff the yoke of the imperial power, theystill find themselves committed to in-volvement in the universal westerntechnological system of economic life,ill-suited at the present time to theirconditions. The clash and crisis of thiscan be seen close at hand, or soon willbe, in New Guinea and the Pacific. Theinherent difficulties of this situation arenot reduced by the divisions betweenEast and West on ideology as well asby the Power Politics which follow fromthem. If America and Russia could findsome way of resolving their differencesthe world might much more easily besaved. Most tragically such a solutionseems to remain impossible.

Economically, the gap between therich and the poor nations is widening,as in some countries that between therich and poor within them. This divisionwill get worse as population expandsor explodes. In Education, we findeverywhere an increasing uncertaintyabout objectives and a growing unrestamongst students, an intensification ofthe gulf between the generations, madethe more important when we realize theextraordinary imbalance of 'the agegroups-50% of the world's populationalready under 25, and likely to be under23 very soon. In religion we have had

to accept an apparent collapse of the in-stitutional church, together with theabandonment of respect for almost allauthority. The impact of the newTheology and the idea that God mustbe sought not in Heaven but in thesecular world have-weakened the simplefaith of our ancestors, and we have asyet hardly sighted the "baptized scienceof the future". God, they say, is to besought in the present, not in Eternity.

When you add to all this the over-riding threat of atomic warfare and theinternal cancer of the permissive societywith its contempt for conventionalmorality and its commercialized ob-session with sex, you will not be sur-prised that these years have been calledthe dangerous decades. All these under-lying revolutionary changes affect every-day life and decision-making. There arecracks in the walls which cannot bepapered over or ignored. The found-ations of the building itself are sinking.

These factors apply to almost everycountry in the western world and accountfor some of its obvious malaise. In Aust-ralia itself we have problems peculiarto ourselves: the rapidity of our growthin population, with its corollary ofsomething like a quarter being new set-tlers or their children: the consequencesof Britain's withdrawal from the IndianOcean, and the necessity which thisimposes upon us of becoming an adultpeople standing upon our own feet: ourunparalleled prosperity which makes us amuch more juicy morsel for the acquis-itive, and particularly our reliance uponJapan as our main customer and theconsequences which that entails. Ex-ternally, while obviously still a western-orientated people, we are inextricablyinvolved in the future of South-east Asia.How do we work out our future relation-ships with Malaysia, with Indonesia,with the Philippines, with India and withJapan? Internally, we have so far failedto find what they call an identity for

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Our Own Crisis (continued)

ourselves, trying to preserve, with it mustbe accepted some degree of success, acompromise between the welfare state andfree enterprise but uncertain which weregard as more important. Politically, weare again faced with a choice betweentwo parties in neither of which mostpeople have much confidence and yetare uninspired by the manoeuvring ofthe smaller splinter parties. There is adangerous general distrust of politicianswhich is not entirely superficial, and asense of frustration in the seeming failureof the political party system to interpretpublic opinion in popular government.

Lest I may be accused of merelyknocking honest men who are doing theirbest, I should like to draw your attentionto a recent P.E.P. pamphlet entitledRenewal of British Government. Itstarts by complaining that variousselect committees have so far only dealtwith problems on an ad hoc basis. Manyof them have been conditioned by short-term political pressures . . . The prob-lem of winning the confidence of thegoverned needs to be harmonised with theproblem of making , the governmentmachine more efficient . . . We are be-coming a self-governing society and wemust renew our institutions to reflectthis change . . . We should streamlinethe structure of government and increasepublic interest and participation . . . Thegrowth of political individualism . . . hasbeen one of the most important aspectsof the past decade . . . We have an op-portunity to make an important con-tribution to the peaceful evolution of theworld community and to solving thegreat unprecedented problems which willface mankind in this century and thenext . . . That is why we have to re-think the nature of democratic partici-pation.

Generalizations again, you may argue,and abstractions, and written aboutBritain, but if you want to make themmore concrete and relevant to Australia,

read your daily newspaper and assessfrom it the values of the society in whichyou live. Go back into your own businessand ask yourselves what are the motiveswhich you must accept if you are to besuccessful, and even the methods. Is itnot true that we are in the grip of asystem which demands short-termeconomic viability as its only criterion?Is there not some basic rationality in theprotests of students against being draftedinto a society with these rather sordidambitions? How do you account for thereally beastly crime and violence whichexist and which society seems to tolerate,or at least does not help in suppressing?Is it healthy that we should on the onehand pride ourselves on our democraticsystem and on the other do so little tomake it work effectively?

My firm belief is that this is a time,if ever there was one, for thinking, forexamination of our way of life, its ob-jectives and the methods by which itseeks to achieve them. The structuresof our society are in almost every fieldinadequate to cope with the pressureswhich a revolutionary age is imposingupon them. This is true of Parliament,of all political parties, of the TradeUnion movement, of schools and uni-versities, of the Law and other pro-fessions, of Local Government, and,above all, of the Church. Each one ofthese includes elements which are con-scious of the inadequacy, but they arepowerless to exert influence upon them.For reasons inherent in their own ex-istence, tradition, constitution, vestedinterests, all these institutions arevirtually incapable of reforming them-selves. In consequence those who mightbe effective within them avoid partici-pation in their management and the fieldis left open to those who are preparedto use them to their own advantage, themanipulators of power. This is a par-ticular reason for the feeling offrustration, which many of us feel and

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which the young in particular complainabout.

An organization of which I amChairman and called Australian Frontier,was created having in mind just such asituation and just such a need as this,that I have outlined. It has struggled onthrough the years, helping wherever ithas been asked, or wherever the needhas been seen—helping men and womenwho wanted to act responsibly to findout the way in which they could best doso. All over Australia and in NewGuinea it has held consultations, as wecall them, some open discussions andsome courses: it has ranged from deepmoral problems, such as that of the lawabout abortion, to practical sociologicalconcerns such as the new housing estatesand the speed of urban development: ithas discussed Religious Television andthe need for youth leadership, the specialproblems of a number of country townsand of Local Government in Tasmania.

Quite obviously it follows that itcould not be so arrogant as to cover sowide a field if it was proposing to havean answer to everything. Far from it.It does not even profess to have guide-lines or principles by which to settle theworld. Quite the contrary. It says onlythis, that there are problems of whichmen and women are conscious and aboutwhich they feel frustrated, and that theycan be solved if people of good-willcome together in sincerity, sinking theirprivate differences, their prejudices andtheir vested interests and seek together,usually in private consultation, to workout what is needed to be done. Freshlyinstructed and invigorated they can anddo go back into their own work betterfitted to deal with whatever it is that theyare doing and strengthened by the know-ledge that others are ready to work withthem. Frontier is not an instrument ofsocial action, but action can follow fromits activities. It is a catalyst whose aim

is to realease and enable the thinkingand the action of those who feel re-sponsible. Future action lies with thosewho have participated.

This sort of operation needs expertleadership. You cannot plunge into aconsultation of a few days on a difficultsubject without careful preparation andwithout taking a lot of trouble in theselection of those who can best con-tribute. This implies an organization anda staff and this costs money. For some-thing which does not produce obviousand immediate results it is hard to getsupport. But, in the end, I believe thatours is an exercise with a long-term ob-jective and yet of immediate urgency. Ibelieve it to be complementary to thesocial service organizations and couldwell be married to them.

I have seen astonishing things happenin this country since I came to it fortyyears ago. They tell me that the popu-lation will double itself again before theturn of the century. It is a country whichseems infinitely blessed in a number ofways. It would be a terrible thing if weallowed ourselves to drift into the hope-lessness and frustration which seem tohave overcome the old world. We arestill young enough as a country to haveideals and are adult enough to standupon our own feet and to work out ourown future. That means thinking aboutit: it means being ready to be originalrather than imitative: it means beingoptimistic and courageous.. This peoplehave always shown themselves best attimes of crisis, in wars, in depressions,in drought and fire and flood. They havenot always been so good at foreseeingtrouble; but, once they can see and un-derstand the nature of the crisis, theywill respond. In fact, they need some-thing to which they can respond and say"Now God be thanked who has matchedus with his hour."

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Contributed articles by noted authorities in Australia and

overseas dealing with matters of public interest are published

from time to time in the I.P.A. Review. This Institute is not

necessarily in full agreement with the views expressed in

these articles. They are published in order to stimulate free

discussion and inquiry.

132

ToNarft® a Plh k ff.ffmhg,ANNUAL REPORT`ga

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Council ofthe Institute

Executive andEditorialCommittee

F. E. LAMPE, M.B.E. (President)SIR GEORGE COLES, C.B.E. (Immediate Past President)E. A. JONES, C.M.G. (Chairman, Executive Committee)NORMAN E. JONES, C.M.G. (Treasurer)W. A. BEATTIESIR CHARLES BOOTH, C.B.E.H. F. CLARKEIAN CONNELLF. L. FITZPATRICKANDREW GRIMWADEJ. CHESTER GUEST, C.B.E.J. A. HANCOCK, O.B.E.W. A. INCE, C.M.G.H. M. LIGHTFOOTW. D. McPHERSONJ. L. NAVEG. M. NIALLROBERT W. NORMANSIR IAN POTTERNORMAN N. ROBERTSON, C.B.E.

E. A. JONES, C.M.G. (Chairman)C. D. KEMP, C.B.E., B.Com. (Director of the Institute)W. A. BEATTIE, M.A. (Cantab.), B.A., LL.B., M.A.I.A.S.F. L. FITZPATRICKJ. A. HANCOCK, O.B.E., F.C.A., B.Com.

G. R. MOUNTAIN, M.A.H. N. WARREN, B.Com., A.C.I.S. (Secretary)M. T. WILLIAMS, B.A. (Hons.), B.Com., A.A.S.A. (Research Economist)

Objects The Institute of Public Affairs isa non-profit, educational organisa-tion financed by businessenterprises and people throughoutAustralia to study economic andindustrial problems. It waslaunched in 1943. The basic aimof the I.P.A. Is to advance thecause of free business enterpriseIn Australia. In pursuit of this aimit Is endeavouring:-1. To Inform the Australian publicof the facts of our economicsystem and to raise the level ofeconomic literacy In Australia.2. To work always for a full andfriendly understanding betweenemployers and employees and forgood relations throughoutIndustry.3. To study the means by whichprivate business enterprise canbe made to operate better in theInterests of all sections of theAustralian people.

President's AddressMr. F. E. Lampe, M.B.E.

This year the Annual Meeting of the Institute is being held at a timeof quite dramatic change in the Australian political climate. A swingof the magnitude that occurred in the elections last month can only betaken to reflect a marked change in public attitudes on great nationalissues. The I.P.A. is a non-political organisation, but of course it can-not ignore major shifts in public thinking indicated by the results ofpolitical elections. The I.P.A. must give close study to these new de-velopments in the coming months.

There is, however, one large problem in our economy which haspersisted for many years and which so far has defied solution.It is one to which governments, irrespective of their political com-plexion, need to give the most pressing attention. This is the problemof inflation.

The slow attrition of the purchasing power of currencies goes on andon in all countries. Indeed, inflation has been going on now forso many years that many of us have begun to accept it as one of theinevitable, if less pleasant, facts of life, and the feeling is growingthat nothing can be done to arrest it. This is a dangerous attitude. Itis surprising how quickly even "slow" inflation can undermine thevalue of currencies. Mr. John Stone, Australia's Executive Directoron the International Monetary Fund and World Bank, pointed outin a recent number of "Review" that inflation, even at the modest rateof 3 per cent a year, would, in a life-span of 75 years, increase priceseight times.

The Institute has never taken inflation lightly. We were writing articlescondemning it over 20 years ago. Hardly a year has gone by sincein which we have not published at least one paper pointing out theinjustices which inflation causes and the dangers which it poses forthe Australian economy. Indeed, in the 1950's the I.P.A. was almosta lone voice in arguing that development achieved at the cost of in-flation might speed up growth temporarily, but not over the longhaul. Not until the early 1960's, with the experience of the severecrisis measures of those years fresh in our minds, did most authoritiescome to accept stability in the price level as a necessary conditionof maximum economic growth. This was a giant step forward andthe rate of inflation in the current decade has, happily, been somewhatless than in the last half of the 1950's. Recently, however, there aresigns that inflation may be speeding up again.

There is a special reason why inflation, even creeping inflation, shouldbe more vigorously opposed in Australia than in other countries.

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We are now aware—as many Australians were not aware in the 1950decade—that continued rapid development depends on our capacityto expand exports. Nothing so weakens export capability as con-tinuous rises in costs.I am not proposing a doctrine of perfection. The I.P.A. has neverbelieved that it would be possible to achieve that happy state of com-plete stability in the price level. We have always tried to take arealistic view, but we have been, and still are, concerned to see thatthe rate of inflation is kept down to an absolute minimum. But thiswill not be done if an apathetic state of mind develops throughoutthe community. Inflation is an enemy, insidious, ever-present, whichhas to be fought with all the forces at our command. If our defencesagainst the enemy are allowed to weaken, we could be over-run. Thisdetermination to fight inflation should be present among governments,financial institutions, wage-fixing authorities, employers and tradeunions, and among the community generally.Of course it can be argued that, for many years now, Australia hassuffered from inflation of the order of 2, 3 or 4 per cent a year with-out dire consequences. Indeed, it could be claimed that our progress,nothwithstanding slow inflation, has been quite remarkable. But Iwonder how much of this progress has been due to the amazing goodfortune of our incredible mineral dscoveries and to the vast flood ofoverseas money which these discoveries have attracted. Also, howmuch is attributable to the great enterprise and skill of those com-panies which have, with such rapidity, brought these resources intoeconomic production so that they are already adding substantially toour export income?Some people contend that so long as prices and costs in Australia arerising no faster than in other countries, our relative position is un-altered and there is nothing to worry about. This argument, however,does not hold water for countries such as our own which depend somuch on exports of primary products and raw materials.We are already only too well aware of the effects of rising costs onAustralia's traditional rural exporting industries. Some of these in-dustries—wheat, sugar, fruit and dairying are outstanding examples—can no longer export at a profit. These industries have become de-pendent for their viability on subsidies in one form or another, whichhave to be paid by the community. And now it appears that ourgreatest rural export, wool, is about to join the ranks of the subsidisedindustries.We must also think of the damaging effects of inflation on ourmanufacturing industries whose products are now making a large,and growing, contribution to exports. These industries have to com-pete openly against the world in exports—and to some degree on thedomestic market—and every increase in costs is an additional handi-cap.

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It may not be stretching things too far to suggest that long-continuedinflation could eventually put the highly properous, and immenselyimportant, mineral industries, in a somewhat similar position. Thisthought may appear far fetched just at the moment, but we must thinkahead and 10, 20, or even 30 years is not a long time in the historyof nations. The mineral industries are not able to set their own prices.They must compete on world markets. The prices obtained on the long-term contracts, on which so much of the great new mineral develop-ments depend, are necessarily subject to severe bargaining. Risingcosts could have a serious effect on the development of mineral pro-cessing in Australia, which I believe is foremost in the minds of themajor mineral enterprises. The Bureau of Mineral Resources estimatesthat whereas one million tons of bauxite will earn in exports about$5 million, processed into aluminium it will earn $120 million. If thecontinued profitability of the mineral industries were in any wayundermined, the impact on the Australian economy could be mostsevere. Australia would begin to look a much less attractive propo-sition to overseas investors than it does today. Also, with fallingprofitability these industries would find it more difficult to financetheir future expansion, and the continued large-scale exploration pro-grammes so necessary to secure their long-term sources of supply.

Experience during and immediately after the war showed that in-flation can for a time be suppressed in a tightly controlled economy.But in a peace-time economy, price control, and the other restrictionsthat accompany it—wages control and direction of labour andmaterials—would represent an intolerable invasion of our economicfreedoms.Inflation is, of course, an enemy of our own creation. We can ridourselves of the enemy if we wish—or at least we can keep him undersuch tight surveillance that he won't run amok and create havoc. Butthe lead in fighting inflation must come from governments. This isnot just a matter of the right fiscal and monetary policies. It is muchmore a matter of the targets and goals which governments set for theeconomy. In the face of goals that are too ambitious, fiscal andmonetary policies become powerless to prevent inflation. The core ofthe whole problem lies in the attempt, understandable though it maybe, to force the economy to grow more rapidly than resources avail-able will permit. This may be all very fine in the short term, buteventually it must run us into trouble.I believe that governments could do much more than they are doingto give a lead in this respect. They can take stronger steps to educatethe community in the true causes of inflation. They can franklyrecognise and correct the inflationary content of their own policies.Is it too much to hope that if a lead is given the community willrespond?Inflation is a threat to economic security and stability. If there isgeneral recognition to this fact and we take action accordingly, thefuture steady progress and development of Australia is assured.

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Report of the Chairman of theExecutive Committee

Mr. E. A. Jones, C.M.G.

I am pleased to report that public interest in our publications, "Re-view" and "Facts", has been strongly maintained over the past year.The issue of "Review" which will appear next month will be the 100thnumber. You will appreciate that a quarterly publication takes a longtime to reach this distinction-25 years. The fact that "Review" hasreached it in 23 years is explained by the fact that for the first fewyears "Review" was published every second month. When it wasdecided, in 1952, to produce another regular publication. "Facts","Review" was put on a quarterly basis. The 100th number of"Review" will endeavour, among other things, to trace back "Re-view's" influence on some of the more important economic controversiesof the last quarter of a century.Press references, speeches in Parliament, and private comments byleading parliamentarians and other citizens over the past 12 months,all indicate that the Institute continues to exert a strong and respectedinfluence on questions of great national importance.In the 1950's, the I.P.A. contributed notably to the steps eventuallytaken to improve the machinery and procedures of arbitration. TheInstitute was undoubtedly first in the field in pointing out, in the mid-1950's, that continuation of rapid development would be possibleonly on the basis of expanding exports. We coined the slogan, "De-velopment depends on exports". I think we would not be out of orderin claiming that the Institute was the first to underline the dangers ofeconomic planning which so many people were favouring as a solutionto the "stop and go" policies of the 1950's and early 1960's. Theseare just a few of the great national issues in which the Institute hasplayed a prominent part in contributing to a balanced national opinion.During the last 12 months no economic question has assumed greaterimportance in the public mind than the reform of income tax andthe need for reducing the burden it presently imposes on the lower-middle and middle incomes. In the recent Federal Election, the leadersof both major parties undertook to lighten the heavy burden of tax onthe middle incomes. Also, leading daily newspapers have recently beenadvocating a substantial overhaul of the income tax scale. But theInstitute, through the columns of "Review", was urging, at least threeyears ago, that action be taken on this matter, and we were able toestablish the fact that the middle incomes in Australia were probablythe most highly taxed in the world.

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I think this is a case where I could say, without fear of contradiction,that the Institute sowed the seed, and it seems certain that the timeis not far distant when the seed will bear fruit, in the form of a re-duction in the weight of taxation at present pressing so heavily onhighly educated professional men and skilled executives and workers.As far as "Facts" is concerned, it continues to enjoy what I can onlydescribe as remarkable popularity. During the year a number of largeand important companies substantially increased their orders for thispublication for employee distribution. A letter recently received fromthe General Manager of Rheem Australia Pty. Ltd, Mr. F. Buckland,illustrates what I think is a widespread business viewpoint about"Facts".Mr. Buckland wrote:"The value of 'Facts' as an informative magazine of wide appeal hasbeen confirmed for us by comments from our staff members who areimpressed by the range of topics covered and the clarity of presentation.These thoughts are completely in agreement with our own and wecongratulate you on the standard you have established and main-tained."At this point I want to say a little more than I customarily do aboutthe finances of the Institute. For some years now revenues from sub-scriptions have failed to cover our operating costs. It would be fairto say that the Institute has been one of the casualties of continuedlong-term inflation. Our administrative and office expenses have beenrigorously controlled. The Institute hasn't suffered from Parkinson'sLaw. Our staff numbers today are precisely the same as when theInstitute was started 26 years ago.

There are two main reasons for the deficits being incurred. First, therehas been a very steep rise in printing costs. The second reason is thestrongly growing demand for I.P.A. publications, particularly fromschools and other educational bodies.We have naturally been forced to take steps to try to bring our re-ceipts and expenditures into balance. On the revenue side we aremaking approaches to some of the larger companies to increase theirannual contributions, and we have raised the minimum companysubscription applying to small and medium-sized companies from$31.50 to $50 per annum. I am glad to say that over the year a largeproportion of these latter companies have willingly and unhesitatinglypaid the higher subscription. Some of the larger companies so farapproached have also responded generously to our appeal for in-creased support. On behalf of the Council and staff of the InstituteI wish to express our warm appreciation to all the companies con-cerned.Our financial situation has, however, compelled us to ration severelythe rapidly increasing requests for free copies of the Institute's pub-lications. These requests come from all quarters, but the overwhelming

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number are concentrated in the schools, of which we are now servicingaround 1,000 compared with only 200 or 300 a decade ago. We are,of course, greatly concerned that requests for increased copies fromschools to cope with rapidly growing classes have to be refusedon financial grounds. In some schools, economics and social studiesclasses run into hundreds of students. In the past we have endeavouredto make a copy of "Review" and "Facts" available to each studentpartly with the expectation that they would be taken home and readalso by their parents. We know from teachers in some of our well-known schools that parents are most appreciative of our publications.We are thus, through lack of finance, curtailing what I think you willagree is a most vital area of the Institute's work.Recently Mr. L. F. White, Managing Director of one of our large in-dustrial companies in New South Wales, Metal Manufacturers Ltd.,was asked by the influential National Industrial Conference Boardin the United States to outline the steps which business should takein Australia to create a favourable public image for private enterprise,particularly among employees and school and university students.He replied by saying that he could best answer the question by re-ferring the Board to certain articles that have appeared in I.P.A.publications. Mr. White was kind enough to add that the Institutehad achieved a great deal in creating a better image for the free enter-prise system in Australia, though he wisely stated that much moreneeds to be done. He told the Conference Board that the approachand views of the Institute fairly represented those of many Australianbusinessmen.I am relating this story in order to emphasise to you the great im-portance of the Institute's work, its value to the community as a whole,and especially to businessmen. I am confident that you and the com-panies you represent will not hesitate to provide the financial supportneeded to ensure that this work is carried out with full effectiveness.

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I.P.A. Assistance to Schools

In the last few years, as the Institute's publications have become morewidely known in educational circles, the demand from students andteachers has multiplied. "Facts" and "Review" now frequently appearin prescribed reading lists for school and university courses and wehave been inundated with requests from teachers and students.

The I.P.A. is now distributing free to schools, colleges, universitiesand other educational bodies, publications at a cost of about $20,000 ayear. This has become a severe source of strain on Institute finances.But this free circulation must be maintained if the citizens of to-morrow—and, more importantly, the potential leaders of the com-munity—are to be given a better understanding of the role played byfree enterprise in the economic system.

In 1950 the I.P.A. was distributing less than 1,000 copies of "Review",mainly to the leading public schools in Melbourne and Sydney. In all,no more than 100 schools and other educational bodies were re-ceiving single or bulk copies of "Review".

Today we are distributing around 6,000 copies of "Review" and13,000 copies of "Facts" to about 1,000 schools spread throughoutAustralia. Teachers' colleges, universities, institutes of technology andother tertiary educational bodies also take our publications in largenumbers.

The following table summarises the position.

Distribution of I.P.A. Publications toEducational Institutions

Review FactsGovernment High Schools 2,500 7,000Non-Government Schools 2,500 4,000Universities, Teachers' Colleges,Institutes of Technology, etc. 1,000 2,000

6,000 13,000

The huge increase in our "free" circulation has come about partlybecause of the emphasis on economics and social studies at Leavingand Matriculation levels. In Victoria alone the number of examinationentrants in these subjects has risen from less than 1,500 in 1950 toover 21,000 in 1968.

In the past, requests from schools have been met in full, but in thelast few years the Institute has reluctantly adopted a rigorous policy

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with new applicants by restricting the free list to teachers, the schoollibrary and a token class set of "Facts" and "Review".Past annual reports have drawn attention to the liberal use of I.P.A.material in text books for school use. The Victorian CommercialTeachers' Association in its journal regularly mentions the availa-bility of I.P.A. publications and films for use in classes. The Chairmanof the Association, Mr. Alan Gregory, Lecturer in Education at Mon-ash, has written to us in the following terms . .. "I congratulate theI.P.A. on their excellent service and generous assistance to schools.Both 'Facts' and 'Review' are invaluable sources which assist inwidening understanding beyond the text book."

"The Australian" Educational Broadsheets

The 2-page educational Broadsheets published regularly by "The Aus-tralian" have drawn liberally on I.P.A. material. The Broadsheet No.32 appearing in "The Australian" of October 15th was, indeed, largelymade up of extracts from "Facts" and the recent I.P.A. booklet onProductivity. "The Australian" kindly printed the following acknowledge-ment, "The Australian wishes to thank the Institute of Public Affairs forassistance in the preparation of this Broadsheet".

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