• WHY THERE SHOULD BE NO APOLOGY
• ECONOMIC SLOW-DOWN CONTINUES AS INTEREST RATES RISE - BUT WE DON'T HAVE TO FOLLOW US RATES
• LABOUR MARKET DEREGULATION - MY DEBATE WITH KEITH HANCOCK
• LABOUR MARKET RE-REGULATION - LABOR'S CAVE IN TO UNIONS
• NSW  BUDGET

 

My apologies again to subscribers for the lateness of this newsletter. In fact, double apologies because there will be no letter for June as I will be overseas until late July doing the rounds of international think-tanks, treasuries and central banks. The last month has, however, been even busier than April.

 

ABORIGINAL RECONCILIATION - WHY THERE SHOULD BE NO APOLOGY

 

I have continued to assist former Aboriginal Affairs Minister, Peter Howson, in his rather lonely task of trying to get across the truth about the "stolen generation" and other aspects of policies towards Aborigines. By one measure - numbers of articles published (sample attached, more are on IPE web site - www.ipe.net.au) - Peter has had considerable coverage, but it has been puny relative to the extraordinary space given to the other side. It has also had to combat what must have been and (continues to be) the most one- sided editorial campaign ever by Australia's media and, with one or two noble exceptions, by commentators in the press, radio and TV. The only editorial commentator that actually supported the Prime Minister's refusal to apologise has, ironically, come from the Asian Wall St Journal (copy attached).

 

This media campaign is the more extraordinary given that the opinion polls suggest that the community is pretty evenly divided on issues other than the motherhood one of reconciliation, which most people want to see happen even though they have little idea what it means or what it would involve. (In fact, the latest Newspoll shows that more are against making an apology than are for it). It is symbolic that the even division of opinion brought a complaint from The Australian's political correspondent that half of Australia is "deeply conservative", and the Sydney Morning Herald's that Australia is "full of John Howard's"!

 

The general line of these media commentators is that the community would be more supportive of an apology if Howard were not so opposed. But what would the position be if the media itself (1) was not so supportive, and (2) actually went to the trouble of informing the community about the main facts?

 

Take the stolen generation issue, where Peter Howson has been accused of "quibbling", even dishonesty. Consider the following indisputable facts which have emerged from the three cases testing compensation claims by Aborigines but to which media commentators (again with one or two exceptions) have not given any coverage and of which some do not even seem to be aware:

 

First, the judge in the New South Wales compensation test case found that the claimant was not "stolen" and concluded that "At all points, the whole of the evidence seems to be against the plaintiff's claim." Yet the Wilson report described the claimant as a "typical" stolen child and she was presumably chosen for the case because it was thought she had the best chance of success in NSW.

 

Second, in the two test cases relating to the Northern Territory (which is the only area relevant to policy of the Commonwealth Government for the period covered by the Wilson report), sworn evidence which was unchallenged by the claimants' counsel showed that:

 

• For the period 1946-62 in the Territory, half-caste children numbered between 500 and 1000. Only 129 of such children were placed in hostels by the Government and all except three were placed with the mother's consent (in those three cases it was not possible to ascertain whether consent had been given). Such consent was obtained from discussions that typically extended over 18 months to 2 years.

 

• For the same 1946-62 period, about 450 children were placed in hostels by parents at their own expense (reflecting the general enthusiasm shown by Aboriginal parents to obtain western education for their children). It emerged during the cases that some who believed that they were "stolen" were unaware that they had been placed in hostels by their parents.

 

This and other factual evidence surely undermine the credibility of the claim in the Wilson report that "nationally we can conclude with confidence that between one in three and one in ten indigenous children were forcibly removed from their families and communities in the period from approximately 1910 until 1970", let alone the absurd claim that it constituted genocide. In reality, the Commonwealth was pursuing a policy of protection against discrimination arising from the cultural rejection of many half-caste children by traditional Aboriginal communities. 

 

Such evidence is reinforced when one reads accounts of those who were involved in the administration of the Commonwealth policy of the time, but who were not called by Wilson to give evidence to his inquiry. The following quotation from the book written by Patrol Officer Colin Macleod on his experiences in the Northern Territory in the 1950s (based on letters he wrote to his mother at the time) provides the context:

 

Many children were assessed …and were judged to be better off staying where they were. Many, also, were not… Never, however, were children taken from families with a mother and father. They were always from very young and unprotected single mothers, often between 10 and 13, with no family member to properly care for them. On the occasions that I recommended the removal of children from their families, it appeared that the alternatives were pretty shocking.

 

Apart never letting the facts get in the way of a good story, the refusal by the greater part of the Australian media to acknowledge such evidence can only be explained as reflecting the post-modernist belief that our Western culture is something for which we have to be ashamed. A classic example of this myth, and the associated myth that primitive cultures created a Garden of Eden, is found in the following letter to "The Australian" (17.5.00) by Dr John M Reid, a cognitive neuro-scientist, who concluded thus:

 

 "We should also remember that before our ancestors annexed their country, the Aboriginal peoples were happy, healthy and wise enough to maintain Australia in a sustainable, homoeostatic floral and faunal state. While we have been forcing many Aborigines into a state of civilised degradation, at the same time, we have been destroying a large area of native Australia" (my emphasis).

 

This important cultural issue is explored further in Peter Howson's submission to the Senate "Inquiry Into the Stolen Generation", which I also helped draft. The submission is available on the IPE web site (www.ipe.net.au).

 

Some people, particularly in the business community, are inclined to brush all this aside in the interests of "getting on with life". But the idea that an apology would allow that to happen is very seriously mistaken. An apology would enhance the focus on "past injustices" and create further division, instead of focussing attention on the need to reform the disastrous strategy of encouraging separate development. New Zealand experience suggests that there is endless potential for discovering "past injustices", which are essentially in the eye of the beholder.

 

ECONOMIC SLOW-DOWN CONTINUES - EVEN BEFORE HIGHER INTEREST RATES TAKE EFFECT

 

Subscribers will recall I have previously pointed out that, contrary to the rather superficial analyses by most media commentators, there has been a slowing in the underlying trend in the economy since early 1999 and that the much-larger-than-normal increase in inventories in the first three quarters of that year presaged a further slowing. While we do not yet have the full March quarter national accounts, partial indicators suggest there was indeed a further slowing in that quarter, due partly to falling inventories. Moreover, although underlying measures of inflation have edged up, they have remained well within the Reserve Bank's target of 2-3 per cent pa and increases in wage costs have shown a steady trend that has suggested no upwards pressure on prices from that quarter once allowance is made for productivity growth.

 

Despite the absence of inflationary pressures, over the past seven months the Reserve Bank has tightened monetary policy on four occasions, raising cash rates by 125 basis points to 6 per cent.  As there is a lag of 12-18 months before such increases impact on economic activity, we are yet to feel the effects of this tightening. The lag is also the operative reason for the increases - that is, the Bank has judged that, without these increases, there would be a risk of excessive inflation in 12-18 months time.

 

However, many commentators suggested that the increases were also required to "catch-up" with the Federal Reserve rate of 6 per cent, the implication being that Australia has to have the same rates as the US because we run a large current account deficit and the $A would come under pressure (and has in fact been depreciating). This led me to write an article for the AFR (attached) arguing that Australia can run an independent monetary policy provided it is pursuing "responsible" budgetary and monetary policies, which  (broadly) the Government now is. However, many media commentators continue to write as though the Bank has to "protect" the $A.

 

At a Canberra Economic Society forum to which I was invited to speak, I repeated my argument that we can run an independent monetary policy (and it was not challenged). I also argued that, in an economy that is markedly less inflation-prone and more conducive to growth compared to the 1980s, we need to be careful not to weight the balance of risks against growth and to allow, in particular, for the possibility that other "one-off" price increases similar to the GST may not require a tightening in policy.  I further suggested that, given the important role of the Bank's forward assessment of inflation in policy decisions, it has a responsibility to make clearer assessments that provide forecasts (rather than "projections") of inflation and analyses of other factors taken into account, as well as publishing an analysis of the factors that are or may be taken into account in calculating the "underlying" inflation rate used in trying to keep within the 2-3 per cent target. A copy of my address is on the IPE web site and is available on request.

 

The Bank's representative at the forum responded that in the 1990s monetary policy was successful in testing the limits to growth (as reflected in growth that has been both above trend and much less susceptible to fluctuation), that forecasts per se are not central to policy decisions but that it already publishes both forecasts and three measures of "underlying" inflation. A Bank Board member in the audience argued that, to maintain credibility, the Bank would always have to publish a forecasts showing inflation within the 2-3 per cent target. I agreed that the Bank has performed well to date but argued that it has done so in circumstances where the economy has been operating well below capacity and that, as it is now becoming more important and more difficult to make the right calls, there is a need for greater transparency of decision-making.

 

Subsequent exchanges with the Bank's representative, in which he pointed out that the Bank's formal target actually relates to the CPI as published, have left me somewhat confused as to what factors are being taken into account in assessing the underlying or ongoing trend of inflation for policy purposes. He agrees that there is a need to clarify the situation. 

 

LABOUR MARKET DEREGULATION - DEBATE WITH KEITH HANCOCK

 

Former Deputy President of the AIRC, Professor Keith Hancock, responded to my offer to make a presentation to the South Australian branch of the Economic Society on labour market deregulation by offering to debate me. Copies of both papers, presented on 30 May, are on the IPE web site.

 

From his paper, it appeared that Hancock's main argument for having third party intervention in employer-employee relations is to offset the alleged imbalance in bargaining power between employers and employees. Thus, although he concedes that not enough account has been taken of the competition constraint that employers face, he argues that "there remain instances where employers can exert significant bargaining power", and he refers specifically to companies such as CRA (which no longer exists!), BHP, Telstra, Patricks Stevedores and Qantas. He also asserted that "the notion of negotiation at the point of hiring is, in most instances, nonsense."

 

I responded by pointing out that these large companies have plenty of competitors to which their employees can turn if they are not treated properly and that the companies need to have a cooperative work-force to operate successfully. I also suggested that negotiation does occur at the point of hiring, instancing the housing industry where "subbies" continually negotiate terms with builders.

 

During the discussion time, Hancock indicated that, in fact, his principal reason for opposing deregulation is that a deregulated labour market would "not produce the results that we want to get" - by which he appeared to mean that it would result in greater inequality of earnings, as in the US. In essence, the alleged problem is that it would create an under-class of "working poor."

 

I pointed that most assessments of US inequality are not only inaccurate reflections of relative living standards, but do not allow for movement up the income scale over time. Further, on the most commonly used (albeit defective) measure of "poverty", Australia already has a substantial proportion of "working poor". I noted that, as the US has much larger ethnic minority groups with relative low literacy and numeracy (and hence lower employability) its high employment rate makes the performance of its labour market all the more remarkable. I also referred Hancock to my article on the performance of the US labour market in the Australian Bulletin of Labour for March 1999 (also on the IPE web site).

 

Although his paper itself has nothing to say on the subject, Hancock's presentation also conceded that I am correct in pointing out that the Australian system has not been successful in the objective of preventing and settling industrial disputes, which was the original justification for its establishment. He also agreed "95%" with my argument that, with the responsibility for controlling inflation now clearly with the Reserve Bank, there is no basis for arguing that a centralised wages system is needed to prevent wage "surges". This is a concession worth noting considering that another former member of the Commission (and also economics professor), Joe Isaac, argued in 1986 that the only ground for having a centralised system in Australia is to prevent such surges.   

 

LABOUR MARKET RE-REGULATION - LABOR CAVES IN TO UNIONS

 

The I/R policies announced by Opposition Leader, Kim Beazley, on 31 May, and the rejection by both Labor and the Democrats of the Government's legislative attempts to provide reasonable protection to employers against union intimidation, provide the go-ahead to unions to continue with the aggressive tactics they have been allowed to get away with by the industrial tribunals and the Federal Court. As suggested in my article in the AFR (attached), this poses a potentially serious threat to economic stability.

 

The potential for the industrial relations situation to deteriorate is even worse than painted there because of the measures taken or proposed by State Labor Governments in Queensland and NSW to increase the scope for third party intervention by State tribunals. The attempt to bring independent contractors within the "system" is particularly worrying. The Inquiry in Victoria will likely lead to more interventionism in that State too. 

 

One of the remarkable aspects of the Beazley line is that he wants to increase the powers of institutions to intervene in employers' decision-making about employment and in the same breath says that he wants Australia to be a "knowledge" nation. He apparently sees no contradiction between the risk-taking that is required for the latter and the deterrent effects on such risk-taking from having institutional arrangements for regulating employer-employee relations that are already unique in the world in their interventionism and discouragement to entrepreneurial activity and, hence, employment. At the margin, such interventionism has a significant effect on an employer's decisions on whether to invest and employ - and it is the marginal decisions that are important in determining whether we have low or high unemployment.

 

The arguments made by Beazley to support his proposals are pathetically weak. One seems to be to improve job security - but there is clear evidence that even the perception of job security has not changed since the early 1970s.  Another seems to be to deal with industrial disputes - but industrial disputes have fallen under the present Government and, in any event, the Commission has a bad track record in preventing disputes.

 

B also wants to improve fairness in negotiations. This is the old myth that there is an imbalance of bargaining power between employers and employees that needs to be offset by having awards and unions with quasi-monopoly powers to protect workers. But let us look at the housing industry - no awards and no third party intervention, an industry that is virtually dispute free with workers who earn good wages and appear to be happy, and that is one of the most efficient housing industries in the world.

 

The reality is that employers compete actively in the market place for the services of labour and labour has many alternative sources of income. Further, the contract entered into between an employer and an employee involves a complex balancing of respective costs and benefits so that the outcome cannot be judged by third parties as to fairness because the decisions involved are fundamentally a matter for the individuals concerned.

 

 

NSW BUDGET

 

I also attended the NSW Budget lock-up and wrote the attached piece for The Daily Telegraph, arguing that the next Government will need an Audit Commission to identify the areas of over-spending in what is clearly now the highest-taxed State.

 

 

Victim Politics in Oz

By Hugo Restall, editorial page editor of The Asian Wall Street Journal.

Australian Prime Minister John Howard refuses to apologize to the Aborigines
for wrongs committed by the state 50 years ago. That's an unusual stance in
this day and age. After all, the Pope has apologized to the Jews for anti -semitism. Canada has apologized to its native population for stealing its land. U.S. President Bill Clinton has apologized to Africa for slavery. So what's the harm in saying "sorry, mate"?

Plenty, actually. Australia's social harmony is now being strained as activists mount a concerted campaign to promote the idea of Aboriginal victimhood. The nation is not one but two, this thinking goes, and the whites inflicted a genocide on the black. To end the war a treaty must be signed, and the whites must pay reparations in perpetuity. Never mind that the perpetrators of these terrible crimes are dead, and their descendants are running a liberal democratic state with equal opportunity for all.

Mr. Howard is a decent fellow. He's so nice he even says he's sorry if he causes hurt by not saying sorry. He's willing to work toward national reconciliation. Last year he moved a motion in parliament expressing "deep and sincere regret" for the "mistreatment of many indigenous Australians over a significant period."

But on the issue of a flat-out apology, he's sticking to his principles. What's the difference? An apology would mean more than simply acknowledging history. It would imply guilt, and that would in turn mean punishment of one group and compensation of another. The old specter of collective responsibility is rising once again.

It's hardly surprising Aboriginal leaders are pressing for as many benefits as white guilt will stand. There has been a steady escalation in the terms of the debate, just as there was in the U.S. to justify the continuation of affirmative action programs. The latest rallying cry is cultural genocide. That is based on a report several years ago by Sir Ronald Wilson entitled "Bringing Them Home." It claimed that up to one-third of Aborigine children were taken from their homes and put in foster care in the first half of the century in order to facilitate assimilation and destroy Aborigine culture.

However, the figures in the report were overblown, and the reasons for foster care were much more complex. That was the message of a new report by Aboriginal Affairs Minister John Herron, leaked last month, which found little evidence of a "stolen generation" of children. While white Australia 50 years ago was undoubtedly a racist place, it doesn't follow that it wanted to wipe Aborigines from the face of the earth. Rather, hyped claims suggest that the activists are more interested in bargaining for advantage in today's Australia than getting at the truth.

Indeed, some Aboriginal groups now say they want a peace treaty with white
Australia. Mr. Howard has answered, "Countries don't make treaties with
themselves, they make treaties with other nations and the very notion of a treaty in this context conjures up the idea that we are two separate nations. Now I thought the whole idea of reconciliation was to prevent that occurring." Even the opposition Labour Party is wary of the treaty push and the claims of compensation it might bring.

In fact Mr. Howard has been leading an effort to find political consensus for measures that don't involve further dividing the country. One plan, presented by the Council for Aboriginal Reconciliation, has wide backing. The prime minister still objects to some provisions which would give separate rights rather than equal rights. But his qualified support shows that the government is sincere in finding a solution.

For the activists, however, it's certainly convenient to have a conservative leader who can be demagogued for refusing to make a simple apology. Last Saturday Mr. Howard faced the boos of a crowd celebrating Corroborree 2000 -- a two-day event dedicated to better relations between the races. About 700 people turned their backs as he delivered a speech in front of the Sydney Opera House. The confrontation took a toll on the prime minister -- to the television cameras he seemed composed, but his right leg shook uncontrollably.

Unpleasant as this must have been for him personally, the consequences for Australia are the main worry. The question for the government now is not so
much how to allow Aborigines to preserve their culture, which they are now free to do, but rather how to prevent the creation of a permanent underclass. In many ways assimilation has already happened: About two-thirds of the native population now lives in urban areas, and the same proportion is married to whites. Yet Aborigine children are less likely to attend school than the general population, and more likely to end up in prison when they grow up.

The real cause of this is dependency on the government. Welfare handouts create a sense of entitlement based on past discrimination. That can only sap young Aborigines' sense of self-reliance.

The upcoming Olympic Games will create a marvelous forum for activists to accuse the government of that most modern sin, insensitivity. They will once again press their claim for special treatment. But Mr. Howard is right that separatism is the original problem, not the solution. Only by promoting equal rights and responsibilities can he hope to find true reconciliation. Thankfully, the majority of Australians still seem to be convinced of that.

 

 

Reconciliation - A New Approach is Needed

By Peter Howson