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•  Lessons the Liberal Party Need to Learn
• But Abott Tests the Water
• The Rich/Poor "Gap" is Diminshing Internationally
• Wht Can't We Get a Dolt Like Bush?
• More Progress on Aboriginal Issues - But not on the "Culture"
• Global Warming - A New Development?
• Why We Need to Reduce Health "Welfare"
• Woodside and Shell
• Corporate Crashes
• Victoria's Pathetic Policing Policy Continues

 

 

SOME LESSONS THE LIBERAL PARTY NEEDS TO LEARN

My last newsletter suggested that Labor’s proposed re-regulation of the labour market provided the Coalition with a golden election opportunity to propose much-needed reforms to employer-employee relations. The increased likelihood of an election-time unemployment rate above 7 per cent could be used to reinforce the need for reform. Now Minister Abbott has taken one step in the right direction (see below). But the general approach of the Federal Coalition has largely been to plug perceived political holes than to develop any major new initiative.

This plugging approach is well illustrated by what must be a six month record for the astonishing number of "handout" decisions between the mid year statement last November and the May Budget – no less than 256 new expenditure and over 20 new revenue measures. The net effect of these "policy" decisions was to increase expenditure by 0.7 percentage points of GDP (to 22.9 per cent) in 2001-02 and to reduce the estimated budget fiscal balance by $3.7 billion. The estimated overall budget results for the next two years hardly rate a pass, with the fiscal balance now showing small deficits (very small surpluses on a cash basis).

Of course, part of the strategy is to leave as little scope as possible for the Opposition to announce budgetary initiatives in the forthcoming election. However, the Coalition looks like going into that election with government expenditure and taxation taking a similar proportion of GDP as when it came to office in 1995-96 (the netting off of GST revenue and its payment to the States, and the move to accrual accounting, mean that Treasury is unable to provide figures that permit an accurate calculation). If this is the price of the GST tax "reform", it is a high one given the much more important need to change radically existing welfare/health policies to avert the enormous (upwards) pressure on expenditure and taxation that is looming as the population ages (on the health implications, see below).

It is ironic that some commentators have been complaining because the Government has not indexed tax thresholds in order to prevent bracket creep. These commentators have "forgotten" to list the expenditure reductions needed if this is to be achieved.

The Federal Coalition’s "centrist" strategy partly reflects an attempt to avoid being identified with the media’s Australian bogeyman, viz the "economic rationalist": economic rationalism continues to be misunderstood (for my latest explanatory attempt, see www.ipe.net.au). However, this move to the political center may not provide sufficient differentiation from Labor given that it has moved in the same direction (except for its re-regulation of the labour market) and will benefit from the continuing angst felt over the GST amongst smaller businesses.

Centrism is also relevant to the State Liberal parties, as I emphasized in a talk to a group of NSW Liberal supporters in Sydney (see Victoria: Bracks and Kennett, Some Lessons for the Liberal Party on www.ipe.net.au). I argued there that, while the Kennett Government’s economic/governmental success (understated and media distorted) had "forced" the Labor Party into the center economically and politically, if Labor now remains there with personable leaders such as Bracks (and, in NSW’s case, Carr) it will be harder to convince the electorate of the need for political change back to the Liberals. Thus, unless the Liberal Party establishes a clearer differentiation from Labor by actively advocating a lesser role for government and a greater role for the private sector, it could stay in opposition for a considerable time.

The Blair Government’s acknowledgement of the problems with public sector provision of services provides a useful basis for differentiation. For centrist reasons, the Conservatives’ failed to exploit the (widely accepted) poor state of public services and that may even have cost them the UK election. As is increasingly emerging in both Victoria and NSW, the solution to these problems is not more public expenditure but a more competitive structure within which such services are provided (preferably privatized).

I am attaching my Herald Sun article highlighting the main relevant points of Blair’s announcements on UK public education, which are now being actively debated there. The Economist (16 June) refers to a proposal by the UK Adam Smith Institute for all schools to become independent and it points out that, in the Netherlands, children attend schools that are publicly financed but privately provided – the money follows the pupil and schools compete among themselves for children.

All this is relevant to the Federal Government too. It is particularly important that individuals’ responsibility for their own and their families’ welfare be developed as a political "philosophy" in order to start "selling" the need to reduce the grossly excessive eligibility for welfare and health services, as well as to free-up workplace relations. The differentiation opportunity is there for the Liberals to take – and if they don’t the political consequences could be severe.

 

BUT ABBOTT TESTS THE WATER

In my last newsletter I suggested that a major election proposal by the Coalition should be a further reduction of the AIRC’s wage setting role - but on the basis that the income levels of low wage earners living in low income households would be protected against real reductions through the social security system either by adapting an existing benefit or by introducing a new benefit such as a tax credit. Subsequently, Minister Abbott made an address discussing possible ways of "designing a distortion-free tax and benefit system under which people and households can move from welfare to ..work without .. experiencing punitive effective marginal tax rates" and he referred to one estimate of $4 billion as the cost of a tax credit for lower income earners.

However, he did not discuss any accompanying labour market deregulation, the wage freeze scenario on which the estimated $4 billion (gross) cost is based, or the likelihood that increased employment/reduced unemployment would provide additional net revenue that would meet at least part of the costs. While Prime Minister Howard’s comment that $4 billion could not be afforded has been taken as suggesting that the tax credit idea is a non-starter, the possibility remains that it could still be a "goer" if advanced as a back-up to a major deregulation that would improve employment.

The claim by AIRC President Guidice in an April speech (extracts attached) that "our industrial laws must be rationalised as must the number of Courts and tribunals exercising jurisdiction" would also provide potential support for reform. Particularly pertinent is his statement that "the uncertainty generated by the mixture of laws which impact on employment relationships in this country constitutes an erosion of our freedoms and impacts on the quality of our society". While this does not mean Guidice favours less regulation of employer-employee relations, it confirms the serious problems we have under existing arrangements.

 

THE RICH/POOR GAP IS DIMINISHING INTERNATIONALLY

Recent analyses of income growth in developing countries have again emphasized that, contrary to many media reports of a growing "gap" between rich and poor countries, "over about the last thirty years, the majority of the world’s poor have achieved income growth faster than in developed countries for the first time in two centuries". This conclusion is from an (almost unreported) excellent article in the Federal Treasury’s Economic Round-Up (Centenary Edition) arguing that the improvement reflects the "return to widespread peace, sustained global economic growth and freer global markets in trade and investment". And it was effectively repeated in an AFR article (21 June) by former Commonwealth Statistician, Ian Castles, who has been attempting (so far unsuccessfully) to correct the totally inaccurate statements by the "Australian" head of the World Bank, Jim Wolfensohn, that 80 per cent of the world’s output is "controlled" by 20 per cent of the world’s countries, which Wolfensohn has claimed poses "a grave threat to world peace". Almost as worrying are the inaccurate statements appearing in World Bank publications.

Such "leadership", of course, simply encourages anti-globalisation protesters. Indeed, ironically, the Bank itself was recently forced by threatened protests to abandon an international meeting in Spain to discuss poverty reduction. Having long outlived its role as a supplier of capital to developing countries, the Bank appears desperately to be trying to survive by establishing itself as a protector of the poor. It is scarcely surprising that the new US Treasury Secretary, Paul O’Neill, recently signaled that tough decisions to reform both the IMF and the World Bank are a key priority of the Bush Administration. O’Neill described the Bank as having lost focus.

The importance of the Treasury article is enhanced by its references suggesting that, in general, inequality does not appear to have been increasing within developing countries; that life expectancy and education have also improved considerably; and that the environment has not suffered. In short, in most developing countries the quality of life is improving and is much better in the second half of the 20^th century.

The Treasury analysis rightly emphasizes that further progress depends importantly on outward looking economic policies and political stability. What may not be sufficiently recognized in the analysis is that it is primarily the domestic economic and political policies of the countries themselves that will determine the extent of improvement of their citizens’ quality of life.

 

WHY CAN’T WE GET A DOLT LIKE BUSH ?

Until recently, much of the US media, helped along by a mostly willing Australian media (not to mention the anti-American European press), has painted George Bush as a bit of a dolt who, coming from the back-blocks where hanging Texans live, was lucky to win the election. This perception has been heightened by Bush’s dyslexian tendencies, which have been recorded in a book entitled George W Bushisms. However, even the author of that book has now admitted that "he has average perhaps above-average intelligence, and he’s certainly very shrewd".

This widening realization reflects his many successes, such as getting Congress to pass $US 1.35 trillion worth of tax cuts over ten years, a budget that limits spending growth to 4 per cent, introducing the national testing of school students and provisions to take-over failed schools, major moves for freer international trade, declaring "dead" the Kyoto global warming treaty proposal and, contrary to all predictions, receiving a balanced (if opposed) response from Europeans and Russians to his proposals for missile defence. Given Bush’s supposed ignorance of foreign policy issues, his meetings with European and Russian leaders appear to have been amazingly successful in terms of diplomacy even if there was little substantial agreement.

I did not succeed in having published an article pointing out that it is in Australia’s interests to support the US defence measures. The article, which addresses the hoary old Foreign Affairs Department tendency to give first priority to our relations with Asian countries, is attached.

As Frank Devine pointed out "even Bush’s ideological enemy, The New York Times, now praises the President’s handling of Vladimir Putin in their first meeting" (The Australian, 25 June). Does anyone still want Al Gore?

 

MORE PROGRESS ON ABORIGINAL ISSUES – BUT NOT ON THE "CULTURE"

In his book, Values Matter Most, adviser to US Presidents and political analyst at the American Enterprise Institute, Ben Wattenberg, argues that "values issues are no longer co-equal with economic concerns. The values issues are now the most important". His perception partly reflects American life (including its better economic policies), as does his identification of America’s "four big, harmful, something-for-nothing-problems (of) crime, welfare, education and affirmative-action-as-now-practiced". But, coming from a Democrat who supported Clinton for President, it is significant that he identified the importance of addressing such values problems and that he paints government as "playing a big role in allowing values to erode in America", mostly through "liberal guilt peddlers whose remedies almost invariably involved what has been called ‘something for nothing’".

Another American Enterprise Institute fellow who (thanks to CIS) lectured in Melbourne during the month, Charles Murray, was even stronger. He particularly attacked "elites" in modern US society for failing to confront cultural problems because of their concern to be "ecumenically nice" (a lovely phrase, I thought!).

Unfortunately, Australian elites also only rarely make substantive public attempts to tackle important cultural issues. The latest welcome recognition of some of the very serious human problems that exist within Aboriginal communities has, for example, produced little criticism of the traditional cultures of those communities or of the disastrous separatist policies of successive Australian Governments that have encouraged them. Moreover, there has been a strange tendency to suggest that the (now acknowledged) horrific violence within the remoter Aboriginal communities is a matter for Aborigines themselves. Some commentators have also blamed "dispossession".

But, surely, it is time for both indigenous and non-indigenous communities to acknowledge that the basic problem arises from separation, that it can only be reduced by encouraging Aborigines to establish closer relationships with non-indigenes (and vice-versa), and that some important aspects of Aboriginal "culture", particularly the treatment of women, are not acceptable in modern societies. Both indigenous and non-indigenous leaders seem to lack the moral courage to make these vital adjustments, although some Aboriginal women have made an important and courageous start on the violence issue.

It is helpful and significant that there has been an important shift in the Fairfax and Murdoch publications, particularly the latter which now appears more prepared to expose the serious problems within many Aboriginal communities. The Age also published the attached article by Peter Howson pointing out "behaviour within these communities is not only destroying traditional cultures, it also has devastating effects on the human beings – effects that should not be allowed to continue".

Peter’s article also emphasises the need to move beyond the exposure of problems to advocacy of realistic solutions. Indeed, it must be time for our elites to suggest that, in the interests of Aborigines themselves, those who purport to be Aboriginal "leaders" (the election of ATSIC "leaders" is, of course, by only about 20 per cent of Aborigines and ATSIC is widely disliked within Aboriginal communities) should abandon most of their stated objectives. The idea of a treaty, for example, is not only completely absurd and unrealistic but would be damaging to Aborigines. But it is almost as absurd that many amongst the indigenous and non-indigenous elites continue to call for an apology for the supposedly "stolen" children (on 22 June the High Court dismissed the Williams appeal against the unequivocal decision by the NSW full court that she had no case).

There is also a need not to be frightened to bring out the successes of assimilation. These include the fact that the most economically and educationally successful Aborigines are those who are married to non-indigenes. One "model" may be provided by champion golfer, Tiger Woods. According to the Economist (16 June), he readily acknowledges the mixture of black, white, Native American, Chinese and Thai in his parentage and sees himself as just another Californian hybrid ie he does not engage in racial politics.

The Bennelong Society, launched in Canberra by former Minister of Aboriginal Affairs (and President), Senator Herron, with two Aboriginal board members, aims to contribute to bringing out long-denied truths and to persuade governments that they, as well as Aborigines themselves, have a responsibility to try to improve things. The Society (www.bennelong.com.au) is planning a conference on 26-27 October in Sydney on possible ways of encouraging (but not forcing) movements out of traditional communities, of markedly reducing welfare dependency and of obtaining meaningful employment.

 

GLOBAL WARMING – A NEW DEVELOPMENT?

The first paragraph of the recent report on climate change produced, at President Bush’s request, by a US National Academy of Sciences panel reads as follows:

Greenhouse gases are accumulating in Earth’s atmosphere as a result of human activities, causing surface air temperatures and subsurface ocean temperatures to rise. Temperatures are, in fact, rising. The changes observed over the last several decades are likely mostly due to human activities, but we cannot rule out that some significant part of these changes are also a reflection of natural variability. Human-induced warming and associated sea level rises are expected to continue through the 21^st century.

Coming from a US group of scientists presumably expected to be less committed than the UN IPCC group to policies to reduce greenhouse gases, this puts a different complexion on the debate. However, it is surprising the panel concluded "temperatures are rising" given that satellite measurements have shown no temperature change in the last twenty or so years. Moreover, one member of the panel who has been a greenhouse sceptic, Professor Richard Lindzen, subsequently wrote in a Wall St Journal article that the report has been misinterpreted. While he agreed that global mean temperature is about 0.5 degrees higher than a century ago, he emphasized that "the science is by no means settled" and "we are not in a position to confidently attribute past climate change to carbon dioxide or to forecast what the climate will be in the future."

While accepting the report, Bush rightly continued to reject the farcical Kyoto approach to reducing GGs given that it does not include developing countries. Lindzen affirmed that the report contained no implicit endorsement of the Kyoto Protocol and was not specifically directed at policy – "a fairer view of the science will show there is still a vast amount of uncertainty – far more than advocates of Kyoto would like to acknowledge – and that the NAS report has hardly ended the debate".

While President Bush will now be under pressure to offer an alternative to Kyoto, it seems doubtful that the US panel report provides a sufficient basis for significant policy changes to reduce GGs. It is important to recognize also that scientists have almost as bad a predictive record as economists!

 

WHY WE NEED TO REDUCE HEALTH "WELFARE"

My paper with this title was presented to a seminar on health policy held by pharmaceutical company Bristol- Myers Squibb and is on the IPE web site (www.ipe.net.au). It includes estimates suggesting that 40 percent of health benefits, amounting to around $10 billion, are going to the two groups with the highest incomes. It also estimates that, if existing policies are continued, the ageing of the population will require taxation to be increased by 25 per cent by 2031 in order to finance health benefits. (That is only for health: the increase would be much more if existing social security policies continue).

This analysis strongly reinforces the need for policy action to limit access to government health benefits to those in lower income groups or who have chronic illness and to require higher income groups to meet the full costs of their health treatments. The resultant savings in government expenditure should be used to finance commensurate reductions in taxation for those in middle-higher income groups who experience higher health costs. A competitive market in medical insurance should also be allowed to develop.

The paper was not well received by medical and social policy "experts", such as Professor Stephen Leeder and Julian Disney, although several participants at the seminar conveyed sympathetic reactions.

 

WOODSIDE AND SHELL

Attached is an article The Age asked me to write on the Treasurer’s decision to reject the takeover of Woodside by Shell. The decision provided insufficient justification as to why this would have been against the national interest and appears to have been excessively influenced by political factors.

 

CORPORATE CRASHES

From one perspective, the collapses of HIH and One-Tel can be regarded as part of the normal functioning of a private enterprise economy where many thousands of businesses cease to operate each year and many thousands start up. Even "collapses" are an integral part of the capitalist system. "Destructive creation" ensures progress and innovation rather than the stagnation that occurs under socialism. Moreover, our insolvency system appears well able to handle such collapses.

This is not to excuse the poor management, or worse, that was clearly involved. But it should not lead to increased regulation, particularly of the insurance industry. My own experience when in Treasury, albeit a limited one, suggests that more and more government regulations imposed on financial enterprises do not prevent such enterprises getting into difficulties, may give customers (and management) a false sense of security, and "force" governments (ie taxpayers) into rescue operations. What are needed are assessments of the performance of financial institutions, much as credit rating agencies do – but by regulators who have access to more information. The Wallis inquiry emphasized the importance of improving the amount and quality of information to users of financial services but there does not seem to have been much progress in this regard.

 

VICTORIA’S PATHETIC POLICING POLICY CONTINUES

On May Day the anti-globalisation protesters were again allowed unjustified freedom to obstruct other citizens by blockading buildings and to vandalise, including extensive damage to the McDonald’s Collins St outlet. My police contacts complained that police were forced to stand-by and watch because they had inadequate numbers and equipment. Despite this Premier Bracks described the protests as "peaceful", apparently meaning that there was no physical violence – violence against property is presumably OK! No arrests were made and the 10 weeks prevention of Friday trading at Nike’s city store simply produced a magistrate’s order not to stop trading – but she refused to make an order against the (large) protests continuing outside the store.

However, the (eventual) relatively limited police action against protesters at last year’s World Economic Forum has been found by the Police Ombudsman to constitute the use of "reasonable force". This was welcomed by the Premier and condemned by protesters, seventeen of whom have been charged. Does it mean that the police instruction regarding the handling of protests will be changed to allow the use of "reasonable force" instead of the existing "minimal force"?

 

JUSTICE GUIDICE

EXTRACTS FROM KEYNOTE ADDRESS TO BAR ASSOCIATION OF QUEENSLAND INDUSTRIAL AND EMPLOYMENT LAW CONFERENCE, 20 APRIL 2001

"there are many instances where the parties to employment relationships are unable to say with confidence that particular conduct will have definite legal consequences or will result in a particular form of relief. …the problem in industrial law is far bigger and more complex and can have grave social consequences.

…The uncertainty generated by the mixture of laws which impact on employment relationships in this country constitutes an erosion of our freedoms and impacts on the quality of our society. Laws at State and federal level which ostensibly have the same purpose are often quite different in their effect. ….The potential for different outcomes in similar factual situations is widespread. To the extent that the potential for inconsistent treatment is avoidable the situation is quite simply unfair.

….A great deal has been done in the last 20 years or so to coordinate many basic entitlements through the state and federal industrial award systems. But there are still differences in the nature and level of entitlements. Where those differences have no rational basis but are accidents of industrial or political history they advantage some citizens and disadvantage others. This too is a lack of equality and it undermines our society in a significant way.

… the burden of these problems falls most heavily on those with fewer resources. The wealthy and large companies and unions have the resources to play out their cases in and out of tribunals and courts almost without limit and there are notable examples of such battles throughout our industrial history. But an individual employee or relatively small employer can be financially crippled by litigation.

… Our industrial laws must be rationalised as must the number of Courts and tribunals exercising jurisdiction. By rationalization I do not mean to suggest that there should only be one tribunal and one statute. But so far as possible overlap between jurisdictions should be avoided. One way of reducing overlap is by drawing boundaries more clearly. Another way is to give each court or tribunal exclusive jurisdiction in the matters with which it is concerned. Only where overlap cannot be avoided should consideration be given to merging jurisdictions."

 

FREE UP OUR SCHOOLS (Herald Sun, 31 May 2001)

Des Moore

British Labour Prime Minister Tony Blair faces the voters next week with a public education policy that has actually moved in the same direction as the Kennett government was going. Indeed, the whisper is the British Minister for Education, David Blunkett, studied the Kennett government reforms.

Prime Minister Blair’s new policy, pursuing greater diversity, includes

PURSUIT of greater diversity through the conversion over five years of about half Britain’s comprehensive secondary schools into specialist schools.

MORE government support for church schools where there is clear local demand from parents and communities.

INTRODUCTION of a new category of advanced specialist schools for high-performing students.

A NEW model that would enable a private or voluntary sector to take responsibility for a weak or failing school against a fixed term contract.

Mr Blair has particularly emphasised the need to increase school autonomy. Thus, all schools get payments made direct to the head teacher, all heads have more control over their budgets than ever before, and successful schools have greater freedom over the national curriculum and teachers’ pay and conditions. There is also emphasis on building pupils’ individual talents, including by setting up a national centre for gifted and talented youth and setting targets for children to attain. League tables for schools and performance standards for children, long opposed in Australia, also continue to be published.

Tony Blair claimed there is no question of a two tier system under this new policy, but education unions have loudly complained that there will be different tiers of education and the gap between the most advantaged and least advantaged may widen. This gap obsession was also a big criticism of the Kennett government’s self-governing schools policy and it remains an obstacle to further reform of government education here. The belief is that there will be a lower standard of education given to some children because they will be left behind in lower quality schools.

But there is no substance to the two-tier argument. Where schools have children with lower educable capacities that should be handled by providing the required additional resources (including higher skilled - and paid - teachers). Indeed, the Blair policy makes specific provision for special pupil learning credits for schools in most disadvantaged areas. In any event, existence of a big group of government subsidized private schools means Australia already has a two-tier system: indeed, the diversity amongst private schools alone now provides many tiers of school education.

The new Blair policy provides an opportunity for our state governments to at least "third-way" government schooling and help slow the continuing shift of students away from it. It also provides an opportunity to show that education unions should not be allowed to determine policy.

The Victorian Opposition should be taking the lead here and promoting the need to extend self-government well beyond the level that the Kennett Government did. The failure of Shadow Minister Honeywood to support Premier Bracks’s stand against the Education Union’s strike threat is surprising.

He should be promoting the idea of giving maximum freedom for individual schools to make their own decisions.

Des Moore is Director of the Institute for Private Enterprise

 

THE OBJECTIVES OF THE BENNELONG SOCIETY

(an edited version of this was published in The Age on 7 June)

By Peter Howson

The major shift in the debate over the policy that should be adopted towards relations between indigenous and non-indigenous Australians is reflected in the creation of the Bennelong Society, chaired by former Aboriginal Affairs Minister Senator John Herron and including two Aborigines amongst its board members. The Society has been named after Sydney Aborigine Bennelong who developed friendly relations with Governor Philip almost from the start of Australian settlement in 1788.

The Society has been created following the workshop I arranged last December at which several speakers used their long experience working in Aboriginal communities to highlight the main problems. The papers presented by three clerics were particularly important in this regard.

The web site of the society (www.bennelong.com.au) now contains the papers from the workshop and will include further analyses of problems in the current relationship as these are developed. The society will give particular emphasis to changes needed in government policies.

Of course, the hardest part is to identify what might be achievable politically. The problems identified by speakers clearly demonstrated the failure of the 25 year experiment with the policy of deliberately encouraging separate traditional Aboriginal communities based on communal land rights.

The speakers indicated that the practical result of the policy has been the creation of an environment offering very limited prospects of employment. They are in a sense trapped in cultural prisons, no longer relying on the hunter-gathering pursuits of their ancestors but not having acquired the new skills required to prosper in the changed environment. They are thus now essentially dependent on the dead-end of social welfare benefits.

Particularly worrying is the effective breakdown of law and order within many Aboriginal communities, which are often veritable powder kegs of tension, fuelled by alcohol in particular. The acts of violence being inflicted on women and children in particular are horrific. As the recently published Child Protection report for 1999-00 shows, nearly 4,000 indigenous children had to be removed from their parents to protect them from abuse. This (understated) rate of removal was nearly six times higher than for non-indigenous children.

Unsurprisingly, Aborigines are increasingly leaving the remote communities for more urban centres, where around 75 per cent now reside. However, the neglect of education, and the accompanying low literacy levels, threaten to create a longer term problem even outside these communities.

To succeed in reducing this serious situation requires a bipartisan effort. The movement away from the more isolated communities, and the situations within them, indicates that the proponents of a treaty and reliance on customary law are out of touch with reality. Strong leadership will be required to overcome the separatist policy, not by imposing solutions but by encouraging movement into the wider community.

Robert Manne argues (Long May the Flag Fly, 4 June) that, if the traditional communities are destroyed, one distinctive expression of human life will simply become extinct. But he fails to acknowledge that behaviour within these communities is not only destroying traditional cultures: it also has devastating effects on the human beings that should not be allowed to continue.

The first serious step should be for the Commonwealth and State Ministers of Aboriginal Affairs to meet to try to agree what to do. The leaders of Federal and State Governments must meet soon after and agree a program of action. Such a program might include the following:

• A statement agreed by all Government leaders, for circulation to all Aboriginal communities, that accepts the traditional links with land but outlines the problems for Aboriginals themselves in sustaining communities based almost entirely on land and social welfare. Agreement also on the need to share the cost of the additional funding required to deal with the problem.
• Provision of an incentive to those presently living in traditional communities to move to urban areas, including regional towns and cities. Possible incentives might range from cash grants to (additional) subsidies for housing.
• The establishment of substantial policing units in Aboriginal communities and the (eventual) inclusion in those units of Aborigines trained for that purpose.
• The establishment of alcohol free zones that would include residential areas and would allow the barring of entry to those under the influence.
• Attempts to reduce truancy rates of up to 60 per cent by the provision of additional teaching and administrative staff and the enforcement of Australian law requiring children to attend school. A requirement that English be the main language taught, the only way to ensure that they can find employment.
• The establishment in the communities of safe havens to which those fearful of damage or even their lives could flee temporarily.

Some of such possibilities will seem radical, even extreme. However, as Arnhemland expert Richard Trudgeon points out, the alternative to inaction is "these warriors will just lie down and die".

Peter Howson, who was Minister for Aboriginal Affairs in 1971 and 1972, is Vice- President of the Bennelong Society. .

 

A WORRYING DECISION, MR TREASURER (The Age April 25)

Investment data expose scaremongering about selling off the farm as populist nonsense

By Des Moore

For almost all of Australia’s existence as a modern nation, foreign investment has made a major contribution to growth, living standards and employment. However, the exercise of foreign control may not always be in the national interest and this is the rationale for the Government’s decision to reject the takeover of Woodside by Shell.

An important question from this decision is whether it indicates a change in policy because Australia is judged to have become excessively dependent on foreign capital. Treasurer Costello has given no such indication and has clearly tried to portray the decision as a one-off related to the particular circumstances of the case.

But the recent concerns expressed by business leaders about the risks that globalisation will force Australian firms largely to become branch offices of overseas multi-nationals may have been an influence. And rumours that a Costello proposal to approve the project (subject to conditions) was defeated in Cabinet adds weight to the belief that politics played a determining role, with the main pressure coming from the traditionally isolationist Western Australians. A Coalition member from that State suggested that approval would lose a number of seats.

This reminds me of the old pre-election saying "I feel a dam coming on". It is, unfortunately, consistent with Canberra reports that Government decisions have recently been more concerned with putting out bushfires than developing fundamental reforms and policies.

Is there any reason for Western Australians or others to be concerned that Australia has become excessively dependent on foreign investment? The best overall measure of such dependence is the contribution it makes to total capital formation. In 1999-00 total gross fixed capital formation was nearly 24 per cent of GDP while the current account deficit (which reflects the net inflow of foreign capital) was only just over 5 per cent, that is, foreign capital funds about one fifth of Australian investment.

With the recent fall in the current account deficit to around 4 per cent of GDP, and the falling (relatively) costs of servicing our net liabilities, there is certainly no reason for concerns about the general role of foreign investment. Rather the contrary: in fact the recent exchange rate depreciation appears to be due more to a weakening in net capital inflow than to traditional concerns about mounting servicing costs of foreign debt and equity.

Moreover, the net foreign capital that finances the current account deficit includes capital of all kinds. Foreign direct investment in Australia, the principal form of investment subject to control by overseas companies, amounted in 1999-00 to only about 2 per cent of GDP or less than one twelfth of total fixed capital formation.

Australian investment overseas is also relevant. At end December 2000 outstanding direct investment in overseas countries by Australian enterprises was valued at no less than $184 billion, up almost $100 billion since June 1998. Although this surge mainly reflected increases in values of overseas assets (as distinct from new outward flows), such investment is now worth only $18 billion less than the comparable foreign investment here.

This is hardly an indication of growing foreign control in net terms. It suggests, moreover, that Australian companies themselves not infrequently face decisions as to whether to give priority to domestic or overseas assets

If there is no reason for any general concern about the extent of foreign investment, are there more particular concerns in this case?

Australian foreign investment policy rightly provides for proposals to be rejected when they are judged against the national interest. In the Shell/Woodside situation the bottom line question is - will the very large and important gas assets be developed (and the proceeds sold) to the maximum extent by the NW Shelf partners or will Shell’s influence allow it to give priority to its large gas assets outside Australia? The answer is all the more important given that gas is usually sold on contracts extending over a number of years.

If Shell would have obtained a monopoly or quasi–monopoly position, there would be justification for rejecting its bid or at least requiring it to observe appropriate development conditions. But the project’s development would have also depended on decisions by four other partners.

Perhaps Shell would have some special influence. But the Treasurer’s comments leave me without a satisfactory explanation as to why, with Shell and the other partners, an agreed program could not have been developed. The rejection adds a worrying trend to recent policy decisions, including the excessive government intervention in the private sector.

Des Moore, a former deputy secretary of the Commonwealth Treasury, is Director of the Institute for Private Enterprise. E-mail: ipe@ozemail.com.au

 

AUSTRALIA AND CHINA (Not published)

By Des Moore 

Some people have expressed serious concern at the trend in Australia’s international relations with Asia, and China in particular. This concern arises primarily from our alliance with the US and the Howard Government’s support for that country’s intended building of a nuclear missile defence system (NMD).  

President Bush has now confirmed the intention to build an NMD he stated during the US election campaign. But this shouldn’t be a matter of serious concern. As it is basically a defensive rather than an offensive mechanism, it certainly would not make the US the rogue proliferator of nuclear missiles that some have portrayed.  

Most importantly, there is no cause for worry that Asia might see Australia as the forward arm of a US defence shield or because the NMD project will mean that "the arms race will be re-ignited". 

In reality, the joint facilities at Pine Gap have always been accepted in Australia as a forward arm of the US defence shield of nuclear deterrence; so, making Pine Gap part of the projected NMD system would be no great novelty. 

As for re-igniting the arms race, the projected NMD system offers no reason for Russia to begin racing again since its missiles are already so numerous they would simply overwhelm the limited NMD system being proposed. China for its part began racing some time ago – nothing to do with NMD, but because, its nuclear missiles being so few and so vulnerable, it felt the need to acquire a MAD capability to match, more or less, the USA’s and Russia’s. 

Then there is a question of whether war over Taiwan between the USA and China has been brought closer by alleged swelling cries in Taiwan for independence, ones that might even be echoed in the USA on the Democratic left and the Republican right. And has this risk been enhanced by President Bush’s recent statement that the USA would go to Taiwan’s aid if it were to be attacked by China? 

A war over Taiwan would be pretty well certain in either of two eventualities: if China were unilaterally to set a date certain for Taiwan’s re-incorporation and to use force when that passed; or if Taiwan were to declare itself independent. Neither eventuality is at all likely. 

For Taiwan has been brought to understand thoroughly that the USA has not given it a blank cheque, as Germany gave the Austro-Hungarian Empire over Serbia in 1914, so bringing on World War I. It understands, in other words, that America’s assurances of support are predicated on Taiwan’s not declaring independence. 

China, for its part, understands just as thoroughly that the USA would honour its assurances to Taiwan if China engaged in unprovoked aggression against Taiwan; and unprovoked it would be if Taiwan had not declared independence. 

Has President Bush changed long-standing US policy in these regards? Emphatically not; he is neither stupid nor reckless nor bellicose, as his handling of the intelligence plane incident demonstrated. 

Nonetheless, some argue that to placate China, Taiwan should now be required to negotiate credibly for reunification. Remarkably, this even seems to be Labor’s policy as enunciated by Laurie Brereton. 

To make such a call on Taiwan would be all too reminiscent of Chamberlain’s pressure on Czechoslovakia in 1938 to give in to Hitler’s demands. It would be strange indeed to try to force Taiwan to agree to accept a non-democratic China’s terms, the more so when Taiwan already speaks of the possibility of reunification with a democratic China. 

Such bullying would be neither moral nor in anybody’s interests except China’s. Far from urging it on the USA we should have no part of it. 

Finally, there is a question as to whether Australia is being blackballed by Asia because we are too close to the USA generally and not committed enough to Asia. Certainly we have not been invited to join the ASEAN plus 3 talk-shop, or to sit in on the ASEAN-EU meeting, or to become party to an ASEAN free trade area. But the reasons are in each case different; and none is to do with our being too close to the USA – which, incidentally, is Asia’s largest export market, investment source, and security provider. 

For example, we can hardly be asked to join an ASEAN FTA when none is in existence or in prospect: ASEAN’s own internal differences and difficulties on trade are too great. More widely, Asia understandably does not accept that we are Asian – and we have made no such claim, under either Keating or Howard. 

Indeed, there is no substantive basis for reversing Mr Howard’s "Asia first, not alone". That does not mean that Australia will do whatever "Asia" tells us to do, any more than our alliance with the US requires us to do whatever the US says. 

Des Moore is Director of the Institute for Private Enterprise. He is a graduate of the Royal College of Defence Studies in London.