Globalising Australian Capitalism

GLOBALISING AUSTRALIAN CAPITALISM GLOBALISING AUSTRALIAN CAPITALISM BOB CATLEY Department of Politics, University of A...

Author: Bob Catley

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GLOBALISING AUSTRALIAN CAPITALISM

GLOBALISING AUSTRALIAN CAPITALISM BOB CATLEY Department of Politics, University of Adelaide

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CAMBRIDGE

"•"" UNIVERSITY PRESS

Published by the Press Syndicate of the University of Cambridge The Pitt Building, Trumpington Street, Cambridge CB2 1RP, UK 40 West 20th Street, New York, NY 10011-4211, USA 10 Stamford Road, Oakleigh, Melbourne 3166, Australia © Bob Catley 1996 First published 1996 National Library of Australia cataloguing-in^publication

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Catley, Robert. Globalising Australian capitalism. Bibliography. Includes index. 1. Australia - Economic conditions. 2. Australia - Economic policy. I. Title. 330.1220994 Library of Congress cataloguing-in-^publication

data

Catley, Robert. Globalising Australian capitalism / Robert Catley. p. cm. Includes bibliographical references and index. 1. Australia - Economic conditions - 19452. Australia - Politics and government. 3. Australia - Economic policy. 4. International economic relations. I. Title. HC605.C374 1996 337.94'09'048-dc20 96-12001 A catalogue record for this book is available from the British Library.

ISBN 0 521 56246 5 Hardback ISBN 0 521 56618 5 Paperback Transferred to digital printing 2003

Contents

List of Tables List of Figures Preface and Acknowledgements List of Abbreviations Introduction 1 The International System and the End of the Cold War The Sovereign State System Opposing the Interstate System Soviet Withdrawal America and Free Trade The Cold War The Post-Cold War World 2 The World Market and the Industrial Revolution in Asia Industrial Revolutions Asian Industrial Revolutions An Asian Miracle? 3 The Australian State and Economic Development Settlement A National State Protected Industrialisation after 1945 Arrested Reform: the Whitlam Government Opportunity Lost: the Fraser Government

viii viii ix x 1 4 4 8 9 11 15 19 26 26 28 35 43 43 46 53 61 63

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CONTENTS

4 Economic Rationalism Changes Australian Politics

5

65

The Labor Party Adopts the Market The Non-Labor Left Non-Labor Moves Right Election Battlefields

66 71 73 76

Government and Business in Australia

87

Local State Apparatuses State Government Apparatuses The National Government Apparatus

90 94 98

6 The Public Sector Reinvented

107

Transfer Payments Service Delivery Infrastructure Provision Direct Production Quasi-economic Institutions

108 112 119 121 125

7 Australian Industry Restructures

129

8

Financial Deregulation Making the J-curve Work The 1990-91 Recession Structural Change Sectoral Policies Social Consequences of Restructuring

129 131 137 139 146 151

Geographic Dimensions of Change

155

The Satellite Economies National Cyclical Growth Regional Disparities Globalisation and the Regions: Growth Globalisation and the Regions: Problems Regional Development Policy Options

156 160 162 165 170 176

9 Australia Joins the Asia-Pacific Region: from ANZUS to APEC The Cold War and ANZUS Defeat in Vietnam Containing the Soviets The Labor Government Living with Asia APEC and Globalisation

181 182 184 189 193 197 205

CONTENTS 10 All in a Day s Work The Crisis of the Dual Economy Dismantling the Dual Economy Globalising Australian Capitalism Notes Index

vii 208 210 212 214 224 235

Tables

6.1 Current Balances as a Percentage of GDP 7.1 Commonwealth Budget Outlays, Revenue and Balance, 1960-61 to 1998-99

110 134

Figures

7.1 7.2 7.3 7.4 8.1

Wages Share of GDP (I) at Factor Cost Profits Share of GDP (I) at Factor Cost Budget Aggregates Trade/GDP Ratios Distribution of Population among States and Territories, 1901-83

132 132 135 139 158

Tables

6.1 Current Balances as a Percentage of GDP 7.1 Commonwealth Budget Outlays, Revenue and Balance, 1960-61 to 1998-99

110 134

Figures

7.1 7.2 7.3 7.4 8.1

Wages Share of GDP (I) at Factor Cost Profits Share of GDP (I) at Factor Cost Budget Aggregates Trade/GDP Ratios Distribution of Population among States and Territories, 1901-83

132 132 135 139 158

Preface and Acknowledgements

This is a book about the deepening integration of the Australian economy into the world market and the social and political changes which have accompanied that process in the last two decades of the twentieth century. I was initially a critic of these developments and politically active in the opposition to globalising Australia. Like many intellectuals of the anti-Vietnam War generation I joined the Left. During the HawkeKeating Labor governments, however, I tried to be realistic and served on numerous ALP decision-making bodies, including delegate to State and national conferences, worked for three ministers in Immigration, Community Services, Defence and Industry, and spent three years as a federal MP. During this period I came to the conclusion that the kind of structural changes described in this book were inevitable. In the university system, where I now again work, this viewpoint is generally accepted even less critically in economics departments. Elsewhere in the Arts and Social Sciences globalisation is generally opposed. I am now trying to enjoy it. I would like to thank Deborah Feagan, Natalie Mahoney, Chris Hill and Tom Conley for helping prepare this manuscript and John Playford for insisting I get it published. The book is for Pat. BOB CATLEY

Abbreviations

ABC ACCI ACTU AGPS AIDAB ALP AMWU ANZ ANZUS APEC ASEAN BCA BHP CBA CBD CEO CIA CPA CRA CSIRO DLP EC EFTA ELICOS ETM EU GATT

Australian Broadcasting Commission Australian Chamber of Commerce and Industry Australian Council of Trade Unions Australian Government Publishing Service Australian International Development Assistance Bureau Australian Labor Party Amalgamated Metal Workers Union Australia and New Zealand Bank Australia, New Zealand and United States (Treaty) Asia-Pacific Economic Co-operation Association of Southeast Asian Nations Business Council of Australia Broken Hill Proprietary Commonwealth Bank of Australia central business district chief executive officer Central Intelligence Agency Communist Party of Australia Conzinc Rio Tinto Australia Commonwealth Scientific and Industrial Research Organization Democratic Labor Party European Community European Free Trade Association English Language Intensive Courses for Overseas Students elaborately transformed manufacture European Union General Agreement on Tariffs and Trade

ABBREVIATIONS GBE GDP GE GNP GST HIA HMV ICI IMF LDP LGA MP MTIA NAB NATO NIES OECD OPEC SBSA SBV SDI SME TCF TDC UAP

government business enterprise Gross Domestic Product General Electric Gross National Product Goods and Services Tax Housing Industry Association His Master's Voice Imperial Chemical Industries International Monetary Fund Liberal Democratic Party (Japan) local government authority Member of Parliament Metal Trades Industry Association National Australia Bank North Atlantic Treaty Organisation National Industry Extension Scheme Organisation for Economic Co-operation and Development Organisation of Petroleum Exporting Countries State Bank of South Australia State Bank of Victoria Strategic Defence Initiative small to medium-sized enterprise textiles, clothing and footwear (industry) Trade Development Council United Australia Party

Introduction

This is a book about the impact of globalisation on Australia, particularly its political and economic systems. In his seminal work on the subject, geographer Peter Dicken says of globalisation that 'the tendency towards an increasingly highly interconnected and interdependent global economy will intensify. The fortunes of nations, regions, cities, neighbourhoods, families and individuals will continue to be strongly influenced by their position in the global network. In a rapidly shrinking and interconnected world there is no hiding place'.1 During the last twenty years this tendency has had its impact on Australia, producing profound changes in public policy and the organisation of national life. Other works have examined the effect on the national economic structure,2 and some attention is paid to this issue here. But the primary focus of this book is public policy, debates about it, and the effect of their outcomes on the national economic and social structure. Various methodological approaches might be taken to explain these phenomena. Elsewhere explanations have been offered couched in terms of the dominance of international capital, the end of the Soviet system producing the global dominance of market relations, the ideological triumph of neo-classical economic doctrines or, more simply, the pragmatic shift to the Right by the Australian Labor Party. The approach this work adopts is systemic and historical. In the international system of 200 sovereign states each has its own characteristics which determine the manner in which it has reacted to the post-Cold War world of globalisation. In order to explain that process the dynamics of the system and the manner in which each state has become party to it require exposition. The first two chapters undertake that task. In Chapter 1 the history of the modern state system is examined with

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reference to its origins in Europe and its dispersal throughout the world, mainly through the process of colonisation. This competitive political society spread with it a world economy initially in the form of discrete imperial orders. The collapse of the last of these, Soviet Russia, in 1991 heralded the triumph of an increasingly integrated global capitalist economy organised politically into around 200 sovereign states. The second chapter argues that in this post-Cold War world interstate competition is increasingly economic in form, though strategic dimensions of course survive. The emerging assertive zone in this global community is the Asia-Pacific region, which is growing economically more quickly than elsewhere, industrialising and creating the equivalent of four European Unions in the process. The Australian model of economic development - statist and colonial - is examined in Chapter 3. It is shown that the highly successful dirigiste dual economy formed at federation in 1901 could not survive the onset of globalisation in the 1970s.3 This produced a profound reorganisation of national policy debates about appropriate responses to intensified international capital movements, financial markets and trade in goods and services. During the 1980s the national political elite reached a broad consensus that Australia would need to open or internationalise its economy in order to meet the unavoidable challenge of globalisation. As described in Chapter 4, this eventually produced economic rationalist policies of deregulation and privatisation with a view to making Australia more competitive. The national state did not become irrelevant or less sovereign, but the focus of its strategy did change. The relationship between business and government has always been close in Australia, as in other capitalist countries. At a time of radical change, however, that relationship becomes even more important, as described in Chapter 5. And since Labor, with certain anti-business traditions, was in office this partnership became more contentious. Chapter 6 describes how the Labor government refashioned the Australian state to enforce a more efficient economy, while maintaining its electoral coalition. This was not always easy as Labor policy was often overturned to achieve this outcome. As oudined in Chapter 7, the impact of globalisation on the Australian economy has been profound. Some of this change has been produced by innovations in business practices and some by the pressure of government policy. Much of it has also been unwelcome. This reorganisation has also had geographic dimensions as some regions of the country have boomed and others declined. This has, in turn, affected the demographic and political structures, as described in Chapter 8.

INTRODUCTION

3

As the Asia-Pacific region has increased its economic weight in the international system during the period of globalisation, so has its significance for Australian diplomacy increased. In Chapter 9 the reorientation of Australian foreign relations towards Asia in particular is described. Note is also made of the greater significance attached to economic relations. Chapter 10 assesses the effect of these changes in Australian public life. It contends that while significant progress has been made towards a successfully globalised economy, that target has not yet been achieved. The country continues its long slide into debt, and of the alternative governments the incumbent has been so far unable to arrest the process and the Opposition unable to achieve power. There is a tendency in the literature on globalisation - particularly that written in developed English-speaking countries - to decry the process. It is undoubtedly producing dislocations in those societies. But it is also generating the most profound advances in material living standards ever witnessed throughout East Asia. Whether that is progress depends on your point of view.

CHAPTER 1

The International System and the End of the Cold War

The changes that have occurred in Australian economic, social and political life during the last twenty years cannot be understood without reference to the international system, for Australia is not a world apart. That system was evolving before European setdement of Australia, and both created and then moulded the contours of life in the new settlerdemocracy that emerged from the convict settlement. People, capital, technology, products, institutions and ideas were imported to the new communities which formed on the seaboard of the continent to spill inland and transform an ancient environment and civilisation. In the process these imports were changed and then augmented by new waves, always changing and bringing new baggage and demands. Periodically the settlers would resist this dynamic, but rarely to much avail. The trick has always been to adapt this relationship to Australia's advantage. The Sovereign State System

The modern international system has exhibited two principal characteristics since its evolution from Western Europe in the sixteenth century: conflict and co-operation between sovereign states; and the uneven but remorseless expansion of the world economy. Both processes are properly the subject of discrete scholarly disciplines - international relations and economic history - with an extensive body of foundational literature. Sovereign states evolved in Europe during the sixteenth century from the hierarchy of spiritual and temporal authority known as feudal Christendom. They asserted their right to sovereignty against the universal Church and the Holy Roman Emperor and often proclaimed this authority as deriving from the Divine Right of Kings. This new political entity, the state, was in fact enabled by the evolution of military, transport

THE INTERNATIONAL SYSTEM

5

and communications technologies which permitted the creation of unified political and economic structures within territories the size of England or France. Free labour and the evolving commitment to private property laid the basis for market economies organised on a national scale. They mobilised against one another to contest territory and resources, mobilisations which brought into play power of an almost unprecedented proportion and certainly unmatched extension. These new states competed ferociously among one another in commerce and war, a process which ensured the continuous development of improved techniques for trade and battle and their rapid geographic dispersal. The history of this international system can be written, therefore, as either the chronicle of rivalry between states arbitrated by war, or the evolution of an international commerce disrupted periodically by conflict. One influential recent study of the history of the interstate system has been Paul Kennedy's The Rise and Fall of Great Powers.1 Kennedy charts the history and extension of the interstate system as a process of ascension and decline of Great Powers seeking dominance or hegemony within it. He provides a moving picture of the changing power distribution within the system which begins with an Austro-Spanish axis of Habsburg powers fighting a coalition of Protestant powers plus France from 1519 to 1659. This gave way to a looser alliance system but one marked by the continuing attempts of France, the continent's largest power, to establish its hegemony. Under Napoleon it briefly succeeded before defeat in 1815 at the hands of a combination led by Britain and Russia. During the next seventy years Britain was able to achieve a loose domination of the system, particularly in the extra-European sphere, based on industrial and naval pre-eminence. By that time other powers led by Germany challenged Britain, and the resulting multi-power configuration broke into two alliance systems to fight the First World War. This proved indecisive; roughly the same set of powers realigned to fight the Second World War. This provided a more lasting settlement of two Great Powers dividing the system into two competing blocs, a bipolar system which lasted until the Soviet empire collapsed in 1991, leaving one Great Power, the United States. The strength of Kennedy's account lies in its capacity to analyse and summarise those factors and processes which led to the rise and then decline of each ascendant Great Power in the history of the system. He sees war as the final arbiter of power and therefore military might and its application as the immediate determinant. But he also sees that in the longer perspective economic power has determined the status of states in the system because it provides the underpinning of geostrategy. This is in turn determined by a complex of factors including the physical environment, the population's size and skill, the capacity to harness new

6


technologies, a social structure open to change and enhanced efficiency, and a political system of sensitivity and dexterity. The interstate system has been in a continuing process of change, innovation and competition, and those states that have lagged behind have sometimes been made the poorer for it by war or by commerce. This competition within the system has, unlike the imperial economies of Rome or China, driven the inexorable expansion of its economy both geographically and economically. This, too, has been the subject of considerable literature and controversy. The Fernand Braudel Centre, initiated by Immanuel Wallerstein, pioneered the concept of a capitalist world economy or modern world system originating in Europe in the sixteenth century.2 In this analysis the market economies emerging in Europe at that time extended the world market through formal and informal empire and through commerce. By the twentieth century only one world market existed and it was free-market or capitalist in construction - supposedly feudal or state socialist economies by that period being merely inefficient subsystems of the larger whole. The European world economy emerged during the 'long' sixteenth century (1450-1640), a phase of European agricultural revolution, colonial expansion, population increase and a generalised rise in prices deriving from the conquest of the Americas and western Africa. The interstate system survived the Habsburgs' attempt to create a world empire. The second phase (1650-1730) marked a geographic consolidation of the system but an internal transformation as the early phases of urban industrialisation got under way in England and France. The core of the system then witnessed (1730-1815) a final attempt by France to resist English industrial-based power, culminating in Napoleon's defeat. Stage three saw the second great expansion of the world system during the nineteenth century to encompass the whole of the globe with improved technology, fire-power and particularly maritime transportation. All other independent regional systems, notably those in Asia, were eliminated in the process. Stage four followed the First World War and represented a conflict between a challenging 'state socialist' power - the Soviet Union - and the Western capitalist powers led eventually by the United States of America. The status of states in this system changed from time to time, but Wallerstein depicts them as falling into one of three categories: core, periphery and semi-periphery. A core state is that which incorporates the latest technologies of organisation, production and war, a strong state apparatus and a capacity to extend its power. Most Great Powers are core states. Peripheral states are generally poor, with low levels of technology and weak state apparatuses incapable of resisting domination. Colonies were usually peripheral states whose subordination was enforced by the


7

imperial power. A semi-peripheral state is one that has not firmly entered either category but has the capacity to become one or the other by appropriate action. States are continually altering their status in the system and can improve or worsen their status in competition and cooperation with other states. This is true for periods of peace as well as war. This interstate system is ferociously competitive, both between states and between individuals and institutions within them. Societies that did not adapt, like the Spanish or the Ottoman Empires, were likely to disintegrate and decline, although some, like Sweden, could revive and renew their status at the core. Other societies could be forced to peripheral status by their unwillingness or inability to embrace new technologies or techniques, like imperial China in the nineteenth century. Others in a similar situation could, like Japan after the Meiji Restoration, by ingenuity and innovation achieve core status fairly rapidly. Clearly the path to improved or reduced status was not the same for every state, but, also clearly, without adaptation, competition and appropriate government policy, decline in status was likely. This was the engine of change. Where this competitive state system did not prevail and was replaced by an imperial system, the incentive for change and progress was greatly weakened. It is commonly accepted that one of the reasons for rapid growth in Europe and relative stagnation in China during the sixteenth to twentieth centuries was the conservative nature of the Chinese imperial regime, which often prohibited and certainly inhibited change.3 Some theorists have adapted a similar argument to the Roman Empire.4 A state in the modern world system must compete successfully in order to prosper. It is not possible to opt out of the process. If a state's military capacity is not continually upgraded to the standard of the general system it invites disaster at the next conflict. If a state's economic institutions are not innovating in technique, technology and product, they will be relegated to the periphery by interstate commerce. A declaration of neutrality will not necessarily save a state from the first fate, nor will a trade barrier of heroic proportions save it from the second. Just as the pace of technological change has steadily increased, so the time required to fall behind the pace of the system's standard has shortened, as has, conversely, the time required to go from periphery to core. It took the United States 140 years from independent former colony to core state (1780-1920); Japan took sixty years (1879-1939); and Korea may achieve it in forty-five (1954-99). China could move from outcast to world primacy in a generation (1978-2002). As this system has encompassed the globe, each nation-state has been forced to compete within it. Unsuccessful nations have been frequently subjugated by conquest. But commercial conquest can also produce

8


disastrous results. In the past this has taken the form of economic colonisation by core states. In the contemporary world market this can be replicated by a declining currency, asset sales to foreigners, low productivity, inefficient economic institutions and impoverishment of the population. Nations may go backwards in the system as readily as forwards. During the twentieth century the Argentine has slipped down the status and wealth league because of an inability to diversify from its beefexporting production base by appropriate investment strategies. Britain declined from its post-war pre-eminence largely because of a failure to structurally adapt its economy to a post-imperial form. Britain's former colonies similarly had to restructure themselves in a post-colonial environment. The South African white class/nation took a strategic route unacceptable to the late twentieth-century world. Others, notably in East Asia, have been able to take better advantage of the changing international system and have grown rapidly in power and wealth. Other states again have tried to escape the dictates of the system by opting out of it. Opposing the Interstate System

Many social theorists have found this system repugnant for the competition it engenders, the conflict it produces, and the suffering it creates for those who lose in the process. Its strongest and most influential critic was Karl Marx, who had two brilliant ideas. In his political writings, notably in the Political Manifesto of the Communist Party and the Eighteenth

Brumaire of Louis Napoleon, he argued that each society is governed by a class dictatorship organised through the state. He believed that the core capitalist states of his lifetime, particularly Britain and France, were ruled by the bourgeoisie or capitalist class and that the different parties or politicians merely represented different sections of that class. When these states went to war or conquered or acquired new colonies, they did so in pursuit of more profits for these capitalists. And in turn the sufferings, low wages and poor living conditions of the proletariat or working class were caused by the inexorable pursuit of profits before people's welfare. The only resolution for these problems was the seizure of the capitalists' property and communal ownership of the means of production under a state run by the workers: the 'dictatorship of the proletariat'. Marx's other brilliant idea was propounded in his economic writings, particularly the three volumes of Capital and other notebooks comprising a history of economic thought known as Theories of Surplus Value. He argued that the feudal landlord extracted economic value from his agrarian tenants by getting them to work for him for some of their work time or by contributing some product. He posited that the capitalist factory owner did the same by getting workers to produce more value


9

than their costs, or wages, with the capitalist receiving the remainder as 'surplus value' or profit. Marx pursued this idea with great intensity: since goods exchange at their value in the market and value is determined by the goods' embodied labour time, expressed as its cost of production, labour will be sold at its value or cost of production. But since the output of labour can be augmented by capital, its output can greatly exceed its value and produce surplus value. Again, Marx believed, the only way to abolish this system of creating surplus value and exploitation was to abolish capital or private property and create communism. Although Marx was not clear what a post-capitalist society would look like, he was clear that it would necessarily come about through unavoidable contradictions in capitalism producing conflict between workers and capitalists, eventually resulting in the overthrow of the latter. One such problem was the tendency for the rate of profit to decline. Another was the likelihood of war between capitalist states, over the spoils of imperialism among other things. But all the same he admired this temporary system of production for its accumulation of capital, technological innovation, scientific enquiry and capacity to raise human living standards. He therefore held that no mode of production would end until it had exhausted its potential for progress. Yet only capitalism's demise could lead to a peaceful world system. Some of these ideas became powerful components of nineteenth-century political thought and deed and a key component of the twentieth-century socialist movement. They spread to Australia with European settlements.5 As Europe industrialised, so its new working class formed separate industrial and political organisations, as trade unions and then socialist parties. These European political parties, as in Australia, mostly sought to win the vote and use it to elect reforming governments to improve the condition of the working class at work, home and leisure. Marx's ideas were well known among the intelligentsia but not very strictly adhered to outside small sects or minority factions of some major parties. Yet by a series of unlikely circumstances, including military defeat, an obscure group of Marxists led by Lenin and other emigres were to seize power in Russia in 1917. They set about trying to withdraw from the capitalist interstate system. Soviet Withdrawal The Soviet revolutionary regime, far from withdrawing from the interstate system, created the last great European empire by forced industrialisation, savage surplus value creation, militarising its proletarian dictatorship, and territorial expansion. In its early years there were some efforts by the Soviet regime to avoid behaving like a conventional state in

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the international system, but in the 1920s the Soviets undertook the construction of a state apparatus and the military suppression of internal and secessionist revolts. They also created the Third International of revolutionary parties, to which the newly formed Communist Party of Australia was admitted. By the late 1920s they had made the Communist International into an agency of the Soviet state.6 By the early 1930s the Soviets had become a totalitarian one-party state differentiated politically from the fascist regimes of the period principally by its commitment to public or state ownership of property and its zeal for heavy industry reflected in its Five Year Plans. By forcibly moving people into city complexes, enclosing the land into state farms and importing foreign technology for heavy industry, the Soviets achieved rapid industrialisation, though probably at a pace no quicker than was achieved by late developers elsewhere, especially in East Asia.7 The Soviet state also devoted considerable resources to military expenditure, a policy consistent with the geopolitical traditions of its Tsarist predecessors, whose geography it had inherited, and the militarist ideology of MarxismLeninism. The economic regime which the Soviets created, however, was new. During the 1920s there was considerable controversy among the Soviet leadership about appropriate economic policy.8 There ensued what we now call the Soviet Industrialisation Debates. These were effectively won by the Left which by the early 1930s was led by Stalin. From that time the Soviet state embarked on state socialism. For sixty years the Soviet regime provided the only serious alternative to capitalism as a means both for industrialising a backward society and for running a modern state. It was to prove a failure. The first Five Year Plan (1931-36) was based on extreme repression and compulsion and was accompanied by a series of purges in the state apparatus that stretched by the late 1930s to the upper echelons of the Communist Party and the Soviet military command.9 The design of the economy derived in some measure from the complicated formulations in volume 2 of Capital, where Marx analysed what he described as the 'circulation of capital'. Soviet state planners, centralised in Moscow and known as Gosplan, set output targets for all state-owned enterprises which their managers were expected to meet. They also developed models of economic plans for all sectors to interrelate to produce national output under their direction. The results were enforced state ownership of agriculture (collectivisation) and the construction of a basic infrastructure for heavy industry including the large-scale manufacture of weapons. Growth of economic output was impressive, though most of the technology was imported despite the otherwise autarkic nature of the regime. Whether growth was quicker than it would have been without the Soviet revolution and its attendant political cost is an issue still under debate. This state form


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imposed on the Russians by the exigencies of the time became the model for socialism during the decades of its existence. As the Soviet regime expanded geographically it took this system of planned economy with it. This could not be clearly discerned in the 1920s and 1930s because Soviet expansion was chiefly into undeveloped areas of Central and East Asia. After the 1939 deal with Nazi Germany, however, the expansion of Soviet power into Central Europe began. Atfirstit involved the brief occupation of part of Eastern Europe under the Molotov-Ribbentrop Pact, 1939-41, until the Nazi armies ejected the Soviets in the first year of the war. Later, when the German military machine was driven westward, the Soviets reinstalled their rule. In those territories annexed to the Soviet state the Soviet dictatorship was replicated, and with it the nationalisation of capital and thefive-yearplan. Elsewhere the Soviets developed the idea of 'People's Democracy' and under that title imposed puppet or colonial regimes throughout Eastern Europe.10 The imposition of People's Democracies in Eastern Europe occurred between the time the Soviet forces re-entered the region in 1944 and the Berlin blockade and airlift in 1948. It was a process that varied in speed, timing and extent in different countries, but the issue was everywhere the same: these states would not be permitted to rejoin the world market. It was over Eastern Europe that the Cold War erupted between Moscow and the West, as intense differences emerged between the Soviets and the principal Western power, the United States, over the appropriate structure for the post-war world. It is of course true that there was a significant geostrategic component to this dispute concerning the Soviet's claim to a sphere of influence extending into Central Europe and part of Germany. Unlike the British, the Americans opposed such spheres in principle. But there was also an economic component involving the conflict between the Soviet state's pursuit of state ownership of capital, economic planning and state-controlled foreign trade, and the American objective of an open world trading economy.11 America and Free Trade

The Americans' pursuit of international free trade was one of the most successful strategic policies in the history of the international system, a success litde acknowledged and often masked by its less impressive pursuit of other counter-revolutionary objectives. The origins of the US pursuit of free trade lie deep in America's ideological and social traditions and in its experience of the international system. Just as the Soviets had created a strong, centralised state on the ideological basis of nineteenth-century ideas of public ownership and socialism, so the

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Americans had constructed a weak, decentralised state based on the earlier ideas of private property and liberty. They regarded the interstate system of Europe as immoral, war-creating and bad for business. When they had the opportunity, at the end of the First World War, US President Woodrow Wilson tried to modify the system of realpolitik by creating the League of Nations and abolishing the colonial empires of Europe. The US Senate would not accept US involvement in the European state system even on those terms and rejected the relevant treaties. The inter-war behaviour of the European states and the eventual outbreak of the Second World War only confirmed these American attitudes. It had another opportunity to modify the system at the end of the War, a conflict it had in fact entered with great reluctance. The Americans emerged from the War as the most powerful of the Great Powers by a considerable margin. They also had a large number of international companies anxious to re-engage the world economy on terms which, given their nearly exclusive access to large capital funds, would be favourable. During the later stages of the War the Americans pressed their objectives on their allies from a position of great strength; American loans were made dependent on their policy objectives being met. They wanted a new international organisation to modify the interstate system and replace the discredited League of Nations. They wanted a dismantling of the European system of colonial empires and the creation of sovereign nation-states. And they wanted a dismantling of trade barriers and the creation of an international free-trade regime. They were eventually to achieve all these objectives. The Americans pursued free trade in the 1940s for both short-term reasons of self-interest and also longer-term systemic purposes. The administration of the day had the task of selling its war aims to the American public and to Congress. In 1920 similar objectives had been rejected largely because of the American tradition of political isolation from the affairs of Europe. As a result, in the 1940s the advantages of the new multilateralism were oversold and, from that rhetoric, revisionist historians have exaggerated America's pursuit of corporate profits in Eastern Europe. Certainly the free movement of goods and capital would have benefited US corporations in the 1940s, because they were the chief providers of both. The US economy produced 50 per cent of world output in the late 1940s. The terms on which the United States offered its Marshall Plan aid to the Soviets and their emerging satellites would certainly have led US economic interests into both. The Western European states accepted the terms and were quickly invaded by American capital. The Soviets rejected these terms and insisted that the People's Democracies do so also. Clearly they were incompatible with the economic system which the Soviets had created and were imposing in their military


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sphere of influence. But this economic access to the Soviet sphere was only an incidental by-product of the larger US multilateral objective, which was global free trade. The American political analysis of the European-based interstate system was that conflict sprang from its sovereign states' pursuit of economic interests by statecraft, colonialism and military power. This could be replaced by free trade and by a multilateral political system based on the United Nations. The Americans saw the 1939-45 wars in Europe and Asia, with justification, as wars of competing imperialisms, and set about dismantling them. In this process they had the support of the other emerging superpower, the Soviet Union, which was pursuing decolonisation for ideological reasons deriving from Lenin's pamphlet Imperialism: The Highest Stage of Capitalism,1^ and from the exigencies of geopolitics. The United States also saw some opportunity to expand its own influence into emerging post-colonial regimes, attempting to use their newly independent state apparatuses to improve their peripheral status.13 As more states were emancipated, the strength of the UN anti-colonialist pressure mounted and contributed to the withdrawal of European power from colonial territories. This process of political emancipation also dismantled the economically restrictionist regimes for whose purpose colonial empires were mostly constructed in the first place. The multilateral economic system established with US prompting at the end of the Second World War involved a number of institutions which were designed to make free trade work. The first problem was the currency system. In the pre-war period a number of different arrangements prevailed. Each colonial power had its own currency bloc centred on its empire, in which convertible currencies existed with the foreign reserves held by the metropolitan power. Australia was in the British imperial bloc, with its currency tied to sterling. Across this system the pound sterling was used as the major international currency, though its role was, like the British economy, less ascendant by the 1930s. Under the agreement signed at Bretton Woods in 1944 this was replaced by a system of convertible currencies at values tied directly to gold and to one another at fixed rates. Although in the immediate post-war period many countries imposed restrictions on the movement of their currency, it was envisaged that as these were progressively removed currencies would be freely convertible. Australia became a party to this agreement but maintained a regulated currency with controls on its movement. It was recognised that real market-based currency values would fluctuate with a country's trading and economic performance, such that a fixed administered exchange rate would be difficult to sustain on a daily basis. The International Monetary Fund was established to assist states encountering financial difficulties, usually chronic external deficits, by providing

14


short-term loans conditional on policies designed to rectify structural problems. These were to become known as IMF stabilisation packages and would usually be deflationary and painful. The World Bank (the International Bank for Reconstruction and Development) was also established to provide large loans on a commercial basis for substantial development projects. The purpose of these structures was to facilitate trade by making currency exchanges simpler and therefore trade between private economic institutions in different states easier. It was indeed to provide the basis for an emerging global financial market which was to reach maturity with the evolution of electronic transfer technology in the 1980s. By that time most major trading states had deregulated their financial markets and abandoned fixed exchange rates, which enabled currencies to be instantly traded on electronic databases. The main exception to this process was the continuing attempt by the European Community to maintain fixed rates within bands between member countries. Alongside this currency system, and again on American initiative, a treaty was concluded at Geneva in 1947 between twenty-three countries on a General Agreement on Tariffs and Trade. The GATT was designed to produce a continuing process of trade liberalisation by getting member states to commit themselves to a reduction in barriers to free trade. Its role was to increase global economic growth and employment levels by promoting international trade. It operated by getting an agreed set of rules for international trade, as a forum for negotiations to make trade more liberal and predictable, and as a venue for contracting parties to resolve trade disputes. It also operated through a series of 'Rounds' cycles of multilateral trade negotiations culminating in simultaneous agreements among contracting parties to reduce tariff and non-tariff barriers to trade. It also acted to prevent discriminatory trade agreements between member states, although developing countries were made an exception and permitted to receive favourable tariff treatment. The GATT was also used to persuade states to convert their various systems of barrier protection to the most transparent device, that is tariffs. The GATT has gone through eight Rounds of trade negotiations since its inception in 1947. The Uruguay Round concluded in December 1993 incorporated significant changes for services and agriculture and renamed the GATT as the World Trade Organisation in 1995. During that time the number of participating countries grew from twenty-three to 116. It was a centrepiece of the mechanisms for the creation of a global free-trade regime which was integral to the post-war aims of the United States. As such it proved a direct threat to the existence of the Soviet state. The Cold War was then both a competition of a classic kind between two Great Powers for ascendancy in the international system and a conflict between two systems of political, economic and social organisation, each with its own belief system or ideology. The first competition went through


15

a number of different periods, but the second was fundamentally unchanged until the demolition of the Soviet Union in December 1991.

The Cold War

The conflict between the Soviet and American Great Powers existed at three different levels.14 The first, at the strategic level, was the arms race centred on nuclear weapons. Alongside it was the confrontation between the two central alliance systems in the Eurasian heardand, NATO against the Warsaw Pact, but also having extensions into Japan, Korea and Taiwan. Outside the central alliance systems the United States and its allies and the Soviet Union and its allies engaged in an earnest geopolitical competition, for the most part of a classic Great Power variety. But the competition also had an ideological dimension. When states entered the sphere of one side or another, they typically absorbed some of the social and economic systems characteristic of that bloc. In the mid-1970s three events appeared to move the geopolitical momentum to the Soviet Union's advantage. First, the Americans were defeated in Vietnam. Second, the OPEC nations successfully obtained a 300 per cent increase in oil prices in 1973, thereby damaging the argument for free trade by appearing to use a producers' cartel to transfer income and wealth from the Western consumers to the OPEC producers. This was to encourage other Third World countries to pursue state power as a means for the international transfer of wealth. These policies were justified by 'dependency theory', which in an extension of Lenin's theory held that the world market kept satellite states in a permanent condition of poverty and subjugation.15 Finally, the Third World Group of 77 at the United Nations launched its collective demand for a New World International Economic Order. At the same time Soviet power was extended in two ways: by development of their nuclear weaponry, and geopolitically. The Soviets acquired a number of new allied states by influence, such as Nicaragua, Ethiopia, Yemen, and by invasion, such as Kampuchea and Afghanistan. The total of these activities led many, and particularly the US Republican Party, to believe that the remorseless extension of Soviet power would continue.16 In 1982 the secretary of the Soviet Communist Party, Leonid Brezhnev, died. Domestically the Soviet ruling party appeared unchallenged and the ageing Central Committee headed a privileged nomenklatura of 3 million people as an effective ruling class. The American Republican Party depicted the Soviet Union as a powerful and threatening state accommodated in its aggressions by Democratic President (1977-81) Jimmy Carter. In fact the Soviets were in deep crisis, as was clear by 1985 when Brezhnev's heir truly achieved power in the form of Mikhail Gorbachev.

16


Gorbachev was a reforming communist, but by 1986 it was not easy to reform the Soviet communist state and it was dismanded. Since the mid1970s Soviet economic growth had slowed and was probably negative by the 1980s, but this was difficult to prove since no one believed Soviet statistics which, among other things, had East German incomes higher than those of Britain. Soviet living standards were falling, life expectancy for men was declining, and Soviet foreign trade was only maintained by exports of raw materials like oil and gold. Many of the 'national minorities' - in fact colonised nations - were unhappy with Russian rule, particularly the Muslim nations of Asia where the populations were growing quickly and becoming more religious. In 1980 the United States elected its most anti-communist president ever, Ronald Reagan (1981-89), who immediately embarked on America's biggest peacetime arms build-up. By December 1989 the Berlin Wall was dismantled and by December 1991 the Soviet Union was dissolved. By 1982 the Soviet Union was an over-extended Great Power. Within the interstate system the expansion, over-extension and decline of Great Powers has been a common historical phenomenon. Colonies acquired for gain can be expensive to maintain, particularly when there are many of them and there is resistance from them. Other powers rise to challenge hegemony until the hegemon finds maintaining status too costly. The Eastern European People's Democracies had been acquired by the Soviets for sound geostrategic reasons in the 1940s: they sat across the great European plain through which an invasion of Russia would have to cross. Their exclusion from the West and the world market at Moscow's insistence had left their economies feeble, technologically backward and deficient in energy. By the 1980s they had to depend on Soviet financial and energy subsidies, and in order to maintain their regimes they also had to be garrisoned by Soviet troops. In the 1970s the Soviets added to this imperial burden by acquiring extremely poor and backward satellite regimes in the Third World which could only be sustained by economic subsidies. The Republican administration of Ronald Reagan was determined to add to these Soviet burdens.17 It did so in a number of ways: it stepped up the arms race; it built new nuclear weapons delivery systems; it intensified the economic blockade; and it assisted anti-Soviet rebellions. American military expenditure, directed at the Soviet Union, was increased in the last years of President Carter; it was increased greatly under Reagan with the express intention of exceeding Soviet military power. The American Navy was increased, a new-generation strategic bomber would be built, new medium-range cruise missiles would be deployed in Europe, and an entire anti-nuclear defence system - quickly labelled Star Wars - the Strategic Defence Initiative, would be researched. The SDI would give the


17

United States the theoretical capacity to launch an attack on the Soviet Union and defend itself against retaliation. It also increased pressure on US corporations and companies operating in Europe not to provide technology to the Soviets which augmented their economic capacity. And the Americans also, mostly covertly, supported insurrections against Soviet-backed regimes in Central America, Africa, Indochina and Afghanistan. This 'Reagan Doctrine' increased the cost of supporting these regimes for the Soviets.18 As a result of these increased pressures Gorbachev was anxious to cut a deal with the United States as soon as he came to power. In 1987-89 a number of summit meetings were held with the Americans with a view to halting and reversing the arms race. But this was not enough for the Americans. They wanted the Soviets to stop their imperial activities and their promotion of an alternative international economic system and to dismantle the strategic weapons aimed at the United States. By 1989 Gorbachev had reached the conclusion that the Soviets would need to acquiesce in these demands if reform of the Soviet state was to be achieved.19 It is true that some of the reason for this was the cost of the imperial over-extension that he had inherited. It is also true that the cost of continuing the arms race was greater for the Soviet Union than for the United States, which had an economy at least four times larger. But the core of the problem lay with the Soviet domestic economic and political structure. The Soviet economic system was based on planned production, fixed distribution, and international autarky. The economic planners calculated what would be needed from the economy rather than having consumers make these choices by their purchases. As a result heavy weighting was given to military production, because of state external strategies, and to heavy industry, which was deeply embedded as a priority in Soviet Marxist ideology. State planners then had resources arriving at millions of points for processing. Often they did not arrive and enterprises had scouts looking (illegally) for appropriate supplies. Managers needing to meet quantity targets met them with little priority for quality. Enterprise workers could not generally be dismissed and so had little incentive to improve productivity other than bonuses. Increased wages could only provide an incentive if appropriate goods were available for purchase, and generally they were not. Housing was regulated, stateowned and in poor supply, and its acquisition was usually not pricerelated. Other goods were not provided for consumption demand but for planners' targets and were unsold. There was little quality control, and few Soviet products, except raw commodities, would sell on the world market. The system did work, however, partly because there were mechanisms

18


outside the plan which did function effectively. The black market was endemic in any consumer product of value, including pilfering from enterprises, acquiring from foreigners, and large-scale organised crime by ethnic gangs. In addition some private production did take place and in sectors like agriculture private plots provided a substantial proportion of total output. And finally the 3 million or so members of the nomenklatura were not governed by the system but lived outside it. Not only did this apply to housing, where they received favoured treatment in the cities and access to country houses, but also in consumer goods where foreign currency allowed them to shop in outlets supposedly reserved for foreigners. They also had greater access to uncensored, usually foreign, news reports and business information. The Soviet system of economic production survived for sixty years, 1931-91. During that time it faced a very destructive invasion and occupation by Axis Forces, but other countries were also damaged by the same war. It also started from a low base, but one still higher than Japan and the East Asian countries that overtook it during that period. Its share of world GDP first rose during forced industrialisation and post-war recovery and then progressively fell. During those sixty years it first imported and used known technology and infrastructure, and then extended those throughout the economy - 'the Soviets plus electricity', as Lenin described communism. It then started to stagnate and as it added geostrategic burdens to its output it went into decline. During that period the Soviets introduced little new technology or products to the world market outside the military sphere. And by 1991 and the Gulf War the inferiority of their military equipment was also in evidence. In recognition of the deficiencies of the system, various attempts were made to introduce the market to the Soviet economy, but never with any success until Gorbachev, who set in train a process which dismantled the system. Even the much-vaunted post-1956 Hungarian experiment was only a success compared with other People's Democracies. Similarly, efforts to remedy the absence of a mechanism of technological innovation, notably by the state bureaucracy acquiring technology externally, were not very successful. Poland took this farthest, but the corrupt state apparatus misallocated the funds and seriously indebted the state without upgrading the production system. Gorbachev replaced the 1968 Brezhnev Doctrine with the Sinatra Doctrine that Soviet colonies could do it their way without subsidies. As Soviet imperial power was relaxed during 1988-90 the newly independent regimes of the former empire all undertook the same reforms: democratise politics; liberalise information; and join the world market in capital and goods. The Eastern European satellites transformed almost immediately. Vietnam and North Korea were among the slowest to adapt. Cuba baulked, perhaps for reasons of Castro's personality.


19

The Soviet reformers themselves finally reached the same conclusion, but the system was more deeply embedded and longer lived than elsewhere. As a result Gorbachev faced resistance from the old communist elite in the form of a military coup in August 1991. His own performance during it led to his political demise, followed by the abolition of the Soviet Union in four months. His Russian successor, Boris Yeltsin, with more resolution put down another communist insurrection in October 1993. Russia would face a long path of social dislocation and political conflict as the necessary structural and institutional changes took place. Because its absence from the world market had been so sustained, the extent of readjustment would be correspondingly deep and prolonged, with Russian GDP falling 50 per cent in the early 1990s. The Soviets had led the most sustained, deliberate attempt to evade the dictate of the competitive capitalist world economy. The experiment had failed.20 The Post-Cold War World

The Americans had won the Cold War. The conflict which the United States had waged with the Soviets had gone through three phases: containment, detente and confrontation. Between 1945 and 1970 they had evolved a policy of containment which meant combating Soviet expansion at whatever level it was attempted: nuclear pressure, conventional assault, or revolutionary war. The relative decline of US capabilities and its defeat in Vietnam led the Nixon administration (1969-74) to pursue detente with the Soviets, a posture continued by Ford and Carter and intended to reduce American geopolitical commitments. This phase appeared to witness Soviet advances. The third period was inaugurated by Reagan and produced confrontation, which almost certainly accelerated the disintegration of the Soviet Empire. The Americans could now secure their 'peace dividend'. The American victory in the Cold War had been bought at great financial and economic cost. During the immediate post-war years the American economy had been world-dominant and the principal exporter of capital. It ran a large trade surplus that led other countries to control the movement of their currencies in order to maintain their value against the US dollar. The costly Vietnam War coincided with a series of trade deficits, and in 1971 the United States devalued its currency, taking it off the Bretton Woods fixed exchange rate system. The US dollar together with other leading currencies was floated during the 1970s, thereby creating the conditions for the real-time international financial market which emerged on the world electronic communications grid. The Reagan administration took the United States from being the world's largest creditor nation to its largest debtor in two presidential

20


terms. The process was easily understood and widely known at the time. The American economy already faced trading difficulties by the early 1970s caused by the declining competitiveness of its industrial structure. After 1981 Reagan exacerbated this position by running large US domestic budget deficits. These were caused by increased government expenditure, chiefly on military purchases, and reduced income taxes, mainly from higher-income earners and companies. The expenditure helped fuel a boom both in the United States and internationally. The domestic deficit was financed by foreigners, principally Japanese, who were running trade surpluses with the United States and using the dollars earned to buy US Treasury bonds, property and corporate assets. This process would lead to a devaluation of the US dollar, making its imports dearer and exports cheaper and rectifying the trading account. This didn't happen immediately because, as the major international currency, reflecting the sheer bulk of the US economy, the US dollar was in continuing demand. In 1985 the Group of Seven major economic powers agreed to manage down the US dollar, and did so under the Plaza Agreement. But the US trade deficits quickly re-emerged in the 1990s and produced a continuing devaluing of the US dollar. In some measure this trade imbalance was a reflection of the declining power of the US corporate sector. During the Bretton Woods period multinational corporations had come to dominate international trade and investment. At first most of these had been US companies, and indeed the US government had defended its policy of free trade at home partly on the basis that this would happen. By the 1980s it was clear that this situation would not be sustained: multinational corporations based in, and owned by, other countries, particularly Europe and Japan, began to emerge in the world market, successfully competing with previously ascendant US corporations. This occurred in areas as diverse as automobiles, computers, electronics, telecommunications, aircraft and aerospace. They also began to invest in the United States to be nearer to the then world's largest domestic market. This was evident, for example, in automobile production. Japanese and European car-makers first began seriously to penetrate the US market in the 1960s. Then as the US dollar floated downward and imports got more expensive they found it more profitable to invest in establishing car assembly plants in the United States. The Japanese in particular introduced their more productive assembly techniques, involving just-in-time accounting, quality circles and better products, and almost matched Japanese output rates in their US plants. The American companies meanwhile were having a weapons bonanza which was to produce the dazzling technology of the Gulf War but no great export order book. It is true that the Japanese were coerced into contributing $13 billion to


21

the cost of the Gulf War for the United States, but this was barely 10 per cent of the annual trade deficit. The United States, with a boom economy in the 1980s and almost zero barrier protection, had lost the trade war while using its domestic deficits to fight the Cold War. In these circumstances it is hardly surprising that there was some agitation in the United States for trade restrictions. This came chiefly from labour unions and some manufacturing companies, and from those Democrat politicians whose electoral constituency included those sectors. During the 1988 presidential campaign there was pressure on the Democratic candidate to campaign for the introduction of barrier protection. During the following years the Japanese emerged as more unpopular among the American public than the Russians. America had emerged from the Cold War to confront not victory but its now more pressing economic problems. As the Cold War ended the American position was challenged economically by two other centres of developed capitalist power: the European Community, centred on Germany, and East Asia, driven at first by Japan. Since the 1950s the developed countries of Western Europe had been moving towards an economic free-trade bloc. This initially involved only West Germany, France, Italy and the Benelux countries, which signed the Treaty of Rome in 1957. To some extent this was designed to integrate the French and German economies, with a view to ending the continuing wars between the two peoples. It gave rising German industry a chance to dominate Western Europe and, by erecting a complex system of tariffs and subsidies, protected the still large French agricultural sector through the Common Agricultural Policy. By the late 1960s this European Community, however, was being seen as a vehicle for combating American economic dominance of Europe. The French blocked British entry twice, believing the British would prevent this development because they were too close to the Americans. The British therefore retained their remaining Commonwealth economic links and created a rival and short-lived European Free Trade Association. Under the personal direction of conservative Prime Minister Edward Heath, however, Britain did join the EC in 1973 with other EFTA members. The price was acceptance of EC agricultural policies and severing Commonwealth economic preferences, although New Zealand gained a phase-out period of grace. That unilaterally ended Australia's favoured economic association with Britain and created attendant structural problems.21 During the 1970s and 1980s other European states joined the European Community. Its integrative ambitions were strengthened and its political powers were extended to a European Parliament. It decided to abolish all internal barriers to trade on 1 January 1993, thereby creating the European Union, the world's largest single economic market of 380 million people, with the EFTA members adding 43 million to the

22


EC's 337 million. British Prime Minister (1979-90) Margaret Thatcher who, unlike Heath, had never been an enthusiast for diluting British sovereignty, opposed this strengthening of the EU and was dumped as Conservative Party leader and prime minister in 1990, despite having won three elections. Outside the EU, London could not become the financial centre of Europe; within its borders, European industry could be galvanised by state intervention to compete with the Americans and the Japanese. To this huge market, the newly liberated former communist states would be progressively added, starting with the old East Germany. The initial cost of reconstructing the East German economy was to impede German economic growth and add depth to the European recession of the early 1990s. But later growth would be enhanced. At the other end of the Eurasian continent the old civilisations based on Confucianism were similarly emerging as major competitors to corporate America. Japan had already overtaken American per capita GNP in the 1980s and had run substantial trade surpluses with America since the 1982 world recession. The other emerging export-oriented, industrialising nations of East Asia - the Four Tigers and the ASEAN states - all appeared to be using state-directed capitalism and exports to the US domestic market to achieve quite spectacular growth rates. By 1994 it was common to predict the date at which the Chinese economy would overtake that of the United States to become the largest in the world, again by using a combination of state control and export orientation. In 1993 China absorbed more foreign investment - US$30 billion - and grew more quickly at 13 per cent than any other significant country in the world. In their initial stages of industrialisation, these East Asian countries appeared committed to a modern form of mercantilism which regarded growth in economic output as the chief measure of a nation's success. They were development states in a post-Cold War world where economic competition was enhanced. Against this background it was widely feared that the world might be moving into a new period of trading blocs which would close their own domestic markets and compete against one another in ways reminiscent of the 1930s. As the global economy moved into its regular cyclical recession in 1991-92 this became an even stronger possibility. Europe stagnated as the German economy tried to absorb the East German former Soviet colony for which it had paid so much compensation to Moscow. It was estimated that it would need to rebuild about 50 per cent of its capital stock. In East Asia the Japanese bubble economy burst and it went into its first serious post-war recession in 1991-93. American growth became negative and in some measure led to the electorate dispensing with President Bush and in November 1992 electing a Democrat president, Bill Clinton, for the first time since 1976. In this climate it is hardly


23

surprising that within the Democrat electoral coalition voices were to be heard crying for an end to America's pursuit of a liberal world economy.22 The formation of the European Union in 1993 created the largest single market in the world and would soon augment it by expanding eastwards. The East Asians were known mercantilists who had been waging economic warfare at America's expense for some time. The United States should adopt similar interventionist trading and industry policies and use the North American Free Trade Association formed with Canada and Mexico in 1993 for similar purposes. The new American administration resisted these blandishments. During the period between Clinton's election and inauguration, in December 1992 President Bush, with litde to lose, threatened retaliatory action against French products in North America if the EU did not agree to relax its import controls and subsidies to domestic agricultural products. After heated debates the French capitulated. Then in 1993 the LDP government in Japan fell, to be replaced by a series of Coalition governments committed to greater fiscal stimulation and an opening of the Japanese economy. The Americans began to exert stronger pressure for a reduction in controls over the Japanese domestic market, notably those on auto parts, mobile phones and construction contracts. In November 1993 the APEC Heads of Economies summit in Seatde committed the Asia-Pacific economies to freer trade in the region. A year later the GATT agreed to further reductions in obstacles to free trade, including agriculture and services, and in 1995 the Japanese complied with American pressure to open their auto market. The drift towards trading blocs had been averted. The creation of a unified world market in capital, finance and goods since the Second World War has resulted from a combination of political will and technological innovation. Great changes of that order require both these factors. The Roman Empire was overthrown not because it lacked technology but because it lacked the political and social mechanisms and incentives to use it, in large measure because slavery provided cheap labour. The Chinese imperial system stagnated after achieving world's leading status in technology, economic size and power projection in the sixteenth century, largely because its centralised power decreed an end to technical innovation and geographic exploration. The competitive states of Europe conversely used the technology of the day to create dynamic national economies as their monarchs used gunpowder against the feudal order and their unified economies against the Universal Church. They used steam power, iron and navigation to extend their writ to the world. In the early twentieth century the railway, telegraph, steamship and internal combustion engine permitted the creation of

24


newly colonised continental nations, like America, Russia and Australia. After 1945 the Americans provided the political and strategic impetus for the creation of a world economy, and at critical points insisted on its formation. This was only possible, however, because of technological innovations which widened, deepened and compressed the world market. In transportation a range of inventions cheapened the cost of moving goods, such that the economic benefits of producing close to a market were often minimised. Large oceangoing ships reduced unit transport costs for cars, electronics, cameras, audio and video equipment among other consumer products. The range was diversified by use of container technology starting in the 1960s, which enabled mixed products to be moved in small batches. Conversely bulk carriers for raw materials and energy supplies became progressively larger and unit costs correspondingly cheaper. Aeroplanes were larger and the real costs of transporting both cargo and people steadily declined, particularly after the introduction of wide-body jets in the late 1960s. Telecommunications and computers enabled the 1980s to witness instant real-time international banking transactions as stock exchanges were computerised and personal credit cards internationalised. The 1990s would see the market further extended as fax machines and high-resolution television enabled the distant, accurate inspection of goods globally, and mobile phone networks permitted instant long-range commodity transactions. It is not possible to identify which came first, the institutional or technological base for the world market. But both now exist and are being extended. Australia cannot evade their consequences. The late twentieth century produced the political and technological basis for international free trade. Nation-states would find it progressively more difficult to avoid economic integration into that system. Those that insisted on doing so could become materially backward compared with those which accessed cutting-edge production techniques and world capital markets. The consequence of not adjusting to this highly competitive and rapidly changing system would be a diminution in wealth, status and power. The Soviet bloc's inability to match the dynamism of the capitalist world economy had eventually enforced its reintegration on unfavourable terms, a reintegration which would involve extensive dislocation of labour and capital in former Soviet bloc states while a more competitive resource allocation was determined. As a result the political upheavals in those states were massive. In such a free-trade environment capitalist states would find that nationally determined interventionist policies designed to protect or regulate economic activity only served to restrict adjustment to international change and to reduce national competitiveness. Indeed much of the framework for autonomous economic management techniques was


25

being destroyed by the internationalisation of economic activity. In this situation states could only avoid adjustment by autarky with its implication of stagnation; the retardation of adjustment, in turn, was likely to make its eventual achievement more painful since more resources would require reallocation. To the extent that Australia avoided or delayed its transition from a prosperous, semi-peripheral province of the British imperial economy to a component part of an emerging free-trade world, the more painful would its adjustment prove. This process became known as globalisation. Each state found it necessary to adjust to it as the dirigiste regimes of the past became less tenable. The degree to which national authorities were able to change their economies to access the new patterns of world production and distribution would determine their success in the new environment. Many of the better performing states in this respect were in East Asia.

CHAPTER 2

The World Market and the Industrial Revolution in Asia

During the last decade Australia has begun to see itself as part of the AsiaPacific region. This has been manifested in a number of ways described later in Chapter 9, notably a reorientation of foreign policy towards the region, accelerated under Prime Minister Keating; a reformulation of defence policy to integrate Australia's strategy into regional configurations; and a new emphasis in Australian education policy to concentrate greater attention on Asia-Pacific issues. But underpinning this new awareness of the region lay profound economic changes which at first led to considerable alarm. During the 1970s it was widely feared, particularly in the Australian trade union movement and among the managers of protected industries, that the economic developments taking place in East Asia would be a potent threat to the Australian economy. It was feared that the combination of cheap labour, repressive governments, tax havens and export-oriented industrialisation would pose a challenge to Australian industry which it could not meet. During the last ten years a more mature perspective on economic growth in Asia has been developed. In addition, such growth is now being seen as an opportunity for the country as a whole, even though it may require changes and dislocations to pre-existing economic practices. In order to appreciate these challenges it is necessary to develop a balanced appreciation of the process of economic industrialisation at present under way in Asia. Industrial Revolutions

It is common in popular economic development literature to talk of the Asian 'miracle'. Indeed the World Bank in 1993 published a study of several East Asian economies, The East Asian Miracle, seeking to explain why their economic growth rates were so impressive.1 One factor considered was human aptitude. Elsewhere attention has been given to 26

THE INDUSTRIAL REVOLUTION IN ASIA

27

the peculiarities of the Confucian ethic. Some authorities devote attention to the East Asian model of state intervention. In fact there is nothing new or unique or even peculiar to the Asian experience. The region is undergoing a process of industrial revolution or modernisation already achieved in Japan, much of Europe and North America, which will probably spread much wider in the future. This is a process which has fairly clear dimensions that are shared by those societies that complete it. It is not necessary to develop a theory based on the superior aptitude of East Asian ethnic groups for using computer technology, as former Singapore Prime Minister Lee Kuan Yew has done, in order to understand the process of economic development. The first country to embark on the process of modernisation was Britain. The Industrial Revolution which occurred in that country between the late eighteenth and late nineteenth centuries has been perhaps more widely and deeply studied than the corresponding process in any other country. This is hardly surprising. The development of modern industry itself produced a huge database for the gready expanded number of historians that the national economy could now support, to fossick over for a century. This has created a situation where in some large measure the intellectual model of an industrial revolution is that of Britain. It is from the principal features of structural change which occurred in Britain during that period that the major structural changes which comprise modernisation may be identified. Britain went from a traditional, village-based agricultural society to an industrial state. The population increased gready from about 5 million at the beginning of the revolution to almost ten times that number when it restabilised at the end of it. These people were much more urbanised, more productive, and lived longer. The British state had been gready democratised and the liberties available to individual citizens before the law and access to health, education and welfare services had improved. Britain had become the first modern nation. It had simultaneously become the centre of a huge empire and had done much to create the embryo of the modern world market. Other aspects of this first Industrial Revolution have been the subject of considerable controversy. Why this should have occurred first in previously poor islands and then spread quickly through Western Europe has been the subject of much literature. Much of the answer is to be found in the interstate system of Europe, which enforced technological competition on its member societies: nation-states could only survive and prosper by adopting the best technological, economic and administrative practice within the system. By the twentieth century a modern nation had been achieved in Britain based on a high-productivity industrial sector using a better-educated urban population. The small part of the work force that remained in agriculture was nonetheless highly productive by the standards of the time,

28


though much of the food supply was by then imported from the newly settled continents of America and Australasia. The urban population was creating new centres of science, technology and learning which in turn were creating new products and production processes and further stimulating demand for an increasing range of imported commodities, energy sources and foodstuffs. The new democratic state provided a range of services and the enforced rule of non-arbitrary law within which business could flourish. While Britain was the first industrial society, it did not long remain the only one. The processes of production first used by the British quickly impressed foreign observers, and these innovations travelled abroad. Often this was by the direct method of British companies investing overseas and building productive enterprises like factories or mines or plantations. Sometimes it was by foreign entrepreneurs emulating British practice and then competing with them for markets. In other cases it was by British financiers providing loans or finance for such entrepreneurs in other countries. Australia was a recipient of many of these practices and the colonial governments became major borrowers on the London finance market. Britain was later a large source of industrial technology, especially as industrial enterprises grew in size after the federation of the six colonies. During the nineteenth century the same social and industrial revolution occurred in most of Western Europe, starting in the Low Countries and France. By mid-century it was under way in Germany, as Marx and Engels were to note during the development of their revolutionary ideology. By late century the Germans were successfully using their newly unified state's policies, including tariff protection, to accelerate the process which was to make Germany the most powerful country in Europe by 1914.2 Lenin was to document that after 1890 a similar process of industrialisation was occurring in Tsarist Russia.3 And by the time of the First World War the United States of America had undertaken a similar industrial revolution, initiated by the military needs of the Civil War, continued via the stimulations of mass migration from Europe and the investment of British finance, and protected by tariff barriers. 4 The industrialisation of the major Atlantic economies was thus largely complete by 1914 and intensified by the following war. Asian Industrial Revolutions

A similar process of transition began to get under way in East Asia (outside Japan) after 1945. We may call it the Asian Industrial Revolution. It has produced similar results as in Britain, Europe and the United States. It is not likely that the peculiarities of particular Asian cultures will


29

produce unique modern societies: more likely the features of those cultures which derive from a traditional peasant-based, highly stratified production system will disappear with modernity, as they did in Britain and elsewhere. We may instead expect the evolution of high-income urbanised societies with small agricultural work forces and, eventually, liberal-democratic state structures. Asia began the process of modernisation later than the Atlantic littoral, though by most accounts its level of economic and technological achievement was superior to Europe's as recently as AD 1500. The closing of the two most advanced regions, China and Japan, to outside commerce must rate highly as causes of this phenomenon of arrested growth. They were both deprived by state fiat of access to front-line technology and the stimulation of competition to create it. China had until then been active in commerce and maritime exploration as far away as Africa. Japan had a brief experience with the Portuguese then closed its borders. Island and peninsular East Asia maintained the commerce but lacked the technological base to react creatively; instead it was mostly subjugated and colonised. When the process of modernisation started in the region it was stimulated by a coherent state apparatus faced with intense international competition in the 1850s in Japan.5 Subsequent developments in Japan were remarkably similar to the historical processes which occurred in the late-developing countries of Europe, notably Germany. The population moved quickly off the land and into cities dominated by oligopolistic industries, many owned by the old feudal elite. The state intervened strongly to assist the import of technology and institutions, to repress popular revolts and to protect and develop domestic industry. It found foreign markets and the import of commodities essential but difficult to access because of existing imperial economic structures. Wars quickly resulted, in a fashion Lenin's Imperialism would have recognised. In fact Japan was often used in his text as a substitute for Russia to avoid the Tsarist censor. Japan grew rapidly by joining the world market; it lost a war of imperial ambition, developed a democratic state (partly by imposition), and had its growth rate fall back to the average when its level of development achieved industrial world norms. By the 1980s the Japanese social structure differed little from those of Western Europe, with a similar population density and level of income. Its political structure after the US occupation, however, was more rigid until the 1993 election destroyed the LDP regime6 and the seniority system it used to instil discipline into the population. Allowing for the short-term features, including large external surpluses and capital exports - similar to those enjoyed by Britain a hundred years before - and unique cultural characteristics, the Industrial Revolution had produced similar consequences in two civilisations at opposite ends of Euro-Asia. Elsewhere in Asia the process of modernisation was accelerated, but at

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first industrialisation was halted by the political regimes of European colonialism. The empires the Europeans created in East Asia were seen by their colonial masters as adjuncts to their European economies. In keeping with imperial theory and interests, London, Paris and The Hague used their colonies to provide resources not available to them elsewhere, particularly rubber, tin, sugar, tropical foodstuffs and other inputs into a modern industrial society. The metropolitan capitals held the financial accounts and paid for their imports with industrial products. Coastal China was also incorporated into this system on similar terms since the Chinese imperial order was in a state of disintegration and, unlike Japan, in no position to assert its own interests. A series of semicolonial entities was created by 'spheres of interest'. Colonialism generally prevented industrialisation. It is often suggested, however, that the Japanese provide an exception to this rule and actually undertook to industrialise their colonial possessions in Taiwan, Korea and Manchuria. The British permitted industrialisation to take place in parts of their empire also, including Australia. The next wave of industrial revolution in Asia took place in what became known in the 1970s as the Four Tigers of South Korea, Taiwan, Hong Kong and Singapore.7 That the Asian Industrial Revolution, starting in Japan, should spread next to these four territories need not have excited surprise. Taiwan and South Korea had experienced some industrialisation as former Japanese colonies and remained in close contact with Japanese capital, markets and growth. They were also favoured recipients of US aid and military spending during the Cold War period for strategic reasons related to the containment of China. Their authoritarian regimes had every intention of using the state's agencies and policies to promote internationalised industrialisation, specifically by targeting rich markets like North America. In the 1970s they fostered international capital inflow by creating 'free trade zones' where the general tax and labour laws did not apply, and these zones became export platforms. They also became favoured sites for Japanese investment in search of such export platforms, as the yen appreciations made Japanese manufactured exports more costly. These 'development regimes' were strongly mercantilist and produced similar urbanised, high-productivity, world market-oriented societies as elsewhere, when the initial impetus provided by the zones spread more widely throughout these countries. Like Japan earlier, they then began to export capital to other lower-cost centres. But by the late 1980s both these societies were placing pressures on their states to democratise, and by the mid-1990s they had done so. Despite the isolated nature of their societies and real and dangerous strategic threats faced by both, South Korea and Taiwan experienced the same transition to representative democracy as occurred alongside the


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Industrial Revolution elsewhere. In both countries this was accompanied by political agitation, the organisation of labour, the generation of liberal ideas by the middle classes, and the formation of democratic political parties. This would suggest some correlation between the social forces required to drive a modern industrial economy and the impetus to democratic political demands. But the correlation between the growth of a capitalist economy and a democratic state is clearly not immutable. During the process of industrial modernisation in Europe, there were periodic reversions to unrepresentative and indeed barbaric systems of government. The best known example of this occurred in the inter-war period when Germany, Italy and other smaller European countries resorted to various systems of fascism. In the case of Germany this resulted from the social dislocation occasioned by war, defeat, humiliation and economic depression. The Nazi regime was a response to the expulsion of Germany from equal status among the Great Powers and the exclusion of its products from a world market already divided among the victors of the First World War. Eastern Europe also provides numerous examples of Left totalitarian regimes emerging with the process of economic development. A direct link may not exist between the process of economic development and the evolution of the modern liberal-democratic state, but some relationship nonetheless exists, as Korea and Taiwan appear to confirm, which can be encouraged by the international community of democratic states. And a correlation between the level of development and the existence of democratic processes can be statistically demonstrated.8 This correlation does not hold so well in the city-states of Singapore and Hong Kong. Singapore had developed as the regional headquarters of the British Empire in South-east Asia. Its ethnic composition - Chinese migrants in a Malay archipelago - ensured that it achieved independence on its own in 1965, despite the wishes of its political elite. It had joined the Malaysian Federation in 1963 but was evicted when the peninsular Malay political leaders found competition from their Singapore rivals too intense. As an entrepot and financial centre without a hinterland, Singapore was forced into the world market. It too became an authoritarian, development state regime with an unavoidable commitment to world-best practice, since it had no domestic market or resource base to fall back on. Its first generation of leaders propagated self-reliance, international competition and the need for discipline. By the early 1990s the first serious signs of democratisation of the state were emerging after the semi-retirement of Lee Kuan Yew, who had been more responsible than any other for the creation of an authoritarian development state. Hong Kong played a similar role for the British Empire to the South China world: entrepot, trading post, financial centre. History ensured that

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its unrepresentative colonial regime would keep the city-state oriented to the world market. This was facilitated by the closure of communist China to the world market for thirty years, which enabled Hong Kong to play the role of semi-legal access port to the world's largest nation. But the strategic relationship with China and the 1984 Anglo-Chinese deal of succession has kept one of the world's richest and most successful industrialised states undemocratised, the policies of its 1990s governor notwithstanding. It is unlikely that the communist rulers of the mainland will allow their richest province to be their only democratic one after 1997 and thereby pose a threat to their own authority. But the waves of political liberalism which the colony will create will resonate throughout China. Hong Kong and Singapore may be viewed in development terms as the regional city centres of an industrial revolution taking place in South China and South-east Asia respectively. In some ways they are the contemporary Asian equivalents of New York or London, with the political boundaries drawn across their hinterlands. It should hardly be surprising then that the same features of those cities are to be found in theirs: financial districts, cultural centres, corporate headquarters and high income and consumption levels. But the colonial period imposed discordant political boundaries on a development pattern dictated by economic, social and technological forces. By the 1980s these deeper processes were crossing the political boundaries and creating industrial revolutions in peninsular Malaysia and southern China. The third tier of development has arisen where the Industrial Revolution has spread to Malaysia, Thailand and the Philippines, the new Tigers of industrialising Asia in the 1990s.9 In all three a similar process of development is occurring at similar rates of advancement from different base levels. Exports of industrial products are fuelled by relatively cheap, disciplined labour and imported capital and technology. Much of the investment for export platforms comes from Japan but also increasingly from Taiwan, South Korea and Singapore as they face similar cost pressures. Hong Kong devotes much of its capital export to South China, of which it has become the virtual commercial capital. And as this process gathers pace so production for the domestic markets of these societies becomes more important. These three new tigers are urbanising and, particularly when population growth is kept in check as in Thailand, their people are growing wealthier. Malaysia was able to take advantage of an extensive infrastructure built by the British in pursuit of trade based on rubber and tin. Its oil industry was also able to provide a useful supplement to industrialisation. But Malaysia's growth acceleration into the 1980s was driven by a determined government set on rapid industrialisation and pursuing a 'look east' policy which specifically sought to emulate Japan. It developed an


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automobile industry by attracting capital and technology from Mitsubishi to build the Proton. By the early 1990s Malaysia had overtaken Australia in the value of its exports. Uncolonised Thailand entered the world market later but has boomed from the 1980s, with tourism, Japanese corporations and a processed food industry, particularly seafood, providing additional impetus. Thailand had, of course, been close to Japan since they had been allies in the Second World War. It had also enjoyed some modest economic stimulation as a result of American military expenditure in the region during the Vietnam War. But its development to a per capita income half that of Malaysia, twice that of the Philippines and ten times that of Vietnam came with the world market-oriented economic policies of the 1980s. At one stage Thai manufactured exports were growing at 40 per cent per annum, a figure not quite matched by its international tourist figures. The Philippines has until recently been a laggard state despite considerable post-war advantages. These were squandered by a Marcos dictatorship (1966-85) less interested in development than political power and financial corruption. The Americans had left the Philippines with one of the higher income levels in East Asia, a very well developed educational system and infrastructure, an internationally oriented economy, a free press and a democratic if somewhat corrupt political system. During the 1950s some government-sponsored industrial development was also achieved within a protected domestic market. These advantages were lost during the Marcos regime when corruption, administrative disruption and social turmoil combined with increased militarisation to drive away capital investment. The Marcos family also looted the national treasury and hoarded gold in Swiss banks on such a scale as seriously to jeopardise national fiscal policy. The country lost nearly two decades of development. By the 1990s, with democracy restored, it was starting to produce healthy growth figures but at a place at the rear of the East Asian pack, with annual increments of about 5 per cent. The Industrial Revolution has also spread to Indonesia.10 The internal diversity and political difficulties faced by Indonesia after its people took independence from the Dutch were to prevent the evolution of a development regime until the late 1960s. Internal order and repression absorbed much of the regime's energy after the 1965 military coup, and extensive corruption, government controls on international trade, some spectacular crashes, notably in the oil sector, and lack of infrastructure obstructed the impulses from the world economy from penetrating Indonesia. By the late 1970s, however, internal stability and selfsufficiency in food enabled Jakarta to embark on a strategy to industrialise the country. After the collapse of oil prices and the end of the windfall earnings in the mid-1980s, controls on trade and finance were

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liberalised in a series of measures; foreign industrial investment was warmly and successfully courted; manufactured exports grew steadily in value; and industrial production increased. By 1995 Indonesia had perhaps 2 million people at a Western consumption level out of nearly 200 million but anticipated settling up to 60 million more people in its cities in the next twenty-five years. Indonesia has been slower to industrialise than its East Asian neighbours, but it has made progress in difficult circumstances. A nation of 3000 islands and hundreds of languages and ethnic groups, its government has been extremely sensitive to concerns about regional secession. During the independence war the Dutch sponsored republics in the outer islands and retained possession of West Irian until the 1960s. The Americans also encouraged secessionists during the Sukarno period and in 1958 the CIA assisted at least two rebellions. Portuguese Timor was regarded as a colonial anomaly and potential source of encouragement for secessionist movements and was invaded and its independence movement suppressed in 1975. Yet Indonesia's annual national economic growth has been about 6 per cent for a quarter-century, it is self-sufficient in basic food, and oil has been replaced by manufacturing industry as the major source of foreign exchange. Indonesia has built and exported its own aeroplanes. The life expectancy of its population has grown steadily from 46 in 1960 to 59 in 1990. Between 1972 and 1982 the number of people described as poor fell from 67 to 30 million and those living in poverty from 58 to 17 million.11 Indonesia remains not well known in Australia.12 The media gives it scant coverage and it has rated as low priority in the national education curriculum. It mostly receives attention for bad reasons: the killings of 1965, the suppression of East Timor, the poor record on human rights and the business involvement of the President's family. But this is a country whose friendly regime has enabled Australian defence expenditure to be low for two generations and whose economic prospects present a rich opportunity for Australia. It has a government well disposed towards Australia which is making slow steps towards democracy as the postSuharto succession is worked out. Its neighbouring eastern provinces require development assistance and the Timor Strait resource extraction agreement is a model of co-operation.13 Those East Asian societies which have not entered or have only partly entered the process of industrial revolution are those which have refused to participate in the world market. After undertaking a process of industrialisation during the Kuomintang period, China attempted socialist development during the 1950s and 1960s but failed to create a modern industrial society. True enough, decent growth rates were achieved during the period of recovery from civil war and assistance from the Soviet Union, 1949-60, but in the decade or so of autarky which followed, China


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almost stagnated. After the death of Mao there was a progressive dismanding of socialist planning. As a result China is now undergoing one of the most rapid industrial revolutions ever seen, with whole regions linking to the world market via historic regional centres - Hong Kong, Taiwan, Shanghai - and South China growing at over 20 per cent annually. It is also progressively liberalising its state regime, although the degree of democratisation has not been nearly as rapid. In 1993 international comparisons based on the domestic purchasing power of incomes suggested that China had the world's second largest national economy and one which would overtake the United States early in the twenty-first century. Similar observations may be made about the economic policies of the smaller states that have pursued some variety of socialist autarky. Under the military socialist regimes of the last fifty years, Burma has enjoyed a repressed society, stagnant economy and civil war. The socialist oriental despotism of North Korea has achieved stagnation, isolation and even limited nuclear power status while its ruling dynasty worked out a satisfactory theoretical explanation for hereditary communist leadership succession. The excesses of the Khmer Rouge regime in Cambodia determined to eradicate all vestiges of the world market and re-create a poor peasant medieval universe have coined a new terminology of terror - the Killing Fields. In none of these states have any significant achievements been made in improving living standards at a rate commensurate with neighbouring states in the world market. Perhaps most instructive here has been Vietnam.14 The huge social mobilisation by the communists required to defeat the Americans created a post-war regime gready distorted by militarism and anti-market sentiments. The bankruptcy of the Soviet empire and war with Cambodia and China only drained its treasury further. The badly policed but nonetheless pardy effective blockade of the Americans made matters worse. For two decades Vietnam was barely allowed to join the world market, and its social structure atrophied. The market reforms of Moi Doi in the 1990s, however, have already produced some movement and improved economic growth. American economic relations after 1994 will now help. Other states, including Malaysia, Australia, Taiwan and Japan, have helped open it to the international market. Its industrial revolution is already under way, and to judge by the gaoling of the first Vietnamese communist minister for corruption in early 1994, the liberalisation of its state may not be far behind. An Asian Miracle?

It is difficult to conclude that there is anything unique about the Industrial Revolution taking place in East Asia. It is of course true that growth rates in part of East Asia have been exceptionally rapid and that the

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10 per cent annual growth figures recorded by many of the development regimes far exceed those of Britain or European countries during a similar period over a century ago. But there are good reasons for this. Above all there is the advantage of coming after and knowing where to go. The British Industrial Revolution was created by a people who had litde idea what they were creating: a democratic state; mass production; a world market; an urbanised society; and the joint stock company funded through the stock market. Most subsequent industrial revolutions were achieved with more rapid growth rates than the British, who probably did not exceed 2 per cent annually throughout the nineteenth century. The later industrialisers in Europe and North America at the turn of the last century were mostly doubling British growth rates. And indeed at that time it became something of a national British obsession to work out why Germany and the United States grew more quickly and what could be done about it. One factor at work was of course that those countries were catching up to a known, achievable level of development. When they had stabilised at that level their growth rates also levelled off. During the last generation a similar common rate of growth has emerged among the major North Atlantic economies as they have achieved similar income levels. In making this judgment, of course, allowance needs to be made for post-war recovery phases, the absorption of East Germany, the reorganisation of post-imperial Britain and other such short-term factors. Another way of putting this is to say that mature, industrial democratic societies seem to achieve a common growth rate of 3 to 4 per cent annually. As the East Asian development regimes become mature capitalist democracies, their growth rates may also slow to that level. East Asia has been playing catch-up growth for two generations. The real question is whether these economies will exhibit the same rapid growth trajectory and absence of a strong business cycle when they mature. Japan has already provided the answer to this. During the world recession of the early 1990s Japan experienced its first serious recession since the war (excepting the OPEC-induced downturn of 1974-75). It was preceded by a classic over-investment period, a speculative boom and a crisis of overproduction. The 'exceptional' Japanese growth rates now look more like a developed world average. And the development regime's mercantilist government, led by the LDP, was ousted in the 1993 elections. The chief reason was the dissatisfaction of the population with the huge external surpluses not producing appropriate improvements in their everyday lives. As Japan devotes more resources to domestic consumption, as its trade deficit diminishes with other producers 'catching up', as its political system matures to match its production level and as its market is opened by the reduction of barrier and other protection, its economic performance will look more like that of the OECD average.


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The issue of automobiles is very instructive here. During the 1970s the Japanese automobile industry produced a superior product with lean production in techniques and quality control. Japanese automobile exports accounted for about 35 per cent of its trade surplus and have been a vital contribution to the economic 'miracle'. At each successive appreciation of the yen - from 360 to the US dollar in 1970 to less than 100 in 1995 - the Japanese car-makers have been able to hold market share. The Plaza Agreement of 1985 to appreciate the yen by effectively 30 per cent also had little consequence on Japanese auto industry performance. This was achieved by Japanese producers selling into a domestic market of almost uninterrupted growth for forty years. By the 1990s this market was saturated. As the yen edged up they moved plant to markets in the United States, Europe, Australia and elsewhere. They also invested in lower-cost countries of East Asia to re-export to developed markets. To a much lesser extent they also started to import components from lower-cost countries. Finally, they also kept in front of the yen pressures by improving product quality and design. In 1991 Japan's bubble economy burst in a recession which was to last over three years. The effect in the automobile industry was dramatic. Just as the domestic market contracted, the rise in the yen of 1993 pushed Japanese automobile export prices up quicker than they could compensate for. In addition some producers had invested heavily in new models in the early 1990s and stood very exposed. One car plant was closed by Nissan and a large number of component manufacturers went out of business. To make matters worse, other car-producing countries were improving their products rapidly, sometimes by using Japanese techniques. The story was repeated for other sectors as Japan has become a mature democratic industrial society. The result has been lower growth and a clear business cycle in Japan. In their early Industrial Revolution and high-growth phase, the other East Asian countries will face other advantages that Japan is now losing. Capital will not necessarily have to be generated by domestic savings or imperial plunder but can be borrowed from other developed societies. For much of the 1970s and 1980s South Korea was borrowing heavily from overseas, but while this enabled the construction of capital-based enterprises that could generate sufficient export earnings to service incurred debt, the policy was appropriate. Indeed it contributed strongly to the construction of an internationally competitive economy, although periodic downturns in the world economy did create occasional balance of payments problems. Taiwan undertook to generate large external surpluses and by 1994 probably had the largest national foreign exchange reserve in the world. The other Tigers were maintaining rapid and seemingly non-cyclical growth. Investment in these economies, particularly

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in their infrastructure and provision for basic requirements will be a long-term financial opportunity with high rewards. As well as this, these economies do not have to invent new technology and product ranges. These are already known and must be merely transplanted, a much simpler process. One of the contributing factors to Britain's industrialisation was an impressive string of innovations in agriculture, industry and services which were applied to production to lift national output and wealth. They ranged from energy generation to health technology, and they changed the face of the world. For newly industrialising societies these technologies already exist, are being continually augmented and can be imported and/or modified. Indeed in some cases, fashion sports shoes for instance, corporations actively pursue cheap labour and low-tax locations in which to produce; they provide promotion and marketing. In others like the hospitality industry, capital can be permanently deposited in the form of hotels or resorts and financially serviced from its own revenue. In others again like automobile production, companies from developed countries can be lured by the promise of a captive protected market to provide start-up technology and capital, as has occurred in South Korea, Malaysia and Indonesia. In personal computers Taiwanese ingenuity followed IBM product development so closely as almost to drive it to bankruptcy. Further, the markets for these newly industrialising states are not confined to the domestic economy but have a world economy at a higher stage of development to penetrate. Unlike the British they do not need to be the workshop of the world but a provider to a very rich and fastgrowing world economy in which the transport and distribution systems and energy and raw-commodity production already exist. Indeed the North American market has been of vital importance in the development of all the export-oriented industrialisers of East Asia. The importance of these extra-regional markets has tended to decline in relative importance, however, as the economies of East Asia trade increasingly with one another. From these external phenomena derive the essential elements of the East Asian economic 'miracles': import capital, finance and technique; the provision of disciplined labour and efficient management; export product to service the national debt; and finally export capital to offset rising cost structures. Central to this process, nonetheless, is the ability of these societies to capitalise on the opportunities offered by the world market, an ability not so much in evidence in other nonindustrialised regions like Africa or South Asia. A society well enough organised and disciplined for production and governments like those of the Four Tigers in the 1970s determined to pursue growth are clearly contributing factors. Much has been made, therefore, of the importance of the role of the


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state in forcing industrial revolutions in East Asia.15 The British state itself had been minimally involved in the process of industrialisation during its heyday. It was, however, very active in enforcing the enclosures of agricultural land which drove the population into cities; it was also very active in creating the imperial trading system from which much economic surplus was to derive. Industrial revolutions elsewhere in Europe saw much more active state economic policies. The Germans, for example, were famous for using state policies to enforce industrial development before the First World War, and the Nazi period witnessed an even more determined state apparatus which for a few years tried to reorganise the productive base of the whole of Europe. Clearly, the Japanese took some lessons from this experience and scoured the developed world for best practice in various spheres while developing an economy capable of defending their national independence against the challenges of the colonial intruders. The Soviets took the process a step further and had the state own, direct and run almost all economic institutions. The Chinese did the same. State-directed industrialisation using state-owned enterprises was eventually a failure in the Soviet Union and China, in as much as it did not produce economies capable of surviving in the world market.16 For a while in the 1950s it seemed that they might have created a system of faster industrialisation. But their products were not of world market quality, their efficiency was questionable, their statistics were most certainly adjusted to give a favourable impression, and they lacked the capacity to innovate effectively throughout the economy. The Soviets tried to offset this problem by importing technology in exchange for the only products in which they were internationally competitive: raw commodities and weapons. The People's Democracies of Eastern Europe, especially Poland, also tried to break the vice by importing technology and paying for it by Western loans. They in fact worsened the situation because they could not service the debt incurred. In state-run economies, it is difficult to transform foreign loans into a capital stock capable of generating the cash flow to service them. Even in a transforming capitalist economy like Australia this proved to be a problem. The Chinese did even worse by importing Soviet technology in the 1950s. It would now appear that just as open economies can grow quickly to a level commensurate with other developed economies then slow to growth rates at a developed world average, so state-owned economies can grow to a level commensurate to state-owned near-monopoly enterprises elsewhere then slow to their growth rates. This is in fact often zero, and can sometimes become negative, as has been the case in many OECD government business enterprises. This is not to say that state-owned enterprises cannot ever provide goods or services efficiently, but that an

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economy run by them or dominated by them has not in practice been able to match world market standards. The communist command economies demonstrate this. Between the broadly liberal British state experience and the command Soviet-style apparatus is the experience of most of East Asia. In general the lower the level of development, the more successfully can the state intervene to force development, by borrowing finance, providing infrastructure, enforcing discipline, maintaining high savings and investment ratios, favouring sectors and setting indicative output targets. But if it strays far outside these parameters it is usually counter-productive. The state must ensure access for its economy to the world market in products, capital, finance, consumers and ideas. It is primarily the world market and not state policies which has produced rapid industrialisation in East Asia and elsewhere. It has also been suggested that a repressive state with authoritarian government is necessary to produce the East Asian style of industrialisation. It is generally true that during the period of rapid industrialisation liberal democracy has not been the state norm in East Asia. But nor was it in Europe during its early phases of industrialisation. Undeniably some repression has accompanied rapid economic development. The process of driving people out of traditional agrarian communities, herding them into the modern factory system, collecting them into huge crowded urban regions where disparities of wealth and income are only too apparent generates tensions. In Britain it produced Luddites among the farm labourers/peasants who wanted to stay, and socialists, communists and Chartists among those who had already moved. The state was widely used to repress, disperse, subdue and sometimes kill these people. The process of industrial revolution is disturbing for a traditional society and some opposition will often be encountered. In many cases - France, Russia, China - it has contributed to a revolution. What makes it arguably easier in East Asia is that the process is shorter and its end may be known, described and aspired to. Nonetheless repression may occasionally accompany its pursuit and commonly this involves state activity against recalcitrant peasants and unionising workers. But in the long run it is the very process of industrialisation and economic development that enables, perhaps dictates, the creation of the modern liberal-democratic state of the kind dominant in Europe and emerging in the richer East Asian societies.17 It is not possible to create a developed society capable of making the market work efficiently without the same people demanding a similar role in the functioning of the state. That level of development which enables the creative provision of a myriad goods and services in response to consumption needs generates similar creative demands for input to the political process and the services it provides. These two developments occur in tandem as a


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response to the same processes in education, co-operative production, communications technology and human behaviour. This process took two centuries in Britain, from regicide to women's suffrage. In Japan it took defeat in war and seventy years. In Taiwan and South Korea it took one generation. As this democratisation process occurs, it appears that the development regime loses some of its determination. In the marketplace for political ideas consumption starts to win over saving; imports start to look as attractive as exports; and liberal dissidence may win adherents against social conformity. A society once dedicated to productivity begins to find other national goals to achieve. And in any case as they fully enter the community of nations, the development regimes find their actions circumscribed by the GATT, the United Nations, APEC and other commitments. The Japanese political transformation which started in mid-1993 appeared to mark the end of unbridled competitive mercantilism as this receded under electoral and international pressure. In short, what is occurring in East Asia is much the same as happened in Europe earlier. Different states have reacted in different ways, but the essential process is the same. The world market in capital, products, technology and finance makes available to a society the possibility of rapid growth and development. If its elite has the capacity to seize this opportunity it can quickly take a backward society to a powerful modern state in one or two generations depending on the peculiarities of its situation. Some states have been endowed with other good fortunes, such as energy resources like Malaysia or a huge hinterland like Singapore or Hong Kong, which have accelerated the process. Others have made bad policy decisions like China or inherited a backward colonial and post-colonial situation like Indonesia, which has retarded them. The same points could be made about fortunate European states like Norway or Switzerland or unfortunate ones like fascist Spain or the Soviet Union. The Industrial Revolution presently occurring in East Asia is neither particularly miraculous nor uniquely Asian. It is the universal process of creating the modern world. That this great transformation is taking place adjacent to Australia offers a huge opportunity for a country seeking a new role in the world.18 The broad openings in trade are clear. Australia has the space to grow clean food, to uncover energy resources or to train pilots for countries lacking airspace. Australia has built the infrastructure of an industrialised society and has the output capacity to export infrastructure to Asia. Australian firms are already building bridges, providing guidance systems for airports, installing telecommunications services, and running newspapers throughout Asia. The service sector in Australia is internationally competitive and probably the best in its time zone. Australians are actively supplying health services, educational products, and could be delivering

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aged-care services throughout Asia. Australia's mining industry is among the most efficient in the world and BHP, for example, is developing oil and gas fields in Vietnam. There are also investment opportunities. The Australian national saving rate has recovered somewhat from the depths it reached in the early 1980s, partly as a result of the imposition of what amounts to compulsory superannuation for all workers. These pension funds are administered by private companies, most of which will now be investing some of their portfolio in Asia to benefit from realistically anticipated high growth rates. This is not bad for Australians because trade will follow investment. As Australian firms become part of the growth in Asia associated with the Industrial Revolution, so will they be more inclined than, say, European firms to keep product, design and service provision in Australia, thereby augmenting national exports. The Asian Industrial Revolution is being driven by growth in world markets, predominantly in private industry. If Australia is to benefit from this process it needs to become involved in it by trading, investing and combining with Asian enterprise. In order to do this Australia must develop enterprises and management which are aware of the opportunities and capable of meeting them, a work force with the skills and flexibility to compete, and a national economy with an appropriate cost structure to support such enterprises. Adjacent to Australia an equivalent of four European Unions are being created as 2 billion people industrialise. There is nothing inscrutable about the process and their demands will be similar to Europe's. Australia's challenge is to meet them. Napoleon warned of the dangers of waking the sleeping Chinese giant. The whole of Asia is now awake, and the balance of economic power is shifting with it. In the post-Cold War world competition among states will continue, but with a greater economic and lesser ideological and probably military dimension. States who fail in this competition will probably not be politically colonised as in the past. But they will be poorer, indebted, less sovereign and culturally subordinated to their stronger rivals. Adjustment to this new systemic structure involves internal dislocation and change, even for those that succeed. This has been clearly demonstrated in East Asia where rapid growth has been accompanied by the rapid reallocation of resources. Where states have successfully resisted this process they have stagnated; and when they have decided subsequently to enter the world market the adjustment has been greater. Like its neighbours in East Asia, Australia too must adjust to processes imposed on it by the international system or stagnate. And like them also, it does not face that challenge as a tabula rasa but with existing economic structures and political processes. Its task is to make them work better.

CHAPTER 3

The Australian State and Economic Development

Modern Australia was created by the British Empire and it developed its basic national characteristics during the period of British hegemony in the international system. Like the other societies of the Asia-Pacific region which entered the world market during the epoch of European dominance, Australia has had to adapt to the post-colonial era and the emergence of an Asia-Pacific economic community which has displaced those centred on European imperial systems. Each of these societies entered the world economy and made use of its developmental opportunities and responded to its technological challenges in different ways. Japan was able to use its developed feudal social structure and strong state apparatus to create a developed core economy in record time. More commonly these societies were annexed to imperial systems and became the satellite providers of raw materials and cheap labour. Australia became a semi-peripheral settler-democracy, wealthy in a poor colonial region. Settlement The British government established a penal colony in Sydney in 1788 as a self-supporting convict settlement and source of naval supplies.1 During the next sixty years about 160000 convicts arrived who effectively provided slave labour for the integrated colonial and private economies. Free immigrants followed to seize land from the indigenous hunter-gatherer population whose right to occupancy was, with few exceptions, ignored. At first the settlement was run much as a military dictatorship. But as more convicts were freed and more smallholding and labouring free immigrants settled, demands for self-rule emerged. By the end of the Napoleonic wars in 1815 the state had built a substantial infrastructure of transport and commerce, and private entrepreneurs had developed 43

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considerable pastoral, fishing, whaling and food-producing industries. There was growing trade with Britain and elsewhere in the Asia-Pacific region. During the 1820s settlers expanded over the east coast mountain range into the Murray-Darling river system and began the 'squatting age'. Aboriginal people were driven off or killed and huge sheep runs were opened for the production of wool, which for most of the next century provided one of Australia's export staples to the British textile industry. By 1840 wool was the biggest export and the population had reached 200 000 people, 16 million sheep and 2 million cattle. This expansion had also produced five new colonies, including those of Queensland and Tasmania as offshoots of New South Wales, which remained nonetheless the dominant colony during the period of conquest. In 1831 one new settlement was made on the Swan River in Western Australia, and in 1836 another of non-convict origin, following the Wakefield system, in South Australia. By the 1850s all of these colonies were constructing nascent democratic governments with male suffrage and two chambers, one dominated by a property franchise. They also introduced the British system of local governments, varying in size and authority from region to region. This steady development was transformed by the discovery of gold in Victoria in 1851.2 A huge migration in pursuit of wealth took place, increasing the population from just over 400000 to around 1 million in a decade. Although the easily worked alluvial fields were largely exhausted by that time, population continued to grow during a long economic boom that transformed the Australian colonies by 1890. They had by then achieved a population of over 3 million, trading agricultural and mining products onto the international and particularly the British market, and enjoying probably the highest standard of living in the world. During that long boom a number of features of Australian social life were firmly established. The colonies became very democratic by the standards of the time, establishing male suffrage and shortly after, beginning in 1894 in South Australia, extending the vote to women, although the property franchise continued in the upper houses. The colonies also became important development agencies importing capital for the construction of infrastructure, particularly to aid the exporting of agricultural output. Roads and railways sprang up between the newly fenced and watered sheep runs which were developed with private capital. Similarly, colonial government became important in the burgeoning colonial cities, of which 'marvellous' Melbourne became the largest and richest. In the cities small-scale manufacturing developed in building materials, metal and machinery, clothing and textiles, printing and the like. In order to encourage these industries Victoria introduced a protective tariff on imported goods in 1860. The cities of Australia were substantially

AUSTRALIAN ECONOMIC DEVELOPMENT

45

transformed during this period by a building boom which reached its height during the 1880s and left a legacy of fine Victorian colonial architecture and boulevards. During this Long Boom from 1860 to 1890, GDP grew at about 5 per cent annually, which was just in front of the strong population growth rate. Productivity growth was not very rapid, but labour-intensive secondary and construction industry kept the urban population busy. The rural sector was dominated by wool production and mining, as new mineral discoveries were made and exploited in different parts of the expansive country. The provision of public capital and infrastructure made the colonial governments important agencies in this process. Their early democratic nature also assured their greater tolerance towards the organisation of unionised labour than was the case in contemporary and more authoritarian European countries and their other colonies. Early organisation of craft unions on English lines in the 1830s and 1840s was followed by the legal recognition and registration of broader unions in the later nineteenth century. By 1865 there were about 150000 organised workers. This large growth of the Australian population took place at a time when democratic, liberal and socialist ideas were growing strongly in Europe. The rapid influx of migrants, many from Britain, brought these conceptions with them into a society where ancient, established privileges had not taken firm hold. The colonies were quickly democratised and their parliaments dominated by politicians notable for their liberal ideas. They did not, however, quickly form organised political parties to express them. And finally, unlike that great setder-democracy in North America, the United States, the Australian colonies grew in an age of less suspicion of government, and with greater demands on its activities. Unlike Americans, the Australian settlers expected the state to help develop the economy. This was to become clearer at the end of the Long Boom. In 1888 the land and building boom in Melbourne collapsed and Victoria slid into depression, quickly followed by the other colonies.3 The depression was partly caused by a slump in Britain, producing a 25 per cent cut in export prices and a drying up of capital inflow. The import of goods fell, government revenues shrank by a quarter, capital imports nearly totally stopped and per capita incomes shrank on average about 10 per cent, worsened by rising unemployment. It was exacerbated by a problem of overproduction within the Australian economy as the speculative boom, particularly in agriculture and city-building, came to an end. The colonial governments may have worsened the problem by reducing their activities and expenditures as foreign loans became more difficult to obtain. This served only to deflate economic activity further.

46


In one sense the depression of the early 1890s was an ordinary downturn in a capitalist economy. It was followed by an economic restructuring to accommodate the overproduction experienced in some sectors and rising demand emerging elsewhere. The rural sector diversified away from its heavy reliance on wool. This was facilitated by the development of refrigeration, which enabled the growth of exports of meat and dairy products. After the international economic recovery gained strength in the late 1890s, income levels revived until by the early 1900s they had reentered pre-depression levels. In addition the economic system recovered from the failures of financial institutions in the early 1890s and credit once more started to circulate around the business community. As well, the infrastructure of cities, ports, railways, factories, roads, fences and water provision, which had been built in the boom, remained to provide the basis for reconstruction. The most important impact of the 1890s depression was in the political sphere. It probably speeded the creation of an Australian national state and it certainly influenced its composition. The federation movement had begun in earnest in the 1880s and received some fillip in the 1890s as a result of rising nationalist sentiments associated with the depression. Some unions, notably the shearers and the seamen, had struck against reduced wage rates in 1890-91 and been defeated. At about that time the unions resolved to seek representation in Parliament and in 1891, at different places in Australia, union members met to create a Labor Party. At first they lobbied and worked with the most liberal of elected politicians, including Charles Kingston, prominent South Australian colonial politician and later federal member for Adelaide, and Alfred Deakin, Victorian liberal and later Australian prime minister. They then formed parties and governments of their own, the first government being in Queensland in 1899. But there were also Commonwealth Labor governments in 1904, 1908-9 and 1910-13. In response non-Labor politicians organised into the Fusion Party, consisting of Protectionists and Free Traders, in 1909. The non-Labor parties were known under various guises - Liberal, Nationalist, Country, United Australia Party - before Robert Menzies formed the Liberal Party in 1944.4 A National State The six colonies federated to form the Commonwealth of Australia in 1901. This had been preceded by heated public debate on the subject and popular referendums. The character of the new state was determined by that process and by the first decade of national government, a period dominated by liberal (Deakinites) and Labor politicians. Six features of that national foundation deserve description since they were to survive until the last decades of the twentieth century.


47

In the first place, the structure of the Australian state was determined by the agreement which created it. This agreement was a treaty between the six British colonies to form a single domestic market and nation-state. That treaty, which became the Australian Constitution, made this clear by proclaiming that there should be free trade between the six colonies, now called States. It gave power over external relations to the new Commonwealth government, but it also reserved certain powers, including over taxation, education, business regulation, and law enforcement, to the State governments. This legal fact ensures that the power of the national government will always be limited by the power of the States. This is enshrined by their representation in the States' House, the Senate, which possesses the power to curtail the activities of the national government created by the majority of politicians in the House of Representatives. It also ensures that the States will continue to exist since it was by their agreement that the central government exists and not vice versa. Second, this agreement to form a nation had then to be legislated by the British Parliament since it was not an agreement between sovereign states but between colonies of the British Crown.5 The Act itself was given to and deposited in the Australian Parliament by the British government only in 1991. In other words, the Australian nation-state did not achieve full sovereignty in 1901. In the Constitution certain powers were reserved to the Crown through its representative, the Governor-General. At that stage, therefore, Australia remained a peripheral and colonial state subordinate to the British imperial power. This is clear from a number of external policy examples. The Australian colonies had often separately contributed to British imperial military expeditions, in the Maori Wars, in the Sudan and South Africa and against the Boxer Rebellion. While the new Australian state did establish new national forces and indeed founded an Australian navy in 1911, these were also used for imperial defence.6 At the outbreak of the First World War Australia regarded itself at war as part of the British Empire. It conducted military campaigns with the British in the Middle East, Turkey and Europe, and, within imperial strategy, independendy against German forces in the Asia-Pacific theatre. At that time most Australians, with the notable exception of some of the Irish, thought this a sound idea in the name of imperial unity. Revisionist historians have questioned the wisdom of the commitment, particularly since it produced 250 000 casualties and 60 000 dead. In fact Australia was a part of the British imperial system and had benefited from its capital, labour, markets and defence forces during the critical period of conquest, settlement and development. In 1914 this connection was still of considerable importance to Australia's interests. After the War, Australian defence policy continued to centre on imperial defence and, particularly as relations with Japan deteriorated, Australia became a major

48


advocate of enhancing the British military presence in Asia, especially at the pivotal Singapore military base. In the event this proved to be of litde avail as British military incompetence developed an indefensible bastion quickly overrun by Japanese imperial forces in 1942. Third, the restrictionist White Australia principle was applied to immigration policy. This was certainly not a foregone conclusion in as much as there was support for non-European immigrants, particularly among sugar-producing industrialists in Queensland who had been importing Pacific Islanders to harvest the cane. The emerging and organised labour movement opposed the import of cheap non-European labour and got this adopted as a national policy. This was to last for seventy years and served to sustain the European, and in fact British, character of Australian culture during that period. The limited migration of the first half of the twentieth century, and that concentrated among Europeans, ensured that by 1945 Australia was an unusually homogeneous society for a settler community. It was still relatively rich, certainly militarily successful, and culturally isolated from much of the world except Britain. Only its geography put it in the Asia-Pacific region. Fourth, the Melbourne-led protectionists won the argument against the Sydney based free-traders. New South Wales industry was rewarded with a larger, national free market, while Queensland politicians were compensated by protection for the sugar industry,7 which also served to offset the abolition of imported cheap labour from the Pacific islands. By 1908 the protectionist consensus, which emerged from the Labor-Liberal political alliance and competition, which dominated the first decade of federation, had established long-term tariffs and some production bounties. To a degree this was envisaged as a trade-off for employers providing fair and reasonable wages to white workers in protected industries. But it should also be borne in mind that other nationstates during the same period used government-enforced protection to induce domestic industrialisation, including Germany, the United States and Japan. Australia was not unique in using protection to foster infant industries. What was novel about Australia's use of the tariff to achieve industrialisation was that it did so within an imperial system.8 Typically the form of trade exchange within imperial economic structures was between core states which provided manufactures, capital goods and finance, and colonies or satellites which produced raw materials. Normally the colonies were also areas of cheap labour, but in settler colonies, as in North America, parts of South America and Australasia, labour rates could actually be higher than in the metropolitan core society as a result of a more favourable ratio of resources to labour. At federation, Australia exhibited features of both a colony, being dominated in its exports by


49

unprocessed or semi-processed commodities and its imports being manufactures, capital goods and finance, and a core state, with its domestic production system featuring high wages, a secondary industry system and substantial domestically owned corporations. It was able to achieve this status in large part as a result of the mobilisations of state power by a democratically involved citizenry, drawing their support from organised labour and sectors of capital. Fifth, the state had become active in the regulation of wage rates. Colonial governments had been more compliant in their acceptance of organised labour than perhaps any other authorities in the world. This is not to say that the claims of organised labour were always conceded. The early 1890s were marked indeed by severe industrial disputation when organised workers sought unsuccessfully to resist the imposition of reduced wage rates during the economic depression. As a result of this experience, a decade later the new Australian national government moved, under the domination of ALP and liberal politicians during the early years of federation, to establish a unique system of industrial arbitration and conciliation using the basic model established by colonial authorities. This unique system served the purposes of the union-backed Labor members by recognising the legitimate interests of unions in organising the work force. It also acceded to the philosophy of the progressive liberal politicians of the time who subscribed to the idea of a decent wage rate. The Arbitration Commission ruled in 1907, acting through Chief Justice Henry Higgins, that there should be a minimum wage for white male workers. This established that minimum was a wage sufficient 'for the normal needs of an average employee, regarded as a human being in a civilised country' with a wife and children to support. This was a recognition of the norm for a family with one working parent at that time.9 This 'Harvester Judgment' set the system for regulated wage determination in Australia until the 1990s. In a craft-based union system, derived from British practice, each occupation received a margin in addition to the minimum (later basic) wage in recognition of skills acquired by experience or training. Unions were accorded privileges of recruitment and coverage in different occupations as a result of their being registered with the Arbitration Commission. Above-award wage rates might prevail where labour shortages existed or when industrial action procured a larger wage from employers. This unique system was a trade-off against tariff protection which compelled employers in protected industries to pay an administered wage rate to white male workers. It was a component part of the process of redistributing the externally generated economic surplus more widely among the population of the new federation. It also severely modified the market in wage labour and reduced the incentive

50


of labour to be mobile and of capital to seek greater efficiencies. It would clearly be incompatible with an Australian economy open to the world market, but in the new federation it worked well. It was widely regarded as a mechanism for trading economic efficiency and growth for greater equity. Finally, the new Australian federal state was interventionist in social and economic activity to a degree unusual for the early twentieth century. This resulted from the early years of alliance and competition between the liberals and the Labor Party, building on the traditions established in the colonies, notably Victoria and South Australia. They were intensified when the ALP became strong enough to periodically rule on its own, as became the case after 1910. But in any case, state regulation and provision of services were not resisted with the intensity that occurred in most of Europe, including Britain. One example of this was the formation, in 1911, of the Commonwealth Bank, which was designed to be a central and branch trading bank in competition with the private banks. Somewhat later the long-serving Labor government in Queensland extended government-owned enterprises under the State Enterprise Act of 1918 to include such diverse activities as butcher shops, sawmills and an insurance company. Other State Labor governments worked with the national Labor Party to extend traditional public enterprises through railways, water and electricity supply, posts and telegraphs, to various food and housing provisions. Some aimed to provide services more cheaply to government; some were designed to provide cheap necessities like food and health; and others were intended to keep the private sector more efficient by competition. 10 By the First World War Australia had developed into a nation of 6 million people with an interventionist but federal and fractured state apparatus. It remained dependent on primary products for its wealth and fought to preserve the imperial system which maintained it. It had created a national market protected to some degree from imports, and the War witnessed some acceleration in the process of semi-peripheral industrialisation encouraged by state intervention. After the War Australia experienced generally prosperous conditions until the 1930s depression. Despite a short recession early in the decade, the 1920s were marked mostly by growth and industrial development. The State governments again began borrowing overseas, particularly in London, to finance the house-building and road-paving programs which marked the onset of the motor car age and suburbanisation. This was accelerated by a renewed migration program but one on a scale not comparable to the pre-1890s boom or the post-1945 system. This growth in the 1920s produced a quickening of industrialisation as the cities grew in numbers, wealth and geographic spread. 11 Combined


51

with the extended system of protection, this served not only to encourage the growth of domestic manufacturers, such as BHP which had expanded steel production during the War, but also to encourage foreign firms to enter the protected Australian market. They were, after all, thereby guaranteed access to the region's richest consumer market. These multinationals came mostly but not exclusively from Britain and the United States, the two victorious and dominant economic powers of the day. They included General Motors, Ford, Dorman Long, ICI, Nestle, Cadbury, Kelloggs, Philips, GE, HMV, Bryant & May, Shell, and AngloPersian Oil (BP). They were concentrated in areas related to rising living standards and consumption and were designed to service a wealthy, protected domestic economy, not to produce for export onto the larger world market. These local production facilities therefore had litde incentive to be internationally competitive and they were not, given the higher wage rates and cost structure which then prevailed in Australia. Productivity growth during this period was not high, and as a result per capita consumption was perhaps only 20 per cent higher in 1929 than in 1890. It also seems that consumption levels rose by only about 10 per cent during the 1920s. This process marked a decline in Australian relative income levels such that by 1929 Australia was no longer enjoying the highest per capita incomes in the world, being already overtaken by North America and the Western European countries. This relative decline was to continue with interruptions for the next six decades for the same reasons. The staple primary products industries found it harder to increase productivity as they moved into more marginal lands, and in any case both wool and wheat experienced steadily falling returns. An increasing proportion of the population lived in the cities where they depended for employment on secondary and tertiary (service) industries which were not internationally competitive. As the population grew, therefore, a larger number of people depended on cross-subsidy from the falling external surplus generated by primary products. And the regulated and protected domestic economy provided little incentive for the urbanbased industries to export. This semi-peripheral society with a commodity-dependent economy, a largely sovereign state and an unevenly developed industry sector fell easy prey to the world depression of 1930.12 The world market collapsed after the Wall Street Crash diminished the provision of American finance to Europe. The economic crisis quickly spread to Australia, as the export markets for its commodities sharply declined, and foreign earnings fell from £150 million to £80 million during 1929-32. At the same time the availability of foreign loans, chiefly from London, to finance government activity, fell sharply. The combined effect was to plunge economic activity into a severe depression. During the same three-year period of

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1929 to 1932, GDP fell from £800 million to £550 million, imports from £150 million to £50 million and unemployment rose from about 10 per cent to 29 per cent. To compensate for this disaster, employers successfully acted through the industrial relations system to reduce real wages by over 10 per cent, and the British money market encouraged colonial belt-tightening and reductions in government expenditure to enable the repayment of debt. There was an acute political conflict over Australia's appropriate response to these events: governments were dismissed; they were divided and at loggerheads with each other and with London. The ALP was divided across the nation and its incumbent national and State governments divided and fell. Most Australian administrations eventually complied with demands for deflationary fiscal policies desired by their chief creditor, Britain. The Australian economy slowly recovered from the depression during the later 1930s. This was not caused by a substantial recovery in the export performance of Australian commodities: the prices for wool, meat, wheat and dairy products remained generally depressed. Indeed in 1934 a royal commission found that much of the production of these staples was undertaken at costs above world market prices and their export was only made possible by government subvention, or by dumping exports at lower prices than those charged in Australia. This system of cross-subsidisation did serve, however, to keep these industries producing, and they staged modest recoveries. In addition, at the prompting of the Country Party,13 which had been formed in the 1920s to pursue the interests of the rural population in general and primary producers in particular, new systems of price stabilisation, pooling arrangements and marketing boards spread throughout the farming sector under both State and Commonwealth government jurisdiction. Being based on geography rather than class, the Country Party was ideologically indiscriminate in its pursuit of rural subsidisation. But the manufacturing sector performed even more strongly during the phase of modest recovery which settled in by the mid-1930s. The exchange rate crisis encouraged the government to raise protection levels after 1932. In addition, and with the encouragement of London, the Australian currency was devalued by 25 per cent. As a result of higher protection and devaluation, domestic industry was able to increase output in 1933-34 but without any substantial increase in investment or productivity or any advance in technology. Nonetheless, the increases in output enabled wage rates to be restored to their previous levels after 1934 by the Arbitration Commission. Some capital was then imported by local branches of multinational companies and recovery did gather pace. By 1938 GNP was 13 per cent higher than in 1929 and 25 per cent larger than the depression trough of 1932. Primary production had been


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increased but not enough to offset price falls, and it was lower in aggregate value than in 1929. Manufacturing industry on the other hand had increased its work force by 25 per cent and output by 40 per cent. Much of this growth had been directed into the major growth sectors of the time: automobiles, new consumer products, particularly in electronics, and the whole process of suburbanisation. But in very few instances were these industries internationally competitive. Australia had witnessed a further erosion of its relative per capita income level in order to achieve some economic recovery in a heavily protected environment. The Second World War accelerated industrialisation in Australia, partly to offset the strategic risk of being isolated from its major allies. Under the wartime policy dictates of geography, these industries were concentrated in the south-eastern States, which were in any case the main centres of the then protected industry sector. For a time Australia also served as the principal springboard for the Allied counter-offensive against Japan in the Pacific theatre, which accelerated economic output growth. This combined with extensive military mobilisation to create labour shortages. The Australian government also began asserting its independence from British imperial strategy. And finally, the Labor movement recovered from the defeats and divisions of the early 1930s. After the collapse of the UAP government led by Robert Menzies in 1941, the ALP regained national office under Prime Minister John Curtin (1941-45) and retained it in the 1943 election with a more assertive policy on independent economic development and nationalist external policy. Military victory only increased its resolve to continue the pursuit of industrial development by state intervention.14 Protected Industrialisation after 1945

After the successful conclusion of the Second World War, Australia experienced a slowing of its growth rate as readjustment to a peacetime economy took place, the labour force was reorganised and consumer items began to replace armaments production as a national priority. This was derisively termed a 'milkbar economy'. The Labor government determined to modify this process to produce higher levels of industrialisation, employment and population growth, and pursued these objectives partly by maintaining the greater government controls over the development of the economy that had been established during the War. This was facilitated by the rapid growth of Keynesian thinking about economic management which spread quickly from Britain. In Canberra it was given some impetus by the staff of the newly created Department of Post-war Reconstruction. A White Paper on Full Employment in Australia proclaimed the policy objective in the labour market. In the same year, 1945,

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the Banking Act introduced sterner controls in the private banks in the belief that they had stifled credit expansion and worsened the 1930s depression. In 1948 the government decided to nationalise the private banks in order to gain more direct control over the provision of development capital. In pursuit of stronger growth and higher employment rates, the Chifley Labor Government (1945-49) maintained aspects of wartime rationing into the late 1940s, notably on petrol and house construction. It also continued to use the tariff to encourage overseas companies to invest in Australia's secondary industry in much the same manner as had been pursued in the 1920s. As well, the government undertook an expansion of public infrastructure works, most famously the Snowy Mountains Hydro-electric scheme. But these stimulatory policies did not lead to a great expansion of the state sector of GDP, which only expanded from 13 per cent to 14.9 per cent during 1941-49. The purpose was not to construct a state socialist economy, but to maintain a high level of employment, to assist private capital investment, to extend public sector activity in support of private companies, and to create a larger, more modern and independent industrialised economy. These activities would also ease the transition from a wartime to a peacetime economy. In other words, the post-war Labor government pursued the further development of a state-protected and state-regulated system of capitalism in Australia designed to lift its status in the international system. The Labor government was defeated in 1949 by the successor to the UAP, the Liberal Party, which had been formed by its new prime minister, the resurrected Robert Menzies, in 1944. The Liberals were able to take advantage of a number of circumstances. The post-war rationing system was becoming increasingly unpopular with a people wanting to share the fruits of post-war economic growth. The Liberals were also able to take advantage of the government's politically ill-judged efforts to nationalise the private banks. They mobilised their numerous bank employees, who were much frightened by the prospect. Further, in 1949 a wave of strikes took place, notably in the coal industry, led by the Communist Party of Australia (CPA), which produced acute conflict within and between the industrial and political wings of the labour movement. This became a particularly sensitive matter at a time when the Cold War was starting and Australia was anxious to join the American-led alliance system. More deceptively, Menzies was able to portray the Labor Party as pursuing socialism and the Liberals as aiming to establish a freemarket economy. Neither claim was true. Both parties favoured a regulated capitalist economic structure although they disagreed over the precise manner of its pursuit. By 1949 Australia had entered the period of its Second Long Boom,


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over much of which Menzies was to preside in his second term as prime minister (1949-66).15 As in the earlier boom from 1860 to 1890, Australia experienced strong population growth fuelled by immigration, decent returns on commodity exports, the inflow of foreign capital, and an active state developing the infrastructure on which private capital growth depended. But during this period industrialisation was somewhat stronger. Menzies ruled in coalition with the Country Party until 1966 when he was succeeded by Harold Holt (1966-67), John Gorton (1968-71) and William McMahon (1971-72) as Liberal prime ministers. It was a period of strong economic growth, weaker productivity development, international Cold War conflict and great national prosperity. It coincided with strong and unprecedented international growth in the world capitalist economy that took place under American leadership in a fashion that, unlike the 1920s, oudived the immediate period of post-war reconstruction. Australia's per capita income growth was not quite so impressive. It survived the war virtually physically untouched, aside from its bombarded northern reaches, and near the top of the world per capita income league. It slipped steadily down the league table during the Long Boom but maintained an enviable absolute level of wealth. When the global boom ended in the mid-1970s, and then changed its character into the 1980s, Australia took too long to adjust its strategy and suffered considerable lost opportunities as a result. The Menzies period consolidated the transition Australia had made during the Second World War to being a sovereign state and transferring its allegiances from the old imperium of Britain to the new Western hegemony of the United States, as is described in Chapter 9. The Labor government had established its independence during the war by symbolically separately declaring war on Japan in December 1941, and later by insisting on redeploying its troops from the Middle East to the direct defence of Australia against Japan. Immediately after the War, under its Labor External Affairs minister, Dr H. V. Evatt, it flirted with the United Nations system as its primary focus of security activities, but soon reverted to more realpolitik reasoning and pursued alliance systems with both Britain and the United States. By 1951 the Liberal government was able to conclude the pivotal ANZUS Treaty with Washington and henceforth, during the remaining four decades of the Cold War, only rarely parted company with Washington's geopolitical strategy. The principal features of this relationship were frequent Australian support for American antiSoviet wars, especially in Korea and Vietnam, and its hosting of American geostrategic intelligence-gathering and communications facilities on Australian soil. This direction was pursued notwithstanding the ferociously Anglophile rhetoric of Menzies when prime minister, and periodic support for British global objectives, as in the Suez War of 1956

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and the defence of Malaysia 1963-66. But as British power declined and then withdrew from east of Suez, so the Australian government switched to the American sphere in most important diplomatic, strategic and military aspects. Australia also moved closer to the American sphere in international economic relations. The Chifley government had joined the World Bank, the IMF and the GATT, and was a party to the Bretton Woods system of fixed exchange rates. Both it and the Menzies government undertook international loans for public sector development raised with World Bank support. 16 In some sense this was similar to the colonies' borrowings of the First Long Boom from the 1860s to 1890,17 but both governments also encouraged direct investment flows into the industrial private sector as had begun to occur in the 1920s. During the Menzies period British and then increasingly American companies stepped up their investment in Australia, particularly in the secondary industry sector. The incentives for this process were fairly straightforward. After the Second World War Australia was one of the richest per capita domestic consumer markets in the world. Its government had announced its intention to industrialise the economy and to protect its market against imports by imposing a barrier protection tariff. While this was contrary to the expressed economic strategic intention of the US government, which was free trade, it was acceptable to the GATT system, at that time still evolving. Against that framework, the Menzies government relaxed the system of immediate post-war rationing, which had the result of accelerating the demand for and consumption of consumer goods. But it did not relax other aspects of government regulation; in particular, it continued to maintain a high rate of tariff protection. It also used the centrally controlled wage determination system to redistribute a 10 per cent share of GDP from wages to capital in the early 1950s and to maintain that new proportion for twenty years.18 Further, it encouraged the direct investment of corporate capital in Australia and encouraged State governments to compete for foreign investment by multinational companies. The Liberal State governments of Victoria and South Australia proved to be among the more successful in this respect. And, finally, it developed public infrastructure to provide services, often at subsidised rates, for the use of private capital. This absorption of foreign direct capital investment was matched by a substantial immigration program. Nineteenth-century settlement had been derived chiefly from Britain, with disproportionate components from the Celtic fringes, determined by their relative poverty and, particularly from Ireland, political prisoners. Convicts were more in evidence in the eastern colonies, less so in Victoria, and non-existent in South Australia. Some Chinese and Americans joined in the gold rush, and


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Melanesians were conscripted to the sugar cane fields. The immigrants for the early years of the twentieth century had been almost wholly white. After 1945, the Commonwealth government determined to reinvigorate the immigration program, which had languished for fifteen years of depression and war. It pursued a larger population partly for strategic reasons, being conscious of how exposed the just over 7 million Australians had been to the ambitions of the Japanese Empire. It was also eager to augment the Australian domestic market and make it more attractive for the development of modern industry by enabling economies of large-scale production. In the first instance the post-war immigrants were British. But it soon became clear to Immigration Minister Arthur Calwell that a large potential source of immigrants was to be found among the displaced persons of Europe. Most of these had been uprooted by the invasions of Nazi or Soviet armies or, in some unfortunate cases, both. They were recruited to Australia by the lure of a safe and prosperous life, settled in Australia as cheap, unskilled labour, and sold to Australians by government propaganda as racially compatible Europeans. As these sources dwindled with the restoration of society in northern Europe, Australia cast wider for its immigrants to the poorer countries of southern and south-eastern Europe, particularly southern Italy, Greece and Yugoslavia. These immigrants settled in those parts of the country that grew most rapidly under the process of industrialisation encouraged by the War, and then forced by government action: New South Wales, Victoria and South Australia. They were also to be found employed, again disproportionately, in unskilled activities in the construction and industrial sectors. These immigrants from the late 1940s to early 1970s were more mobile than the existing work force and flowed into those regions made buoyant by regulated, subsidised and protected industrialisation. In particular Melbourne's protected industries flourished and attracted southern Europeans. South Australia attracted the British and Italians. Sydney, and its nearby industrial steel centres of Newcastle and the Illawarra, was a magnet to everyone. During the twenty-five years which followed the War these immigrants were selected for aggregate numbers to augment national growth; their level of skill was a secondary consideration to their youth and ethnicity. One result was the growth of industrial communities around Australia of diverse ethnic origin, producing for a protected domestic market, with low-skilled and cheap labour, using uncompetitive capital and technology. These centres varied from the steel cities of coastal New South Wales to the clothing towns of rural Victoria, the South Australian motor town of Elizabeth and the steel and shipbuilding centre ofWhyalla.

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Most of the capital that entered Australia during this process of rapid post-war industrialisation entered as direct investment,19 often coming as machinery shipped from the overseas parents of multinational industrial companies. During the post-war period this derived mainly from companies in Britain and America - the former and rising hegemons of the international system - since the other core powers of Europe and Asia were reconstituting their economies after wartime devastation. This machinery was, in addition, often not front-line technology in as much as it did not have to compete with world-best production practices in either the Australian or other markets. The former was protected and others could be served by the same firms from other source countries with lower costs. As a result, for example, General Motors in 1948 began production of the Holden (a rejected Chevrolet design) with government subsidy, at higher cost but substantial protection from imports. This combination of tariff protection, cheap immigrant labour and government subvention produced a level of industrial production that employed a quarter of the work force by the late 1960s. As such, a statistical profile of Australia appeared to show it as a typical advanced industrial country with a low and falling agricultural work force, rising service sector, and an average mid-20 per cent employment level in manufacturing. This evaded some critical features of Australian industry, as the Jackson Report (1975) was later to reveal.20 It was unusually concentrated into large firms, as 200 out of 30 000 produced half the output. It was also more foreign-owned than in other OECD countries, with eighty-seven of the biggest 200 being overseas-controlled. It was not internationally competitive and exported almost none of its output. And its rate of reinvestment was low and in many sectors negative because it did not have to improve product or productivity to compete on the world market. But perhaps most alarmingly, this sector was a major supplier of inputs to the economy as a whole, which thereby suffered from higher costs and poorer products. The Menzies Liberal Coalition government continued this unbalanced industrial structure by intervention, and also further regulated the finance market. Having been elected on a platform of keeping the banks free, in 1960 the Menzies government imposed a new regulatory system on the private banks which included a process of rationing for borrowed money, the direction of a proportion of assurance companies' investment into defined public sector bonds, and some severe criticisms of the banks for assisting development companies to create a speculative boom. Finance was not permitted to flow around the economy in pursuit of greatest gain, and thereby promote efficiency and punish poor returns on investments. Housing construction and purchase were heavily underwritten by subsidised loans from many state-owned banks, and taxation


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write-offs of interest payments by the national government. Interest rates were regulated by government. Access to the international money markets for Australian companies and individuals was controlled by regulation and by refusing foreign banks operating licences in Australia. The role of the Country Party in creating, and in some ways extending, the system of the dirigiste state in coalition with the Liberals was clearly important. The private rural sector had always been underpinned by the state construction of infrastructure since the convict settlements, the Wakefield scheme and the building of the railway grid which chased the farmers all over Australia. During die 1930s one response to the depression in the rural sector had been the creation of a system of regulatory and price-maintaining boards. These agencies were formed by governments and they regulated output levels, licensed different producers, bought and sold product, and stored and released reserves in policies designed to stabilise price levels. They also often marketed product as a sole supplier to domestic and overseas markets. The Country Party supported these projects during the 1930s and the extension of the system in the post-war period. The then leader of the Country Party, deputy prime minister and minister for Trade during much of the Menzies period and shortly after, was John McEwen. The Country Party as an umbrella organisation of mass membership was in fact an alliance of two groups. Efficient rural producers in either the farming or mining sectors, and this typically meant large companies, wanted a cheap cost platform on which to produce and from which to export. This group favoured a market mechanism for Australia as a whole, which would keep more of the externally generated surplus in their hands, but would pursue subsidies when it suited their special interests. The broad base of the party, including small producers and workers in the rural sector, pursued a wide range of subsidies for regional Australia in taxation, production and service provision. They were the chief beneficiaries of the innovations of the 1930s. By the 1950s McEwen was active in pursuing wider subsidies for country industries including a taxpayer-guaranteed floor price for wool and the Wheat Board as the main marketing arm for that product in communist China. He also championed a uniform national price structure for producers, ranging from petrol to phone charges. In exchange, McEwen supported a similar outcome for other sectors including protected secondary industry and regulated finance. The whole system came to be known as McEwenism and represented a myriad cross-sectoral subsidies so complex they could not be easily identified, let alone quantified. It should be further noted that this system had a hugely deleterious effect on the system of managing enterprises in Australia. Organised

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workers were not competing on the world market, either overseas or in Australia, and as a result had only each other as a benchmark. Their wages were then regulated by the same industrial relations system, and competition between them and their enterprises minimised. For management the effect of the system was, if anything, worse.21 As a British-derived economy in which much of the industrial capital had been imported from Britain, it is hardly surprising that much management practice was derived from the same source. At the place of production it was conflict-based, and as so much British experience has revealed, this was one reason British capital had experienced relative decline through the twentieth century. In addition much of management, particularly in the Australian-owned sector, was recruited from the elite private colleges and then at best given a British-style university degree and rarely exposed to management training. Finally, of course, like the workers, managers did not have to compete with anyone except themselves. Wage rises were achieved by industrial action, which was correspondingly high in Australia, and they could be passed on by price rises which would be protected by tariffs. Government would usually provide subventions by tax holidays, input subsidies or outright bounties. It appeared that no one had the incentive to be efficient outside the export-oriented sectors of farming and mining. And even there, government policies were minimising incentive by extensive regulation in the agricultural sector, which effectively ensured that direct producers did not have to follow their market. Nonetheless, the natural wealth of the continent was such that even as the industrial and farming sectors began to experience growth difficulties in the late 1960s, the mining sector expanded. 22 The first post-war mining boom was enjoyed during that period as the initial wave of rapid Asian industrial growth took off in Japan. Since Japan was a resource-poor country its rising production levels increased demand for energy, industrial raw materials and foodstuffs. In the late 1960s new mining developments sprang up, particularly across northern Australia, to provide iron ore, coal and other minerals to Japanese industry. Later they were to be extended to include natural gas, alumina and uranium and to provide materials to other industrialising countries to Australia's north. By the late 1960s Japan was taking about a quarter of Australia's exports and many Australians had enjoyed substantial gains by speculating on mining shares or moving to areas of new mining development, concentrated particularly in Western Australia or central Queensland. This process was to continue. The Menzies period was one of the most prosperous in Australian history. GDP grew at between 3 and 4 per cent annually and per capita income at about half this rate in view of substantial population growth. During this period the character of Australian life changed and, materially at least, very much for the better. In common with the rest of the


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developed world the mass availability of cars, many produced in Australia, contributed to the suburbanisation of Australian cities, where the bulk of the additional population settled. In those suburbs people increasingly owned their own homes via government subsidies or directed loans through state banks. They also consumed more electrical goods, furniture, televisions, books and processed food than ever before. It is not then surprising that Australians did not fundamentally question the system of economic regulation they had created. Menzies left office at the time of his choosing in 1966 and amid continued acclaim. His Liberal successors by and large maintained the same system into the early 1970s until they were defeated by the ALP at the federal election in December 1972. Arrested Reform: the Whitlam Government

A major reason for the victory of the Labor Party in 1972 was the character of its leader, Gough Whitlam. He had welded a party split by the Cold War in 1955,23 which branded them with an unacceptable Left face, into a moderate, vote-winning operation. He also stood in contrast to the nonmedia-friendly William McMahon. The Liberal regime certainly stumbled economically in the early 1970s as a mild cyclical downturn, an increase in inflation, and a burst mining boom cast doubt over its management credentials. But the trough was the first serious one in twenty years and incomes were again rising strongly by late 1972. Its credibility was most seriously damaged indeed by the external crisis of the Vietnam War, against the defeat in which the 'It's Time [for a change]' slogan struck a certain popular resonance. The Whitlam government was the first opportunity at which the system of economic management in Australia, and therefore the system of economic production itself, should have been changed. It wasn't. The ALP ministers who served during 1972-75 were exposed to the ideas and policy settings which were to provide the basis for developing Labor government strategy after 1983. Indeed, very few policy objectives after 1983 were entirely new, although the manner of their pursuit sometimes was. The difference was that the ministers who swept impatiendy into office in 1972 had waited twenty-three years to see their ideas implemented. In 1983 their successors were, conversely, very conscious of the short life of the Whitlam government and determined to survive long enough to entrench policy reforms. The initial, strategic objective of the Whitlam government was to make Australian capitalism work more efficiently and to integrate it more closely with the world market and particularly with Asia.24 In 1972-74 it pursued this objective with some vigour. It announced in July 1973 a

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25 per cent cut across the board in the tariff rate and signalled further measures designed to shake out Australian industry and make it more efficient. It started to transform the labour market by cutting unskilled immigration and increasing the training and education system for Australian workers. The government also acted to dismande the Hydraheaded system of regulation and subsidy and to enforce competition through, for example, Trades Practices and Prices Justification legislation. 25 It tried to attract foreign multinational companies and to develop Australian multinational companies to export capital and product onto the world market. It determined to make Australia a springboard into Asia. And finally, it extensively deregulated the financial sector and Whitlam repeatedly told banking audiences his was the first free-market government they had seen. This reform program came to an end in late 1974 when Australia was hit by the (then) worst world economic downturn since the war. The 1974-75 recession put the reform program of the Whitlam government into reverse. It had attempted to shake out the Australian economy and make it more internationalised and competitive. This necessarily involved higher levels of unemployment and firm failures as both labour and capital moved from sectors of low return and poor efficiency to sectors of high return and greater efficiency. It was intended to retrain the workers in their transition. But while such a cleansing might have been acceptable during a growth phase in the cycle, in 1974 it was locked into a world and national downturn which served to add cyclical to structural unemployment. The situation was made more complicated by the fact that the world recession had been in some measure created by the 1973-74 OPEC-induced increase in energy prices. While this had deflated some of Australia's major markets in Europe and Japan, it also greatly strengthened the Australian trading position since it was a net energy exporter. The result was, at first in 1973-74, a boom in Australia's energy-related sector, a rise in the currency and a government pursuing deregulation in the domestic economy. It was quickly followed in 1974-75 by an extensive recession, rising unemployment to then post-war record levels of over 5 per cent, and a prolonged confusion in government policy, producing eventually a return to regulatory and protectionist activities. The government stabilised its fiscal policies by August 1975 when the newly installed treasurer, Bill Hayden, introduced a mildly stimulatory budget under the rubric of 'economic rationalism'. Its validity was not truly tested since the Senate obstructed its passage. Then Governor-General Sir John Kerr, using the reserve powers of the Crown, dismissed the Whitlam government on 11 November 1975 and reinstalled the Liberals under their new leader, Victorian grazier Malcolm Fraser.


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Opportunity Lost: the Fraser Government

The Fraser government (1975-83) won the next three elections, handsomely in December 1975 and 1977, and closely in 1980. During its period in Opposition the Liberal Party had sought to re-evaluate its policy platform to take account of the changes of 1973-75. It realised that the turmoil of the world energy crisis, currency realignment and subsequent recession had been a primary cause of the economic recession in Australia. It also, however, attributed considerable blame to the Whitlam government for exacerbating the dislocation by embarking on a reform program designed to reduce protection and deregulate Australian industry, increase the wages share of national income by supporting union campaigns for higher wages, and augment the size of government programs. It also adopted a modified monetarist version for the explanation of increased inflation during that period. The result of this analysis was that much of government policy during those seven years was inappropriate and designed to re-create the system which existed before Whitlam and which, even if restored, would not have again delivered competitive growth. This was a fundamental misreading of the strategic environment. The world system had changed. The Fraser government spent much of its rhetoric seeking to restore the factor shares in the economy to their pre-Whitlam ratios. At every quarterly national wage case it presented evidence of a 'real wage overhang' and argued for a reduction in real wages. It managed only a modest reduction in the wages share of GDP up to 1981 when it produced the collapse of the national wage fixation system by trying to enforce a wage freeze. This led to a wages breakout and wages share being restored to 1975 levels by 1983. It also made much of its intention to restore the government expenditure share to levels obtaining before the Whitlam government but, after some modest cuts in the late 1970s, reverted to fiscal Keynesianism in the early 1980s and left the government share actually larger than when it assumed office. It made little effort to resume the opening of the Australian economy to the world economy and actually increased the rate of tariff protection, particularly for the most inefficient industries like textiles, clothing and footwear. Its most imaginative macro-economic strategy was to proclaim a new minerals and energy boom in 1980 and to pin its electoral and economic development hopes on it. The prospects for this boom ended in 1981 with the world downturn. Contrary to its previous seven years' rhetoric, the Fraser government then spent 1982 trying to engineer a boom by government spending and left a projected and record budget deficit of $10 billion on the books when it was defeated in March 1983.

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The Labor Party which won the March 1983 election and formed the new government under Prime Minister Bob Hawke (1983-91) had spent some years reorganising itself, its policies and its personnel. 26 Hawke, the former ACTU president, only became leader on the day Fraser called the election, but he inherited a leadership group and broad policy structure. At the policy level there was the stimulation of the economy to produce economic growth and reduce unemployment, but this would be accompanied by wage restraint to contain any resultant inflation. This was an idea developed by Treasury spokesman Ralph Willis, and was appropriate for dealing with the wages breakout Fraser had created. To this Hawke added the proposal for national reconciliation and reconstruction to be pursued through a national economic summit to produce a consensusbased economic strategy to deal with the recession. This too was a decent anti-cyclical policy proposal appropriate to assist the growth phase. But neither dealt with the most pressing long-term issue of Australia's declining economic performance. By the early 1980s Australia faced an acute problem. The state-induced post-war industrialisation program had created a diversified economy, but one heavily reliant on commodities in its external sector. The problem had been widely discussed since the late 1960s: Australia was growing too slowly because it was too protected and regulated; and it was very vulnerable to international oscillations because it was too reliant on commodity exports. The Whitlam government had tried to make the necessary adjustment but had been weakened by internal dissension, reversed by a world recession and defeated by the representative of the British Crown. Its successor made little effort to continue the process. This was a huge lost opportunity. Throughout the world, and in Asia in particular, other states were moving away from inward-looking industrial development to embrace the world market, partly to take advantage of developing new technologies, partly to emulate the success of Japan. But as other industrial states took advantage of world growth to extend their production, Australia maintained a relatively closed system. And as each year passed it moved further behind and ensured that its restructuring would take that much longer. Nonetheless the new Labor government determined to undertake the globalisation of the Australian economy with all the consequences that would eventually entail.

CHAPTER 4

Economic Rationalism Changes Australian Politics

In 1983 the new Labor government took its first steps towards internationalising the Australian economy by deregulating the financial sector and floating the Australian dollar. This globalisation of the economy imposed a profound refocusing of political debate in Australia. During the following decade the issue at the centre of Australia's politics ceased to be: how can government intervene in economic life to create desirable social outcomes? By the 1990s it had been reformulated as: how can government create competitive market situations to ensure world-best practice is pursued and international standards are achieved? Not all parties embraced this view with equal enthusiasm or with equal speed, but the trend was evident across the political spectrum. It has also attracted considerable attention from commentators, who spent much of the 1980s complaining that Labor had abandoned its traditional policy under Hawke. Old-style politicians from each of the parties, like former prime minister Malcolm Fraser or former Whitlam minister Jim McClelland, criticised their successors for having lost touch with the party's basic principles. In fact each political party grappled to create an appropriate response within its own broad philosophy to the changes consequential on Australia's unavoidable decision to open itself further to the world market. As it became progressively clearer that these changes would be extremely wide ranging, and as the phased removal of barrier protection imposed greater urgency on the tasks and took that pressure into wider areas of political, economic and social policy, the debates within each party became more urgent. During this process it remained possible to discern a Left-Right axis of the kind classical to developed capitalist democracies. But the whole axis moved broadly to the Right and came to resemble more the American political spectrum than that of a European social democracy. To put it another way, most of the far Left parties were 65

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dissolved and the centre of the political structure adopted a more marketoriented complexion. The Labor Party Adopts the Market Since the Labor Party was in federal government for the entire decade or so under consideration, it is appropriate to begin an appraisal of political change with its reorientation. 1 Political Labor, the Australian Labor Party, was formed almost simultaneously in 1891 at a number of locations such that its foundations are claimed by various sites. The shearers of Queensland at Barcaldine usually get the credit, but Balmain in Sydney still has claims, The party was not a European social democrat party and was innocent of almost any theoretical considerations for a generation. This is not to say it was not influenced by imported European socialist ideas, however, since many of its early leaders were migrants themselves, especially from Britain. It was formed by organised labour unions, with the Irish ethnic community in strong evidence, who wanted political representation in Parliament. The ALP soon formed a shortlived minority government in Queensland and later at the national level. Like any political movement seeking national office in its own right, it embraced a wide range of views, but from the outset its leadership was more committed to gaining office and wielding power than with the disputes about socialist strategy which consumed the energies of its European counterparts. Early Labor politicians impressed foreign observers both for their practical achievements and their casual collaborations with class enemies. 2 The dominant tradition of the ALP was always pragmatic, nationalist and state-interventionist. Certainly it had its internal disputes. During the First World War it split, when its strong Irish-influenced Catholic group would not support conscription at a time when the British were suppressing Irish nationalism. After the First World War it split again when the Communist Party of Australia was formed to support the Sovietdirected international revolutionary movement. In the 1930s depression there were many divisions over appropriate policy, particularly towards the Premiers' Plan, and minority parties were formed, especially in New South Wales. In the 1950s it split again when the Catholic-based Democratic Labor Party (DLP) was created in protest against the ALP's too soft position against communism at the height of the Cold War. But it survived its first century as a uniquely labourist party - the oldest and arguably most successful of its kind in the world. The ALP's least successful period was during the height of the Cold War when for twenty-three years, 1949 to 1972, it was in federal Opposition. At that time it was little more successful in the States, particularly in Victoria, where the DLP had an effective independent existence.

CHANGES IN AUSTRALIAN POLITICS

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In part this was because of the influence of communists. After challenging the interventionist and reformist Labor government with a wave of strikes during post-war reconstruction in the late 1940s, the CPA collaborated with Labor in Opposition and often achieved its objective of pulling the party to the Left, especially on international issues. This was rarely a vote-winner among the broader electorate during the Cold War, particularly with the DLP actively competing for working-class votes. The ALP was able to achieve federal office only in 1972 when detente permitted a relaxation of these ideological tensions. The failure of the Whitlam government (1972-75) was a political failure.3 True enough, in the developed capitalist world, many elected governments were defeated in 1974-75 because of their unpopularity created by rising unemployment during the world recession. The Labor government may not have been able to withstand such an economic event anyway. What made the situation worse was the lack of political discipline and direction exhibited by the government during the then most serious cyclical downturn since the Second World War. It went through three treasurers and at least three fiscal strategies in one year in an effort to formulate an appropriate anti-recessionary policy. Government policies were frequently overturned by Caucus and ministers shuffled like playing cards by the Prime Minister. When the government was sacked by Governor-General Sir John Kerr in November 1975, it received its first burst of popularity since the previous year, and then only briefly. It was soundly thrashed at the December election and again in 1977 with Gough Whidam still leader. Whidam's last treasurer, Bill Hayden, had refused the leadership in 1976, and the necessary regrouping and reformation of policy did not begin until 1978, under his new leadership. During its seven years in Opposition the ALP did reform its economic platforms and political structure. Its economic policy was reworked to give formal effect to a strategy of achieving more rapid economic growth without inflationary consequences, by means of an Accord with the trade unions to limit wage increases. In exchange, the ACTU was offered job creation and a social reform program. In the political sphere the problem was to exert greater discipline on the federal Caucus in order to avoid a repeat of the events of 1975. In resolving this problem some attention was paid to the two most successful State ALP branches at that time. In South Australia the moderate reforming branch had been run by 'the Machine', as it was known, led by the State leader, Premier Don Dunstan. The major trade unions, operating through a 'card ballot' of delegates, dominated the party's policy and preselection processes at State Conference and thereby enforced discipline.4 In New South Wales the State branch contained two organised factions and was dominated by the Right,

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organised through Party Office (the 'Officials') and the Labor Council. The smaller Left faction gained some spoils, but had lesser representation and very few policy victories.5 In the early 1980s some factional discipline began in the federal Caucus as Bill Hayden fought to maintain his leadership against the challenge of popular former ACTU president Bob Hawke. Indeed the Byzantine manoeuvring of 1982 when Hawke launched his first challenge to Hayden was often described in terms of blocs of votes being influenced by leading personalities. After Hawke's Victorian supporters had made an arrangement with the New South Wales Right, led by the young frontbencher Paul Keating, it seemed only a matter of time before the leadership changed. In February 1983 the Victorian senator John Button took his Victorian Independents group into the alliance and the change became a reality as Bill Hayden resigned the leadership. At that stage, however, the Caucus was not formally factionalised and the ministry ballot following the election victory was certainly not a foregone conclusion. This was to change by the next election in December 1984. During its first two years the government became formally factionalised into Right, Left and Centre Left factions plus a small group of Independents. The factions were known as the Mates, the Comrades and the Chardonnay Set. The reasons for this formal arrangement emerging were twofold. On the one side, the Cabinet quickly realised the need to know whether its decisions would be upheld in the party room: if they could not rely on this they could not govern effectively. On the other, a number of key politicians became powerful in Canberra who were used to leading State-based factions and managing their relations in the interest of Labor governing: Senator Richardson of the New South Wales Right; Senator Ray of the Victorian Right; Mick Young, leader of the South Australian Machine; and former deputy leader Tom Uren of the New South Wales Left. During the ensuing decade each of these factions would organise nationally and meet regularly to formulate policy strategy and negotiate power-sharing deals. Without this disciplined political structure the economic reform program could not have been delivered. The Right was the largest faction from the outset and, while it at no time had a clear majority of votes in Caucus on its own, it could always achieve a majority except in one defence-related case concerning MX missile testing. Its core was in free-trade New South Wales which was at first in alliance with the large Right bloc from protectionist Victoria. In 1990, however, the Victorian Labor vote collapsed with the badly managed State Bank of Victoria (SBV) and nine Victorian seats were lost, many of them right-wing. Offsetting this, however, was the increase in right-wingers from free-trade Queensland, who served only to make the faction more open to internationalising pressures. But the core of the


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faction was New South Wales, which organised separately and tightly, distributed the spoils and enforced a collective culture of supporting Cabinet decisions with little question. During the decade, therefore, the Right got stronger and more market-oriented as the Cabinet moved that way. A key ingredient in both these processes was the role of the leader of the New South Wales Right and treasurer, 1983-91, Paul Keating.e In this process they were supported by the Centre Left. This faction was formed by aggrieved Hayden supporters from chiefly Queensland, South Australia and Western Australia, who had opposed Hawke but could not ideologically accept the Left. In fact it soon became clear that the faction was ill named. In the federal Caucus they came to represent 'economic rationalism' to a degree greater than the Right. This was for two reasons. The leader of the group, Bill Hayden, had made his mark as Whitlam's last treasurer in 1975 who had finally put together a responsible budget strategy that was economically rational. From that perspective he had been instrumental in redrafting the economic platform in 1978-83. Although he became Foreign minister, his group was active in pursuit of responsible, market- and efficiency-oriented policies from the start of the government. Further, the faction lacked a trade union base of any consequence, and as a result could approach strategy issues intellectually and need not worry about offending sections of the work force. Centre Left ministers tended to be the most right-wing on economic policy, to approach issues rationally rather than politically, and to see themselves, as a result, as the quality faction. But during the decade as their illustrious founding members retired the faction declined, dissolving in Queensland, shrinking in Western Australia and surviving only in South Australia where a Centre Left State government of heroic incompetence was beaten by record proportions in 1993. The Centre Left disintegrated there shortly after in 1995. The Left maintained about a third of Caucus members during the years of Labor government and was centred in New South Wales and Victoria. In both States its power base was public sector unions and those in protected industries, coupled to sections of the intelligentsia. From the outset, the Left's orientation was regulatory and protectionist, and it saw itself as the guardian of Labor's traditional values. But it was not given economic portfolios, except later in government when Brian Howe, a Victorian moderate, joined the Expenditure Review Committee as Social Security minister. The result was that the Left could never get sufficient numbers to overturn Cabinet strategy of globalising the Australian economy. Indeed, not all its members wished to, and by 1990 the opportunity had beenfinallylost. The Left split over ministerial vacancies in 1990 and the leadership struggle in 1991, such that by 1993 it had accepted the logic of an open Australian economy and its consequences for policy. The

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domestication of the Left was completed in 1993 when its new faction members owed loyalty to Paul Keating, who had done so much to keep them in government. The last occasion on which the Left challenged policy direction was in fact at the 1986 National Labor Party Conference in Hobart. 7 A minor world economic downturn had depressed commodity prices and, therefore, the Australian dollar. Treasurer Keating sparked an intense political debate about an appropriate response by warning about Australia becoming a 'banana republic'. Cabinet proposed to cut public expenditure and borrowings to support the currency and reduce the external deficit. The Left took the issue to National Conference and called for an increase in spending to stimulate the economy and offset job losses. In a highly publicised and televised debate the Left lost the argument by hanging out old shibboleths and was then beaten on the numbers. Even then, however, most of its campaigners had been non-parliamentarians. From that time on it was rearguard actions only, over the Commonwealth Bank's partial privatisation, introduction of competition to the telecommunications industry, or the eviction of Iraqi forces from occupying oil fields in the Gulf War, as the Left accepted the logic of the market. In fact, in 1986 the Left was proposing a classic Keynesian-style countercyclical policy to deal with a structural problem. Australia required more productive capital and competitive enterprises, not an increase in aggregate demand. The world market had rendered national fiscal policies unable to operate in isolation. The test case of this had been the French socialist government in 1981, which had undertaken huge stimulation of domestic demand. The effect had been a surge in imports and a rise in national debt with only limited increases in industrial output and investment. 8 Keynesian policy prescriptions in fact presupposed a relatively enclosed national economy with a limited trade sector. By the 1980s no advanced industrial economy faced this situation, least of all Australia with its insulated productive base just being exposed to international competition. Domestic financial stimulation without increased productive capacity was a recipe for further increases in the external deficit, a greater plunge in the dollar's value and, eventually, a stronger contraction to rectify the crisis. The financial disasters which followed the efforts of State governments in Victoria and South Australia to stimulate economic activity by monetary profligacy did nothing to improve their cause. The Victorian government's financial mismanagement did much to discredit traditional Left strategy in this respect. The venture capital wing of the publicly owned State Bank of Victoria, Tricontinental, lost nearly $3 billion in bad loans, mostly to businesses with unsecured assets. During 1990 the Victorian government approached the federal government for a financial


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bail-out, in the form, it hoped, of the Commonwealth Bank buying the SBV. The Prime Minister and Keating agreed to this, and pushed the agreement through the factions, the Caucus and the Parliament. The offset was that the Commonwealth Bank should be part-privatised in order to raise the cash to effect the purchase. The Left, who had created the problem, then passed motions in Victoria and South Australia condemning the part-privatisation of a public bank. The South Australian government lost even more money through the State Bank of South Australia (SBSA) but was similarly unwilling to sell off the State Bank until offered financial inducements by Canberra in 1993. Both these financial disasters served to buttress the Right's financial strategies politically. The Non-Labor Left

The extra-parliamentary and communist Left collapsed during this period and effectively disbanded by 1990.9 There were two reasons for this. Political movements advocating Soviet-style states were by then irrelevant to the overwhelming majority of people in developed societies and would have been dead in Australia by the 1970s had not the Vietnam War intervened. A generation of then young idealists opposed that foolish war and gulped in some socialist thinking.10 And when the Soviet system began its collapse in the 1980s, support for socialism in Australia declined sharply. One may only speculate on the effect an alienated generation of young Australians had on the formulating of the nation's economy and institutions. Instead of contributing to the functioning and strengthening of the nation's economic structure, this cohort rejected its profit-making purpose. But the disbanding of the traditional Left parties did not mean that the social base of the Australian Left disappeared overnight. There remained a significant proportion of the Australian population who supported leftwing positions on particular issues, although they would not have voted for Left parties. During the 1980s other groups emerged to fill these electoral needs on the major issues of peace, the environment, and continued economic regulation. The American policy of confronting the Soviet empire led to widespread fears in the West about the possibility of nuclear war, sentiments fanned but not created by Moscow propaganda. As in Europe, many Australians responded to these fears in large demonstrations in the mid-1980s and by electing peace or disarmament candidates to the Senate. In the later parts of the decade the environment also blossomed as an issue and Green candidates also successfully sought election to the Senate. But in political terms the main beneficiary of these processes was the Australian Democrats. The Australian Democrats had been formed in 1977 when a Fraser

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government minister, Don Chipp, resigned from the Liberal Party in protest at what he viewed as Fraser's toadying to big business and excessive conservatism. Chipp tried to set up the Democrats as a Centre party, using the proportional representation system to have members elected to the Senate. He became a senator shordy thereafter. But as the Labor Party moved to the Right and into the Centre in the 1980s there was no room for the Democrats to survive there. They became a moderate leftwing party under Chipp's successor, Janine Haines. Their electoral strategy was to put together a coalition of small voting blocs on single issues to construct a half-Senate quota of about 15 per cent in each State. This involved preference exchanges with disarmament, environment, communist Left and Labor candidates. It also involved having a total platform of fiscal irresponsibility wherein tax reductions did not match expenditure increases. From this ensued the charge in the early 1990s that they were the 'fairies at the bottom of the garden'. In the late 1980s the Democrats became akin to the fourth faction of the ALP, providing it with numbers to negotiate a majority in the Senate and preferences to win seats in the House of Representatives. This was formally planned by Senator Richardson, Minister for the Environment in 1988-90 and right-wing factional organiser. In the boom years of the late 1980s the environment emerged as a major issue globally and in Australia, as Greens replaced disarmers on the Left. Richardson promoted their cause in government and provided valuable public funding for Green organisations to employ officers. The Democrats were courted by suitable policy initiatives and preference exchanges to their advantage in the Senate and Labor's in the House. Richardson also successfully promoted Green issues and ran campaigns on greenhouse and pollution consequences. By the 1990 election campaign both the Environment Minister and the Prime Minister were actually urging voters who were dissatisfied with Labor to vote Democrat or Green, in the hope that their preference votes would come back to the government. It is claimed that the 1990 election was narrowly won by Labor because of its Green second-preference strategy.11 It is difficult to prove this issue one way or the other. True, many Labor Representatives won their seats on Democrat or Green preferences which enabled the government to form a majority. But it is not clear they would have voted against Labor, if it were not itself urging them to vote Green anyway. Perhaps more important was that the government had deliberately chosen to take a weaker development position at a time when the country needed to pursue rapid and efficient economic growth and restructuring. It also encouraged some alarmist and irrational posturing on sea levels, Asian consumption rates and forest depletion effects as a strategy for garnering the benefits of the collapse of the organised Australian Left. In the pre-


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election competition for the endorsement of special-interest groups, and faced with the prospect of defeat, the short-term political agenda took precedence over the task of economic restructuring. Non-Labor Moves Right

Paradoxically, the non-Labor right-wing parties who had fought the Left for so long, and ultimately successfully, were in no position to take advantage of its demise; indeed they struggled to define their line. The colonial politicians who concluded the agreement to form Australia in 1901 had not been anti-statist and classic liberals like the American founding fathers. The state had always played a firm role in the economic development of Australia and the decade after federation further elevated its status: wage regulation, a national capital, a Commonwealth Bank and tariff protection came into existence. During the inter-war years these regulatory mechanisms were extended, particularly after the onset of the depression when a large number of work-creating schemes were launched with government support. The most successful and recent of the non-Labor parties has been the Liberal Party, which was formed in 1944 by (later Sir) Robert Menzies.12 He won the 1949 election by opposing communism and promising to abolish post-war rationing. He did both. But the regime installed by Menzies was not that of classic liberals. It continued barrier protection for Australian industry, and during this period both Victoria and South Australia saw rapid growth in secondary industry under avid pro-development Liberal governments. The Liberal Party was dominated during this period by its most successful division, the Victorian branch. Labor had not been very successful in Victoria in any case, then in 1955 it split and the remaining ALP was dominated by the Left. In this context the Liberal Party held office easily, getting the preference votes of workingclass DLP supporters. Since Victoria had long been a protectionist bastion it is hardly surprising that it took the federal party in that direction, under the Victorians Menzies and then Harold Holt and subsequendy John Gorton. This position was to be reaffirmed by the Victorian grazier Malcolm Fraser, when prime minister in 1975-83. During this heyday, the Liberal Party also extended the reaches of the welfare state. It greatly expanded the university system, took the Commonwealth government further into the funding of nursing homes for the aged, and it provided Commonwealth money for the private school system. In these and other respects the Menzies/Fraser Liberal Party was modern liberal. It accepted that classic liberal laissez-faire economic policies had produced hugely unequal societies in the United States and Europe, and that these were unacceptable to modern

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Australian voters. It was therefore committed to economic policy intervention and to government initiatives in social issues. Indeed, in Victoria the Liberal government used tariff protection and State government incentives to pursue a policy of industry decentralisation that left country towns dependent on one or two industries that would find the reduction of barrier protection hard to survive. In this regulatory mode the Liberal Party found common cause with its Coalition partner, the Country (National) Party. The Country Party was formed after the First World War to increase the bargaining power of rural residents against those of the city.13 To achieve this it tended to populist positions and state intervention with the intention of generating subsidies for distant, regional and country dwellers. It was always strongest in Queensland, the most decentralised of the States, but also numerically large in New South Wales and Victoria. During the 1930s the depression hit agriculture quite severely, and the Country Party successfully agitated for an expansion of marketing agencies and for government subsidies to assist rural producers, and for irrigation and dam projects to generate work. It was an alliance between wealthy conservatives and agrarian 'socialists'. As Menzies' Coalition partner after 1949, it held the important Trade portfolio most of the time and used this and the Agriculture ministry to promote rural subsidies in matters as diverse as uniform petrol pricing, charges for installing phone lines, and the promotion of transport infrastructure. Against the argument in Cabinet and the party room that this was pork-barrelling, the Country Party promoted or supported similar state intervention in other sectors and, as deputy prime minister, John McEwen gave this philosophy a free rein. After the Labor/DLP split in Queensland, the Country Party led the succeeding Coalition government from 1957 onwards, which gave it a direct voice in national politics and premiers' conferences. This was so assured by zonal and weighted voting patterns that in the 1980s the Country Party, now renamed the National Party, formed a government in its own right under Premier Joh Bjelke-Petersen. With less regard for propriety than elsewhere, this government promoted government subsidies for industry in Queensland in a way the subsequent Fitzgerald Commission on Corruption found exceeded probity by some margin; a number of former ministers were arrested, charged and gaoled. But until 1988 the Queensland Nationals were a powerful force, and under their rule Queensland experienced the most rapid growth of any State in the Commonwealth. This accelerated as the Australian economy was opened to the world market. Indeed, in some respects the capital investment made in the mining and tourism industries during that period, which formed the basis for Queensland's rapid development, may have been


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made possible by the undemocratic nature of the National Party regime, where less regard was paid to environmental, resident and Aboriginal claims on the development process than was increasingly to be the case elsewhere in Australia. It might even be concluded that Queensland's exceptional growth was made possible by the limitations on democracy in that State. The coalition of interventionist Liberals and regulatory Nationals was little changed by three years in Opposition to Whitiam. The Fraser period was one dominated by political conservatives. The two most powerful figures, Malcolm Fraser and Nationals leader Doug Anthony, were wealthy graziers. The first treasurer, Phillip Lynch, was from an employer and service organisation background and not an entrepreneur or strategic thinker. Among the likely heirs Andrew Peacock was from a Victorian manufacturing background in the Menzies mould. There was certainly agitation for deregulation, but it came mainly from the financial bureaucracy, the backbench and occasionally from commissioned inquiries. The only senior Liberal to seriously pursue deregulation was the later treasurer, John Howard, one of the very few influential Liberal economic ministers from New South Wales of this period. By the 1980s Sydney had clearly displaced Melbourne as the major money market and corporate capital of Australia. It had less protected industries - such as TCF, automobiles, shipbuilding - and a greater assessed world market potential for regional multinational corporate headquarters. It was astride the finance, communications and transport networks of the burgeoning Asia-Pacific region, and its culture was that of a major international city. It should perhaps not occasion great surprise that Sydney was to throw up the three major internationalising politicians of the last decade: John Howard, Paul Keating and John Hewson (Liberal leader 1990-94). What is more remarkable is the complete failure of the New South Wales Liberal Party to achieve national dominance during the same period. Indeed, this period corresponds with its almost total eclipse, culminating in its electoral rout in 1993, and then Hewson's replacement by Alexander Downer, a provincial nominee of the Melbourne Establishment.14 Sydney replaced Melbourne as the centre of national political power, but through the New South Wales Labor Right, not the Liberal Party. When the Coalition lost the election in 1983, Fraser immediately retired. Peacock beat Howard comfortably in the election to replace him, while Ian Sinclair, a New South Wales farmer, replaced Anthony as leader of the National Party. Peacock was a professional politician first and a representative of Victorian industry second. His chief complaint against the government's opening the financial system to international competition and lowering barrier protection was that it was not matched by a cor-

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responding deregulation of the labour market and reduction in business costs. If the Australian economy were to become a part of the world market then each of its sectors and institutions would need to operate as such. Regulated markets controlled by fiat presupposed a national economy protected from international price mechanisms. Indeed the process would need to extend much further than the market for labour, as became progressively clearer as the decade wore on. But the 1984 election was not fought on that issue because Peacock used his political experience and personal charm to good effect, to criticise other government policies. Election Battlefields

By December 1984 Hawke was merely a popular leader and not the messiah of 1983, despite the economic recovery and considerable job creation. He was personally distressed over family matters and had given the public plenty of time to see his weakness during a seven-week campaign. Peacock dug in and fought a classic conservative's battle centred on means-testing public benefits, particularly the aged pension. Since he was not expected to win, his credibility was not seriously tested as he courted a protest vote. Labor won a narrow victory and it became clear that its big margin of 1983 was never to be repeated. If it were to retain government Labor had to look beyond its reform program, cohesive factional system and fading charismatic leader. Elections would henceforth be hard-fought affairs in which every seat and every issue would count. All politics in the end are local. Ironically this situation was assured by government legislation which, in the interests of assuring fair elections, imposed regular and independently conducted electoral redistributions. The effect was to progressively increase the number of marginal seats. Regular redistributions of electoral boundaries to ensure roughly equal-sized electorates drawn in such a way as to achieve fair party representation are of course essential to decent democratic government. Labor legislation put this in the hands of an independent electoral commissioner. It also insisted that political donations be declared and that candidates for office report on their campaign costs. It then provided public funds to political parties on a basis proportional to their vote at the last election. By 1990 the commission had acquired a new software computing package that enabled it to make redistributions very easily, and to assess their input on the two-party voting result. This did not change the commissioner's powers but did enable them to be exercised more easily and more purposefully. There also emerged during this decade a tendency for the number of swinging voters to increase, probably as a result of a reduction in the bluecollar work force and a rising level of education.15 During the 1950s and


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1960s it was believed that most voters were permanently committed to one party or the other. The importance of the DLP had been to permit working-class Labor voters, by going through the DLP preference system, to vote Liberal without being traitorous. During the 1980s, as both major parties became committed to opening Australia and economic rationalism, the ideological and to some extent the class basis for committed voters declined. Swings in seats and booths became larger and more frequent. As a result politicians had to use more effective means of campaigning on issues and personalities rather than traditional allegiances. Until 1993 Labor was always a step in front in this technical war and by that stage the Liberals reopened the ideological gulf at great cost to themselves (see below). Labor government policy on re-election strategy was to ensure fair election boundaries, provide public election funding for parties on the basis of votes won last time, and then to introduce advanced computer technology to give incumbency an advantage. The public funding would benefit the two major parties, while the allocated expenses in the form of an electorate allowance, office equipment and staff for incumbents would benefit the Government against the Opposition, whose unfunded candidates had to win seats. The technology deployed by incumbents was imported by ALP national secretary Bob McMullan from America, where election campaigning is taken from commodity marketing strategies. Marginal electorates were phone-polled to determine political issues and then direct-mailed to canvass votes. These techniques could not guarantee victories, but in a close contest they could produce an edge. In addition, other campaigning techniques were codified into manuals, and candidates were increasingly preselected by the power-brokers for their capacity to fit into and use these approaches. When other issues like State government financial mismanagement overrode technique, as in Queensland 1987, Victoria 1990 or South Australia 1993, Labor won or lost seats nonetheless. But in an increasingly non-ideological era technique became more important. In the 1993 election the Liberal Party caught up to the ALP in election technology. Although much of manufacturing industry turned away from the Liberals over their zero tariff proposal, enough mining, service, construction and brewing corporations contributed to keep the party's funds healthy.16 The Liberals then took two major decisions: they would seriously fight only those targeted seats they needed to win to form government; and they would use front-line technologies. They adopted similar technology to the Government and commissioned phone canvassing and group discussions to identify issues. They also then used electoral rolls to produce direct-mail letters the text of which was written by public relations experts in conjunction with the results of polling.

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In order to form government in 1993, the Opposition needed to win six seats net from Labor. Opinion polling suggested it was likely to win those six seats in Western Australia, where the discredited Labor government had just been ousted, in South Australia, where the incumbent Labor government had lost over $3 billion in the State Bank, and in northern Queensland, where the National Party vote was recovering from the corruption nadir of 1987. The Liberals determined to concentrate in these areas. They also agreed with a financially well-endowed backer, the Housing Industry Association, to mount a $2 million special campaign in a dozen seats on top of Liberal campaigning. They were later to claim effective results. However, their leadership had also reopened the ideological war, which had been closed since 1983, by lurching off to the extreme Right in their policy manifesto Fightback! The result was that while the Liberals won the six seats in the regions they had designated, they lost heavily elsewhere, including being routed in New South Wales. By depriving the Liberal Party of a coherent base, equivalent to Labor's New South Wales Right, this result ensured continuing divisions in the post-election period. In order to understand this Liberal Party behaviour, it is necessary to examine its policy history during the 1980s. In 1984 Andrew Peacock waged a classic non-ideological campaign against an incumbent government on the issues where it was unpopular. He was able to accept the opening of the Australian economy but criticise some of the consequences because he was in Opposition. In the main he represented modern liberalism accepting the need to gradually adapt to the impinging world market. He looked vaguely caring and compassionate. In 1985 when he was unable to secure a party vote of confidence he stepped down in favour ofJohn Howard. Howard constructed a different coalition of interests and images. Politically he was a conservative wedded to many of the values of 1950s Australia and propagated this with an election poster of a two-child nuclear family prospering behind an apparently 1950s picket fence. His perceived opposition to Asian immigration hardened this image, and turned much of the media and political elite against him. But economically he was a free-market radical, perhaps reflecting his New South Wales origin or his years as treasurer exposed to the same briefs Paul Keating was later to see. He fought the 1987 election on this combination of issues and lost narrowly, a result he attributed to the bizarre campaign of the ageing Queensland Premier to become prime minister. He believed he deserved a second try. But although he was the Liberal Party's best performer in Parliament throughout the period in Opposition, John Howard was never able to resolve the tension between his social values of conservatism and stability and his radical economic agenda designed to produce more rapid change. This unresolved contradiction remained a problem when he resumed Liberal leadership in 1995.


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The Liberal Party now had two failed leaders on its hands with little appreciable difference in their attitudes towards economic strategy but some considerable perceived differences in political philosophy. In 1989 as Howard's opinion poll rating reached new lows a party room coup reinstalled Peacock as leader. He faced an election against a government presiding over an economy booming so rapidly that it was steadily pushing up interest rates to slow it down. In late 1989 interest rates hit record high levels. At the same time the Victorian State Bank collapsed from over-extension and bad debts. Peacock girded up to assault the government for economic mismanagement. He once more put in a professional performance but had to live with a leadership credibility gap caused by previous defeat. Labor scraped home, losing nine seats in Victoria but winning sufficient elsewhere to compensate. In the race to the line Labor's direct-mailing campaign had concentrated on Peacock's personal leadership credibility. This, coupled with the Green preferences, seemed to get it home. In 1990 the Opposition faced an acute dilemma. The government had not been greatly popular since shortly after it was elected. Its restructuring policy was respected by the markets and political elite but not fully understood by the people at large, who resented many of its consequences in economic dislocation. The Liberal Party leadership accepted the need for this policy and so to a large degree could not fully take advantage of Labor's unpopularity by, say, opting for reregulation, tariffs, or an end to Asian migration. Indeed, even the National Party had been drawn into this vortex. Heavily influenced by the National Farmers Federation, whose chief, the rich South Australian grazier Ian McLachlan, had agreed with the government to the pursuit of free trade in 1985, the Nationals dropped their objective of a regulated agrarian sector. They even accepted Fightback! as the 1993 election manifesto despite its likely adverse effect on poorer rural residents in the form of a consumption tax. After the 1990 election defeat the Opposition was faced with two sorts of difficulties.17 On the one hand there were policy issues. A right-wing push had replaced Liberal moderates in preselection battles in Victoria and New South Wales, thereby evicting former Fraser minister and leading wet Ian Macphee and former environment spokesman Chris Puplick from Parliament to the benefit of David Kemp and Bronwyn Bishop. Moderates from the then weak South Australian branch led by former premier Steele Hall complained to no avail. The other difficulty involved the bitter personal antagonism between the two major party powerbrokers. Peacock accepted that he had had two chances and lost. Howard believed he also deserved a second try, which Peacock was determined to deny him. Exhausted, the party turned to a neophyte, John Hewson, a former professor of economics and recently Treasury spokesperson.

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Hewson proved to be the most market-oriented politician in the Parliament, but one without a political strategy. As Opposition leader he displayed a capacity for insulting those interest groups on which his political survival would depend at the forthcoming election: renters, single mothers, welfare agencies, Greens and ethnic communities, to name a few. But he survived this behaviour in part because of the government's unpopularity, beset by recession and leadership problems, and in part because his party room believed that they had just lost two elections because of leadership problems. John Hewson basked in successful opinion polls from almost the time of his election as Liberal leader until his election defeat in March 1993. For over two and a half years almost no poll had Labor in front, save during the Gulf War, yet it won the subsequent election. Two points should be made here. Public opinion polls play a huge role in Australian political life and are taken by three major organisations at regular intervals and others periodically. They deeply influence party policy formulation and were instrumental in the defeat of Peacock by Howard in 1985, Howard by Peacock in 1989, Hayden by Hawke in 1983 and Hawke by Keating in 1991. They drove the defeat of Hewson for Liberal leadership in 1994 and of Downer in 1995. In the past, Australian political parties were more ideological, and therefore more principled and sentimental. By the 1980s they were political machines seeking power, and if a leader seemed unable to deliver on that objective a new one would be found. With so many more marginal seat holders on the backbench vulnerable to modest swings in popularity, opinion polls were scrutinised even more carefully. The polls are also deceptive, which is not to say they are inaccurate. The major published polls usually correspond to private and more extensive polling conducted by the political parties, but they do tend to allocate voting preferences to electors who have not made up their minds or who have not thought about the matter at all, presumably in order to get an opinion poll that makes some sense for newspaper readers. As a result, for the 1987, 1990 and 1993 federal polls the public opinion polls have underestimated the number of 'undecideds' who have returned the government by deciding during the last week or so. Unlike the parties' polling they have also not seriously tried to identify what issues will influence these electors late in the campaign through direct mailing or other techniques. In other words, the published public opinion polls are not necessarily reliable indicators of popularity, as far as coming elections are concerned. They always overstated Hewson's potential standing with the public at an election. Both political parties were aware of this and did not believe that the 1993 election was a foregone conclusion. It was a different story in the economic sphere, where Hewson was


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master of his craft. After eighteen months' work in November 1991 he produced his election manifesto, Fightback! There is little evidence of any extensive consultation with his party room colleagues in the formulation of this policy. They accepted it when delivered in the name of party unity and election victory. It delivered defeat. Fightback!'was the political manifesto of the mining industry,18 written into 500 pages by the theoreticians at Access Economics and delivered to the Liberal Party by John Hewson. It would have imposed a heavy new $27 billion consumption tax on all Australian voters, relieved large companies of $9 billion of payroll tax, cut income tax on higher earners, reduced welfare programs and totally abolished all barrier protection. Alongside this the Industrial Relations spokesperson, John Howard, promised to effectively abolish award wage rates. In terms of Australia's aspiring globalised capitalist economy this was just what the business sector wanted and needed. In terms of the Australian population this was another more extreme dose of what Keating had been giving them for ten years. The more conservative Melbourne-based division of the Liberal Party was to use this point against Hewson to some effect after the election. The Press Gallery thought it was wonderful! Reporting on national politics in Australia is dominated by 'the Gallery'. An area of Parliament House is reserved for them and they work there together most days. They also attend daily Question Time in a designated gallery from which they derive their collective name. They tend to form a collective opinion by talking with one another and to politicians and their staff. Both sides operate under Press Gallery rules, which means that no one reveals their sources. One result is that the Gallery often has better information on the distribution of numbers in the party rooms than do the politicians or, during leadership contests, even the party leaders. In addition to reporting they also comment, usually in different stories but in fact in barely distinguishable ways. The Gallery is partly a collective observer, pardy a participant. Certainly media owners and editors can change the slant of stories, but generally the Gallery speaks with one voice. In 1991 it said Hewson had a winner on his hands and Hawke was finally finished. The Labor government had its own leadership problems. Keating had wanted Hawke's job since 1987 and believed he had rights to it in 1990 as a result of an agreement reached between them to that effect and concluded in 1988 at Kirribilli House. Hawke told him in 1990 that he wasn't going. Keating's supporters started to 'put the drip' on Hawke at lunch, at tea, at drinks, in committees, in Caucus and in the party at large. Keating made his intentions clear at various times, notably in a speech to the National Press Club in December 1990, then launched his campaign by leaking the Kirribilli agreement to the media in May 1991. Hawke submitted to a leadership ballot in June and won by 66 votes to 44. Hawke

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got the votes of the Left, the Victorian and Queensland Right and others. Keating got the New South Wales Right and most of the Centre Left, who hadn't liked Hawke since he beat Hayden. Such a split vote could not finally resolve the issue. Keating went to the backbench and Hawke re-jigged the government. It became clear fairly quickly that Hawke was unlikely to survive. He now had to face a confident Opposition way in front in the polls and a third of his own Caucus sniping at him and briefing the Gallery on every issue that arose. Keating took a sabbatical and made some judicious, strategic interventions on issues of substance: the arts, urban planning and State-federal relations. It was a period of intense strain as personal relationships within the Government were tested to the core. There were, however, no strategic policy questions of any substance. When Fightback! was released into the favourable climate created by the Press Gallery, Hawke's capacity to deal with it was carefully scrutinised. Some poor performances by himself and his newly appointed senior ministers including Deputy Prime Minister Brian Howe, and Treasurer John Kerin, ensured that a new leadership vote would be required. When it was taken on 19 December 1991, Hawke lost 51 to 56, with defectors moving from all factions. Hawke was the first Labor leader to be defeated in Caucus while prime minister. He was also the most successful Labor leader ever, with four election wins. He was not opposed for policy reasons, since his policies were little different from Keating's; while his popularity had slipped, Keating's was even lower. Hawke was opposed because the Labor Party had finally and fully abandoned sentimentality and ideology. He could not defeat Fightback! and a third of his own Caucus simultaneously. Keating might be able to defeat Fightback! Hawke retired from Parliament. In the subsequent by-election in his Victorian seat of Wills, with its concentration of TCF industry hurt by tariff reduction, the voters replaced him by a Victorian independent left-winger, Phil Cleary, who supported higher tariffs. When Cleary was removed from office in 1992 by the High Court on a technicality, the voters put him back in again at the 1993 election. Keating's narrow win took much of the public by surprise. He was never popular with the public and had lagged behind Hawke even in December 1991. His Caucus support derived from a different logic. The House of Representatives is often described as the clearing house of policy ideas, where policies are proposed, opposed, debated and rejected or adopted. Politicians commonly believe that these processes and their results take some time to impinge on the general public through the media and party memberships. This process has probably been accelerated recendy by the televising of Parliament and the television news


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coverage of the daily Question Time. This was a two-edged sword for Keating, who was the dominant parliamentary performer of his generation. On the one side, his probing tongue and forensic intellect had enabled him to win many policy debates and partly explains the ascendancy of the Treasury line after 1983. On the other, the more sensitive public often resented his tactics of theatrical abuse and scored him down in the ratings war. Keating had to win votes without being popular. He would be a policy prime minister. Because Fightback! took the Liberals even further to the Right, Keating was able to reopen an ideological front for the first time since 1983. Without significantly changing policy direction, Keating sought to portray himself as the leader of a traditional Labor government defending its heartland constituency against the threats posed by an ideologically driven and heartless right-wing Hewson. He drew up an alternative economic strategy and issued it in March 1992 as One Nation.1^ At first, and despite the success of the One Nation document, it seemed unlikely that his strategy would succeed. One Nation, by proposing $2 billion spending over perhaps two years to stimulate the economy as well as matching Fightbackl's income tax cuts, enabled the government to present itself as more Left or progressive than the Opposition. But by the end of 1992 the Liberal leadership was worried enough to seriously modify Fightback! by exempting some goods from the GST and proposing more public infrastructure spending in line with One Nation. One Nation was the first sign that Prime Minister Keating would not maintain the discipline of Treasurer Keating. In March 1993 the public was faced with a choice between an unpopular government and an unacceptable program. As in 1990, with two weeks to go a large percentage of the population had not decided their vote. During the last two weeks they split more than two to one for the government. The result was that it was returned with an increased majority in the Lower House but without control of the Senate. Once again regional voting patterns were diverse and many seats were left in the marginal category of less than 5 per cent. The Democrat and Green votes had been reduced, though they continued to hold the balance of power in the Senate. Both major parties had stood on platforms of continuing to integrate Australia into the world market, of making its economy more efficient and pursuing a policy of micro-economic reform, but Labor at the slower pace. In the event, in most of Australia, people viewed the Liberal platform as too extreme and stuck with the devil they knew - what they usually did, after all. In this case they did so purposefully as the government campaigned for votes not preferences. The Democrat vote slumped. In 1990 it had replaced the retired Janine Haines with Janet Powell and then Senator John Coulter, a dedicated environmentalist, and

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became more a Green than a Left party. In the recession election of 1993 the issues were taxes, award wages and jobs. The election had been held at that point in the business cycle trough when governments can expect to be evicted from office, as had Whitlam and Fraser during previous cycles. In fact Labor survived and each party reassessed its future. The Labor government had held to its commitment to open the economy and make it competitive in the face of deep temptation to back off its reform program. True, it had adopted an expanded program, centred on One Nation, of public expenditure on infrastructure during 1992 in an effort to stimulate economic activity. Most of these projects, however, were quite responsible additions to economic assets and indeed as a result had too long a lead time to lift the economy in time for the election. It had also held the line on its tariff reduction program and resisted the temptation to try buying a few South Australian seats by a tariff freeze. It assaulted the Liberals' award wages proposals without closing the door on more flexible wage-fixing procedures. It rallied its forces with some financially cheap offers for Aborigines, women, regional development and the arts. But it also blew out the projected budget deficit by some more expensive promises of income tax cuts and tax concessions for corporations. After the election Labor regrouped behind its micro-economic reform program and under more assertive leadership. It quickly offered a new, more flexible wage fixation and enterprise bargaining regime, an unpopular budget which expected to abolish the deficit by 1997, and a regional development strategy. The ministry was restructured by the Prime Minister personally, to introduce a new generation of reformminded, market-oriented right-wingers loyal to Keating and committed to his program. The ascendancy of the New South Wales Right was complete. Key numbers man Laurie Brereton and young leadership hopeful Michael Lee were promoted. The Queensland Right was penalised for backing Hawke to the end, and Keating supporter Michael Lavarch was made attorney-general. For the Opposition life got tougher. Hewson was talked into not retiring by Peacock, who would do almost anything to block Howard. Hewson defeated Howard in the leadership contest by leading a coalition of Peacock supporters, the moderates or wets from recently strengthened Victoria and South Australia, and the Western Australian members. Without a power base in New South Wales, where Liberals returned only eight from fifty federal politicians, Hewson had become the moderate candidate and set about remaking his political position. Victorian wet Michael Wooldridge became his deputy. The Fightback! package was progressively abandoned as what the new Treasury spokesman, factionally non-aligned but right-wing South Australian Alexander Downer,


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described as 'the longest suicide note in history'. But modern Liberals do not easily forgive defeat, particularly in an election they thought was won. During the ensuing year Hewson faced a number of potential challenges. The conservative senator from New South Wales, Bronwyn Bishop, secured a safe House seat in Sydney's North Shore and used a public relations firm to pursue a high-profile populist public image. John Howard continued to display his leadership qualities to his best ability. Younger men like Downer and Victorian right-winger Peter Costello pressed their cases but with some apparent reserve. All these options were clearly to the right of Hewson in 1994, who was the strong favourite of the moderates who made up perhaps 20 per cent of the parliamentary Liberal Party. None of them seriously challenged the government's economic program. All felt that at the next election their best strategy was to avoid a detailed policy plan of the Fightback! variety and stick to criticising the government. In May 1994 this came to a head when a series of opinion polls suggested that not only was Hewson falling behind Keating, but he could not win a future election against an improving economy. This situation became critical when internal Liberal Party polling was leaked which also concluded that Hewson was not acceptable to the Australian electorate one Friday in May 1994. Hewson unwisely decided to initiate a party room ballot when a number of Melbourne Establishment Liberals withdrew their support for him, including Victorian Premier Jeff Kennett, Malcolm Fraser, and national president Tony Staley. Andrew Peacock moved behind them. An alternative team of Alexander Downer and Peter Costello was put together in Melbourne within three hours and duly beat Hewson in the party room the following Monday by 45 to 37. There were no significant policy issues involved, although since the wets had mostly supported Hewson it may reasonably be supposed that the new team was more right-wing than Hewson of mid-1994. But since both Downer and Costello had also been softening their images since the 1993 defeat, they represented a more bipartisan position on economic policy than hitherto. The Coalition would very likely try to fight the next election on other issues, and Downer quickly ran up the flag and the Constitution as major areas of dispute. Alexander Downer did not last long. By Christmas 1994 it was clear that his manner and inexperience made him unacceptable to the Australian electorate. Peter Costello was probably waiting for a later start and allowed John Howard to be recycled in March 1995 and become the sixth new Liberal leader since the 1983 defeat. Howard remained the best parliamentary Liberal performer of his generation; he had acquired more skills since 1989 and had a more populist image. The new support of Consolidated Press, the large Sydney-based, Packer-owned media

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corporation, would also help his cause. His was the most serious threat to Labor for fourteen years, but one that nonetheless posed no challenge to globalisation.20 The Democrats moved closer to the political centre. After their relative failure in 1993 they elected a new leader, Cheryl Kernot from Queensland. She moved away from the Green-oriented policies of John Coulter and deliberately pursued a 'commonsense' responsible approach. During the 1993 budget negotiations she was influential in having proposed taxes watered down and in 1994 deliberated closely with government on appropriate budget policy. In February 1994 the Democrats presented a budget strategy to government involving some tax increases to fund spending on a job creation program. Notwithstanding occasional references to the need to freeze tariffs and introduce a jobs levy on the better paid, the Democrats had come to accept the dictates of government strategy. They had become economic rationalists.21 This decade then had witnessed a substantial shift in the character of political debate in Australia. Following the 1983 election the Labor, Liberal and National Party leaderships accepted the need for an international free-trade regime and the requirement that the Australian economy be reformed in order to benefit from it. Traditional opponents of this position were defeated in the political marketplace. Within the governing party the Right defeated these opponents and by 1993 had asserted its own hegemony, led by Keating. Among the Liberals, and despite their five election maulings, there was little support for a return to Fraser-style regulation. The National Party accepted the dismantling of the rural subsidy system partly because this became worldwide practice and partly because of the promise held by international free trade. The political Left collapsed for other reasons and the industrial Left was stranded. By 1993 the Democrats saw the advantage of being a major and responsible participant in strategic negotiations. By this process Australia had modernised its political system to one that could deal with the most important issue facing the country: how to survive and prosper in a highly competitive international market. It was not government that could ensure that outcome but the economic system. Under the new regime it was essential that Australia's economy restructure in such a way that it was able to take advantage of the opportunities offered by globalisation.

CHAPTER 5

Government and Business in Australia

As a result of its decision to open its economy to the world market, Australia entered a new era as far as public policy towards private companies and business in general was concerned. In the past, private companies often looked to government to provide concrete support for profitable enterprise. This evolved into a complex but widespread system of interface between government and business, involving taxpayer subsidies by discounted inputs of land or energy, tariff protection from import competition, price support schemes, licensing arrangements, a heavily subsidised transport system, and wage regulation, to mention just a few mechanisms for intervention. As of 1983, it would have been difficult to assess the real level of efficiency of any particular sector or enterprise because the extent of cross-subsidisation was so extensive. It could only be posited, with some certainty, that domestic industry as a whole was not internationally competitive. In order to make it so it was necessary to disentangle the cross-subsidy system by a public policy agenda of dismantling it and simultaneously reporting on those sectors where subsidies were transparent enough to analyse. What was the cost of tariff protection of TCF to the consumer and hence to the economy as a whole? Did overstaffing at Telecom affect business communication costs? What was the real cost of road as against rail transportation of goods and how could both be improved? These issues touched at the heart of the relationship between government and business in Australia. This relationship has attracted considerable attention in Australia during the period of deregulation,1 an interest deriving from a number of sources. On the one hand, there have been a number of often spectacular revelations concerning unusual and sometimes illegal relations between individual politicians and particular businesses that have produced large bodies of media information which have served to fuel 87

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public and academic interest in the area. During what is now euphemistically called the 'excesses of the eighties', relations were built between public and private sector managers that did not withstand tests of probity during the recession of the early 1990s, leaving reputations sullied and sometimes people gaoled. In the most spectacular of these revelations, in Queensland in the 1980s and Western Australia in the 1990s, close associations between governing political parties and leading corporate financiers led to prosecutions and gaolings for corruption. But while these relations were important, they are not typical of the daily interface between public and private sector economic institutions in Australia which make the national economy work. At an academic level, two other processes have been under way to stimulate interest in this area. In the economists' profession there has been a stronger and more determined pursuit of market solutions to not only economic but also apparently political and welfare policy options. Economists have been more strident in their advocacy of economic rationalism. This has left litde room for the quietly done and widely accepted ad /we government subvention of business interests so characteristic of past Australian practice. As the star of the economists has waxed in national policy-making, they have been able to criticise subsidies or any other cosy relationship established between the public and private sectors, notably where it may be demonstrated to contravene their efficiency criteria. Most visible here has been the use by government of the Industry Commission2 to report on these practices in different sectors. In a sense this revival of Adam Smith and his invisible hand has been a reassertion of the old debate among political liberals and their theorists about the appropriate role of the state in a market economy. Classic liberals of the nineteenth-century British variety, like John Stuart Mill, saw a very limited role for the state and broadly accepted a laissez-faire approach to economic policy-making. During the twentieth century most liberals, and most Liberals in Australia, accepted the argument that the market, left to itself, will produce a very unequal society and not necessarily achieve non-economic, nation-building objectives concerning, for example, the appropriate geographic distribution of national population. The public provision of many welfare services was also accepted as necessary. As a result, during the heyday of state interventionism in the Western world, which broadly coincided with Menzies' long period as prime minister, the Australian Liberal Party became a hybrid liberalsocial democratic party. It increasingly accepted the need for an 'initiatory state' to pursue social objectives in areas as diverse as finance regulation, tertiary education, consumer rights and public health. During the Fraser government, which was dominated by conservatives

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rather than liberals, this came under increasing scrutiny, particularly from within the state intelligentsia centred in Canberra. The most persuasive of these technocrats were the economists. Ultimately their force derived from the expansion of the world market, a process made irresistible by technological change and capital accumulation, but in the short term their strength lay in their coherent and shared intellectual methodology and world view. Their impact was much greater on the professional politicians and other opinion leaders than on the public as a whole, who treated economic rationalism with great disdain. It was its application to public policy that made it a problem, requiring as it did a combination of determined and skilful politicians and a keen appreciation of the need to dismande the state subsidy system. With the continuing and further democratisation of the Australian political process, these skills became decisive. Against this rising ascendancy of the market-oriented, rational economists the academic Left (and some of the Old Right) has spent the last two decades resisting the onset of market solutions.3 Since to some degree the ideas of politicians are generated, as Keynes would have it, by uncredited and half-forgotten scribblers, some reference to these ideas should be made. The Marxist Left was stimulated by the opposition to the Vietnam War but diverted much of its energies to developing a theory of the capitalist state,4 concluding that the central purpose of the latter was to preserve the privilege and wealth of those who own and manage private business enterprises. Within that context there emerged a heated and complex debate on how that was achieved. The corollary of the Left's position was that the state was not benign in capital-labour relations even when a labour party was in office. Nonetheless Marxists were also influenced by concepts of the position of a state within the international system and the need for it to assist economic development. Though the collapse of the Soviet empire led few of them to advocate the pursuit of a stateowned command economy in Australia, they were nonetheless drawn to the advocacy of active state intervention in economic affairs through industry policy and through theories of strategic trade and new growth.5 The moderate Left was influenced by those ideas, and throughout the Labor government argued for interventionist policies. They derived support for this position from two sources. On the one hand, they argued that the successful states of East Asia were highly interventionist, a leading factor in explaining the region's successful growth record. This was only partly true and ignored the more deregulatory positions taken by the governments of Japan and elsewhere when a significant level of development had been achieved; it also ignored the impediments to growth which had been constructed by state intervention in Australia. On the other hand, they took the view that state agencies could produce better

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economic outcomes than private sector managers in Australia. This had been an influential position for two centuries of national development, but one more difficult to sustain into the 1990s. While it is not in dispute that the state does assist the economic development process dominated by private capital, there is considerable and reasonable controversy over how this is to be achieved.6 Before seeking to resolve this issue, some simple points need to be made about the role of government in the provision of services. Notwithstanding the theories of market-driven economics, in a liberaldemocratic state like Australia government will probably always be held responsible for ensuring the provision of some essential services. These presently include defence of the realm, protection of life and property, the rule of law, stability of currency, and a minimum provision of health, education and transport infrastructure. There are also some related services, which may vary from time to time, that government is expected to regulate to some degree to ensure their satisfactory provision by other agencies: a safe environment, housing, gender equity, essential commodities like water and sanitation and even, to some degree, jobs. The extent to which government should be responsible for the provision of these is the proper subject of debate on public policy. Short of the creation of a Soviet-style society or a devolution to market-driven near anarchy - both positions have advocates in the academy - it may be assumed that such debates within those parameters will continue. Their resolution will be determined by political conflict. The central question then is not whether but how government does and should relate to business. Local State Apparatuses In Australia there are three levels of government: local, State and Commonwealth. Local government authorities (LGAs) vary as a result of the process of setdement and differ hugely in size, function and composition.7 In the major cities lord mayors preside over quite wealthy and powerful local authorities whose decisions can be important for business development, since they can change zoning and development regulations in central business districts. CBDs are of course the brain centres of regional and national economies and require careful cultivation. Such authorities have at different times been corrupted by very close relations with business and made ineffectual by hostility to business aspirations. Their heads have been driven from office by both these excesses, usually by the electors for the former and often by development-oriented State governments for the latter. Such local governments in the longer term


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have a functional relationship with property developers but must keep the aspirations of smaller trade associations in mind. In general it is probably wise to dissociate the governance of a CBD from the surrounding inner suburban residents and their social and environmental concerns. This can be done by either direct State government rule of the CBD or by drawing its boundaries carefully. State governments are more likely than a business-dominated LGA to give consideration to the built environment. Other metropolitan local authorities tend to be consumed with the day-to-day struggle to maintain services of a local kind: parks and other recreational facilities, local roads, garbage collection and, increasingly, welfare services like child care, community centres and some arts. They must also deal with local traders' associations and, in some regions, offer support for industry. It is at this level that political struggles erupt over business development in the form of zoning regulations, building requirements, environmental controls or even business, as opposed to private rates. In general, wealthy authorities tend to be residentialoriented, with their ratepayers politically active and tending to prefer to drive to pro-development areas for work. In those areas development restrictions are less as the authorities themselves seek a larger budget revenue base to generate growth and gain general support from their ratepayers anxious to generate work. It has usually been the case that country authorities have been pro-business and pro-development, an understandable legacy of their pioneering past. This has been tempered of late in some regions by general environmental concerns and in some times by an influx of retirees who have reinforced that tendency. Most local authorities have optional voting patterns which produce low voter turnouts, typically about 10 per cent of the roll even when a position is contested. The Council positions are then usually unpaid or gain an honorarium which ensures a part-time elected authority. This often produces a friendly disposition towards business development by the appointed officials, some of the more serious of whom will have a remuneration related to the rateable base. This is not to say that periodic political struggles will not break out against business, particularly when the issues concern the environment or property values, but acquiescence is the norm. In some of the larger and wealthier inner-city local authorities, particularly in Melbourne, Sydney and Brisbane, voting is often compulsory and politics takes on a definite party-political and partisan edge. In such instances LGA positions may be stepping stones for political careers, and track records on business developments, service provision and environmental protection may be more carefully weighed. The Lord Mayor of Brisbane commands a budget of sufficient size to ensure

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national prominence to the incumbent, who will often seek higher political office. Indeed, State and national parliaments are full of exmayors of all political persuasions. For small businesses, local authority activities can be of vital significance, and their money, networks and influence can be important in determining the result of a local election. Shopkeepers, real estate agents, builders and small factory managers are well represented on such councils, which are in general well disposed to business development and the additional revenue it creates for that authority. Local government authorities provide many of the amenities that go to make a city's character. With the exception of the CBDs, which require specialised treatment, urban LGAs have done a good job in Australia. The test of this is that in every survey on the subject during the last two decades of international comparisons of the liveability of different cities, Australian cities rank highly. They combine public transport and amenities with private space in a way that is almost unique. But their record on business development is less impressive. There is huge diversity across LGAs in the costs of business start-up and licensing. There is also considerable variation in the planning process to which business is subjected. And, in a related area, LGA attitudes towards urban consolidation or permitting an increase in the density of settlement vary enormously. In many wealthier and established inner-city areas, patterns of density established a hundred years ago, when Australia's population was a quarter of today's, are allowed to set the norm. This contributes to the tendency for cities to sprawl by precluding medium-density residential options for new or lower-income families. Three general tendencies may offset these difficulties: amalgamation, compulsory voting and best-practice standards. The size of LGAs varies between the bulk of the City of Brisbane to the town of Walkerville, Adelaide. In the smallest it is hard to create a revenue base sufficient to develop an adequate library or child-care centre or similar amenity; the largest undertake functions more properly dealt with by State governments. Whitlam planned to reorganise LGAs into regional authorities of about 100000 persons, depending on the geography involved, which would give about 200 for the whole of Australia.8 This would provide a sound revenue base for provision of social amenities while enabling a specialised qualified staff for regional business development. Since the budgets handled by authorities of this kind would be substantial, voting for the senior councillors should be compulsory. The objection to this was that it would probably introduce party politics into LGA elections - a likely result since party politics has usually come in where voting has been made compulsory. At present, the quality, interest and dedication of local officials is very haphazard, with an


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overepresentation of people with time available, or those in professions thought likely to benefit directly from LGA policies - real estate agents, architects, local traders. It would be better to provide the disciplined debate with open declaration of interest which a party-influenced system would provide. In any case party dominance of many LGAs is an existing fact of life without its benefits. Larger, more disciplined LGAs enable the pursuit of best-practice standards in administrative procedures, particularly where they involve business development. The micro-economic reform program being pursued by the Commonwealth government and its instrumentalities has not touched much of the local government sector with a rationalisation of its service provision and the costs to business. This is probably of greatest importance in non-metropolitan regional Australia where larger, better funded authorities can provide the basis for regional development strategies professionally formulated along business plan lines and energetically pursued. They could also be service providers for the range of commercial information which a one-stop or first-stop shop network could offer established or start-up business. Such a network would serve in part to compensate for the disadvantages which distance and geography have long held for the Australian market. Presently these may be provided by Commonwealth outlets, but LGA providers would be preferable by offering local knowledge and a competitive relationship. In their present configuration, however, LGAs are too easy a target for highly localised and special-interest groups. At a time of rapid economic change, during which environmental problems have been raised to considerable importance, in some measure by the federal Labor government, many development proposals will be resisted by the more conservative elements of a local community. These may amount to little more than 'Not In My Backyard' (NIMBY) organisations. During the last decade such political struggles have been waged across the country and over different issues. In South Australia in the 1980s it proved difficult to construct any infrastructure for the tourism industry because of the combined resistance of local groups and an entrenched anti-development ethos encouraged by a paralysed State Labor government. Victoria faced local community opposition to hosting the international motor-racing Grand Prix: the extension of Sydney's airport was held up for years by local hostility. LGA representatives elected by a poor turnout of a small electorate are extremely vulnerable to such pressures. They should be enlarged to defend themselves against this process and ensure that economic development gets the airing in public debate that it deserves, although even then the anti-development attitudes may be so widespread in some parts of Australia as to make even this unlikely, short of a cataclysm such as South Australia experienced in the early 1990s.

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GLOBALISING AUSTRALIAN CAPITALISM State Government Apparatuses

State governments are a more complex matter, particularly when judged by their short-term performance. In the long term, however, the six State governments may best be viewed as elected regional development authorities. This is also true of the Northern Territory government, which is heavily subsidised by the Commonwealth. The ACT government does not have to fulfil that role while the Commonwealth government annually augments the size of Canberra with its own budget; as a result it can afford the luxury of continuing development accompanied by antic politics. State governments are usually pro-development and favour economic growth for the reasons they give when advocating it: the prosperity of each State is measured by its growth in population and output. State governments are there to ensure this process and have done so historically by providing an adequately developed infrastructure for a pioneering community to settle and develop the 'wilderness'. When the convict settlements got around to thinking about it, that is what they did. The free settlement in South Australia was set up explicitly for that purpose. As a result it has always been common for State governments to plan closely with local business interests to encourage a decent investment regime in particular. In communities of only up to 5 million - that is, New South Wales today - it is not surprising that leading politicians should know the major private investment managers personally, and often privately as well. There are after all a limited number of social outlets for the powerful and high-incomed in such moderate-sized communities. And where the owners of such businesses are overseas investors it is common for premiers or economic ministers to travel to them to ensure investment opportunities are maximised where possible. It should therefore occasion little surprise when particular powerful State politicians are linked to particular businesses, or sectors of business, at particular times when they seek to offer the best development opportunities.9 Sir Thomas Playford of South Australia and Sir Henry Bolte of Victoria are identified as successful premiers who were anxious to cultivate industrial investors during the post-war period of protected industrialisation. Sir Charles Court and his son, Richard Court, both Western Australian premiers, are viewed as proponents of the Western Australian mining industry at a time when it provided the backbone of the State's development. The Queensland government of Sir Joh Bjelke-Petersen was close to the mining and later the tourism industry, in a way that overrode planning procedures that would have been obstacles in other States. But this is really the tip of the iceberg. Business of any sort with capital to invest can find ready access to the economic ministers of State governments whose revenue base is small, administrative procedures often


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rubbery and appetite for jobs voracious. Potential investors generally get a 'walk-up' and 'fast track' start by calling on an MP or economic ministry. Yet the story does not end there. Being essentially regional development authorities, the States were often quick to develop administrative devices to protect and augment their industry partners, whether it was primary industry via marketing boards, secondary industry through tariffs, or taxis, fishing and the like through purchased licences. They also got into the business of providing cheap inputs to business subsidised by the private consumer, like land, power and labour. The State governments were not, however, only regional development authorities. Unlike the LGAs and their councils, State cabinets allocated portfolios by function in recognition of the multifaceted nature of their political authority. In State governments, other sectors of society compete with business for resource allocation and political power. In general, there is much truth to the view that ministers become the agents of their portfolio constituency. The Education minister patrolling the education industry on a day-to-day basis becomes the conduit to Cabinet decision-making and resource allocation for that industry's desires. The minister for Health will usually seek more resources for hospitals, the Environment minister will seek endorsement of Green positions, and the minister for Ethnic Affairs will very likely be a champion for multiculturalism and what expenditure goes with it. This association of portfolio with political position occurs for a number of reasons. Problems in the sector are often more easily resolved with more than with less resources; ministers are judged partly on their capacity to win resource allocation batdes; and a politician's record in a particular ministry will be determined by his or her ability to deliver on policy development. In the short term this produces sharp conflicts over resource allocation between consumption and economic investment, or between public welfare and business ministers. In the long run, however, it is the common culture of politicians that growth eases such conflicts by providing more resources to fight over and divide, and that business investment now produces growth later. As a result there will usually be a majority in State Cabinet for the growth and development option. Indeed, the Industry minister, or premier, who is normally also treasurer, is expected to provide one. State governments generally rise and fall on their economic growth record. To some degree this is a legacy of settlement culture when State progress was measured by the size of population and extent of conquest, but it is also a realistic appraisal of the continuing economic competition faced by State authorities even at a sub-sovereign level. One partial exception to this rule is the State of Tasmania.10 In the

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early 1970s, as a result of British entry into the European Community, the market for the island State's staple commodity export, temperate fruit, almost disappeared overnight. Since then job growth, population growth and economic activity in Tasmania have been the lowest in the Commonwealth. Young people have left in numbers and the population has aged, a process common to regions in economic decline. Interestingly, in Tasmania it has produced a change in political culture whereby the Greens are stronger than elsewhere in the country and an anti-development movement is vocal and strongly politically represented. No doubt the large Commonwealth annual subsidy assists this. Nonetheless it raises the possibility that after a particular point in economic decline is reached, the character of the population's ethos becomes such that a reversal of fortunes is rendered problematic. Tasmania has not only the slowest development and growth record, but its electorate's voting behaviour has been among the least sympathetic to growth. The other slow-growth States of Victoria and South Australia are apparently not yet ready to embrace stagnation. Indeed, in some measure their recent record as low-growth mainland States stems precisely from earlier pursuit of rapid growth by problematic methods. This occurred in two phases. As previously mentioned, the Playford and Bolte regimes pursued industrial development behind tariff walls with considerable success.11 When these walls were dismantled by a later generation of Commonwealth politicians these States were particularly exposed. In an attempt to arrest the corresponding decline in their industrial base, both the Cain and Bannon Labor governments later used their public finance sectors to pump liquidity into their respective economies. The decline in asset values accompanying the recession of the early 1990s produced the spectacular collapse of two State banks, over-exposed in an overheated property market and business environment. Each resulted in taxpayer bail-outs which intensified the low-growth problem. Restoring economic growth then became high priority for the succeeding Kennett and Brown Liberal governments - and the cultivation of business confidence integral to its achievement. At election time business becomes vitally important to political parties seeking to control State governments. Elections are very expensive for political parties in an era when information distribution is dominated by broadband electronic media. Historically most State Labor parties have had the bulk of their election campaign costs met by membership and affiliate and union dues, levies on politicians' salaries and a small proportion from business. This has tended to push their platforms to the Left, or at least towards the aspirations of affiliated unions in part exchange for financial support. But individual businesses or peak bodies would often augment this revenue, perhaps in exchange for policy


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direction. The non-Labor parties were even more heavily dependent on business support for their central campaign funds. In both instances, of course, local candidates would contribute their own money. The media industry becomes a particularly important business sector during election periods.12 Dependent on advertising for revenue, media businesses generally favour non-Labor parties as more likely to promote business growth as a support for growth in media revenue. In any case, as big business in their own right, the four or five big media companies which dominate the sector in Australia have tended to support the probusiness party. With the concentration of media ownership and control particularly strong at a State level, the dominant media groups, and particularly the capital city morning daily newspapers, assume critical importance. During the last decade or so it became less certain that such media groups would oppose State Labor. Certainly, virulently anti-Labor campaigns were run in South Australia in 1979 and 1993 and in Victoria and Western Australia in 1992, but, conversely, the press was kind to the Wran Labor government in New South Wales through much of its decade-long tenure from 1976. In Queensland the media did much to bring down the Bjelke-Petersen National government in the late 1980s. Broadly, the anti-Labor bias of the private media has been moderated during the last twenty years. The most likely cause of this is the mellowing of ALP ideology and the creation of the 'modern' Labor Party. The origin of the modern Labor Party is in some dispute. The New South Wales ALP maintains that Neville Wran's right-wing State Labor government of 1976-88 was the first model.13 South Australians say the moderate Don Dunstan State government of 1970-79 preceded Wran's and set the tone for nearly twenty-five years of briefly interrupted Labor government in that State.14 The strategy of modern Labor, however, is clear: develop a popular, skilful team around a strong, charismatic leader; pursue growth-oriented policies which strengthen business development; and use best-practice modern promotional techniques to win elections. This strategy involved abandoning what was left of the socialist objective, readmitting those right-wing unions which had left or been expelled from the ALP during the 1950s Split, and recruiting skilled policy and media technocrats to powerful and prominent positions. This process fundamentally changed Labor's historically antagonistic relationship with the business community. The same pattern and strategy was to apply to national Labor government after the Bob Hawke-New South Wales Right alliance took over the national ALP in 1983. For State political parties business must be courted for its investment programs, financial assistance for party functioning and election campaigning, and for assistance in developing a favourable media coverage. The same was also to apply at a national level after 1983.

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GLOBALISING AUSTRALIAN CAPITALISM The National Government Apparatus

Relations between business and the Australian national government are a little more complex and require an appreciation of strategic policy to define. The Commonwealth government is in daily and constant contact with business, since it is held responsible by the electorate for the sound management of the economy. The Hawke government was particularly conscious of the failure of the Whitlam government in this respect. Each minister receives almost daily representations from business: from individual businesses, from peak business organisations, most of whom now have a professional office in Canberra, and from political lobbyists working on behalf of business. This process is particularly intense for economic ministers. There is much truth in the claim that departments become captives of their own portfolio constituencies and that ministers become captives of their own departments. As a result, on particular issues some ministers may not favour pro-business options in favour of, for example, environment protection, gender equality promotion or Aboriginal land rights. In other cases business interests may be divided, as were domestic producers against importers on the delivery of secondhand foreign-made cars onto the Australian market. The interests of business remain second only in the mind of government to maintaining the support of a majority voting coalition. In the long term popular support can only be maintained by ensuring the continuation of business investment, growth in output, and employment opportunities - not necessarily the same thing as pandering to the latest demands of the business community. Indeed, an examination of the major macro-economic decisions of the Labor government over the last decade makes this clear, as can be seen by reference to financial deregulation, tariff reductions, national savings and taxation reform. 15 Each was opposed at the time by business representatives, although it might be reasonably argued that each represented the interests of private capital as a whole. The decision to deregulate the financial system, float the dollar and abolish exchange controls reduced the government's levers of control in monetary policy to changes in aggregate interest rates. This meant that when the economy was moving too slowly or too quickly it only had a very blunt instrument at its disposal, and one that had a time lag of up to eighteen months before it had appreciable effect. In 1988 the national economy was growing at a rate of over 4 per cent and sucking in imports at a rate of 8 per cent annually. The Treasurer had lost direct controls on finance and was committed to reducing barrier protection rates at an announced pace. Interest rates were progressively increased until business was paying over 20 per cent for its money. This regime was held for


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over a year until it started to bite in early 1990. The effect was a sharp reduction in economic activity (after the March federal election) compounded by a downturn in the international economy and a fall in commodity prices. After this election business faced the worst recession in sixty years, partly induced by the blunt instrument of government interest rate policy. The complaints and bankruptcies were to reverberate throughout Australia for two years. Yet the fact was that if the Australian economy was to be effectively internationalised such a painful transition was probably unavoidable, as peak business organisations recognised. Similarly, the decision to phase down the level of tariffs, to abolish quotas in 1988, and then to accelerate the rate of tariff reduction in March 1991 was a very challenging process for Australian industry. During the 1970s both unions and employer organisations had reacted to the challenge posed by imported products by campaigning for greater protection for their sectors. In the lead here had been the Left-led (at one stage communist) Amalgamated Metal Workers Union, whose research department propagated this view throughout the labour movement in a series of influential publications.16 The near equivalent employers' organisation, the Metal Trades Industry Association, adopted a similar and influential position within the employers' movement.17 The federal government nonetheless determined that the appropriate response to Australia's economic problems was globalisation. This clearly threatened the existing jobs and enterprises of many members of the AMWU and MTIA, yet by the late 1980s both these bodies had accepted this strategy and were campaigning for appropriate supporting policies. The AMWU was a leading proponent of, first, the ACTU strategic plan published in Australia Reconstructed (1987) and, second, the Australian Manufacturing Council document The Global Challenge (1990).18 The MTIA became a vocal advocate of the need for appropriate microeconomic reform to ensure that enough Australian manufacturers could meet the challenge of becoming internationally competitive.19 In any case, in this instance it was the government that was leading and directing strategy for business. The issue of national savings rates was acutely important by the 1980s. One characteristic shared by Asian high-growth economies was a high savings ratio, often achieved by direct government intervention, as in Singapore. In other high-growth developed economies, like Germany, a high savings ratio was also evident. Indeed it is sometimes suggested that there is a correlation between high national savings ratios and rapid economic growth. The slow-growth economies of the post-war period - the United Kingdom, United States, and Australia - did have lower savings ratios, but they also had other characteristics which might just as well have explained the phenomenon. Indeed, the Soviet Union saved itself into

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stagnation by using its savings inappropriately for imperial overextension. But the further decline in Australia's household savings during the 1970s, and the two-decade-long series of Commonwealth budget deficits - a form of dissaving - gave cause for concern. The reasons for the decline in personal savings have attracted considerable but inconclusive analyses. Economic factors of declining real disposable incomes have been listed alongside cosier access to consumer credit as determining factors. For government, however, the problem was how to remedy it. The policy adopted in 1988 was to get employers to contribute a rising percentage of their workers' pay, as a compulsory superannuation levy, into a private pension fund managed usually by the sector's union and employer bodies. Businesses generally opposed this further expenditure on wages, though it had benefits for them. In a trade-off, and as a further part of the social compact entered into in 1983 and renegotiated periodically into different 'Marks' of the Accord, the ACTU moderated its national wage rise campaigns. But the effect was to levy employers in an administrative fashion to lift the national savings rate. It was hugely successful in creating a pool of savings funds for investment in Australian or other industry, that would reach perhaps $600 billion by 2000. Yet this resolution of the national savings problem had been achieved despite the wishes of business. Interestingly, peak industry bodies came later to the view that the policy was a sound idea, although they were to continue to oppose every increase in the percentage of the employer contribution. Similarly, it was not business which drove the agenda in taxation reform. By 1983 the Australian taxation system was in trouble as tax evasion reached high proportions. The reasons were mainly a high marginal rate of personal and company income tax - 60 per cent - and an extensive range of options to minimise its payment. Since income tax was the main revenue source its evasion was a serious matter of fiscal policy. The government had two broad options: to tighten up on the payment of income tax, or introduce an alternative tax which was harder to evade, like a consumption tax. After extensive canvassing of the issue and the calling of a national tax summit in 1985, these options were refined into three alternative and concrete plans. Most business groups were in favour of Option C, a consumption tax, because it fell chiefly on private consumers and, to the extent they were able to pass it on in price rises, businesses would not need to pay it. It was also easier to administer and hence more efficient, though inequitable. For these latter reasons Treasurer Keating, whose prime objective appears to have been to maintain the integrity of the taxation system, also favoured the consumption tax. Had the government been driven by solely economic or business-favouring motives it would have taken that path. In the event it was abandoned. The


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ACTU opposed the plan on the ground that the consumption tax would produce at least a one-off price rise across a wide range of commodities, and it did not believe the government could or would provide adequate financial compensation for workers and low-income families like pensioners. As a result taxation reform took the alternative direction of tightened concessions, a range of fringe benefit taxes, a capital gains tax, and a reduction in the marginal rates of income tax. Once again the preferred business option had been abandoned for reasons of political and national interest.20 The fact that government does not always pursue policies dictated by business interests does not mean that government and business are not in continual and close contact. But the relationship is a partnership conducted at various levels and intersections where one does not always prevail over the other. The principal and most powerful departments and ministers in the determination of national strategic policy are rarely in close contact with particular industry bodies or firms. The Departments of Prime Minister and Cabinet, Treasury, and Finance are the trilogy which audit Cabinet submissions, oversee spending proposals and coordinate national economic and fiscal strategy. They are quintessential Canberra departments receiving paper data and processing it into policy. Neither they nor their ministers tour the instruments of the national economy, monitor their operations and receive their submissions. Indeed Treasurer John Dawkins (1991-93) moved the Industry Commission to Melbourne in the hope of relating it to the real world of commerce. Seized by economic rationalist thinking during the 1980s, these ministries drove the reorganisation of the national economy and its internationalisation. Dawkins was being somewhat disingenuous when he later ascribed Labor government strategy to the Business Council of Australia, though there was some congruence. But Canberra is awash with business interests lobbying government on policy. Contact with government is made normally with functional departments responsible for particular industry sectors which are more receptive to business solicitations. For the most part these departments see their industry sector as their clients and are receptive to such representations as they will take up, often against the positions of the financial trilogy. These latter are usually depicted in this context as the pointy heads who believe in the flat earth philosophy or level playing field of the market mechanism without government intervention. The functional industry departments include those responsible for Industry, Trade, Transport, Communications, Primary Industry, Resources and Industrial Relations. Their culture is interventionist and has been in modest conflict with the prevailing government ethos during the globalising decade. The officers of these departments are more pro-active, they have extensive

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offices outside Canberra, they do tour the national economy, and they receive continuing representations from business. The economic ministers of these departments are in permanent contact with business and also receive regular representatives from them. Business interacts with government in four chief ways: individual firms, lobbyists, peak organisations and meetings with ministers. Individual firms with particular problems frequently contact government with representations. The level at which their approach is received will depend on a variety of factors, in particular their size. Small businesses make ad hoc contacts with State offices, the Canberra bureaucracy or a minister's office. Very large firms have a government relations officer who will cultivate close relations with the bureaucracy, the minister's political office, and probably the minister. At the level of BHP, Ford, Mitsubishi or General Motors, it will normally be the case that the relevant minister will be on first-name terms with the CEO or equivalents, will visit the major facilities of the firm, and will monitor its progress. Correspondingly, firms of that size, say the top 200 in the country, would notify their relevant economic minister if they intend some serious change to their business activities. Indeed, they may often consult ministers before making such decisions, perhaps with a view to receiving government assistance or advice. It is standard operating procedure for such large enterprises to have access to government at the highest level on request, though not at call. This is not to say that their submissions are then acceded to. Two examples of this may suffice. Throughout the tariff reduction process government has been continually cautioned by individual firms in the car industry that its policies would soon put them out of business. Since it was a known consequence of policy that some enterprises would indeed close, these submissions were mostly ignored. Nissan ceased domestic automobile production in Melbourne in 1992 with loss of jobs, but thereby produced a reduction in car producers to four as part of policy. In 1991 Tubemakers in Adelaide laid off hundreds of workers after they lost the Holden and Toyota steering column assembly contract to overseas suppliers. In 1993-94 Ford, Australia's largest car producer, was expressing concerns that it could not survive a tariff level lower than 25 per cent. These representations were made at prime ministerial level with no appreciable effect on policy. Similarly, the proposed mining operation at Coronation Hill in 1991 fell foul of the Aboriginal dreamtime Spirit of Bula, who would have been disturbed by the mine. Unfortunately for the miners, Prime Minister Hawke was at the time dependent on left-wing proAboriginal support for his leadership and abandoned his usually pro-development stance to stave off, eventually unsuccessfully, the Keating challenge. In both these instances, involving the diverse sectors of


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manufacturing and mining, business interests were overruled by other considerations. Lobbying is now big business in Canberra.21 For a fee or a retainer a business not large enough to organise its own political representation can employ someone skilled in political life to present their case at the appropriate level. These lobbying firms can be found in the Canberra telephone directory and are very active in political circles. Hardly a week would pass without a backbench politician, particularly chairs of committees, being presented with a business case by phone, mail or in person. The influence of the lobbyists varies greatly in accord with their background, connections and skills. A large number of them are former politicians or political staffers. They undertake most political tasks from arranging an introduction to a minister, to organising and conducting an entire campaign in favour of or against a particular piece of legislation. One firm had been producing in the protected TCF sector for some time until the tariff reduction program of the 1980s threatened its viability. It was advised that incentives to invest were available and that if it upgraded its plant with such assistance it would be able to compete with lower wage-based importers; in 1991 the accelerated tariff reduction program meant it would be put out of business anyway. The owner contacted a former federal Cabinet minister to get access at the highest level to reverse this policy. The contact was readily arranged, but to no avail. Again, another construction firm with large and growing operations in the construction sector in East Asia believed it could grow quicker and be of greater benefit to Australia if taxation laws were amended to allow it to repatriate its profits under a double taxation amendment arrangement. It employed an ex-treasurer staffer and is still pursuing the matter. Its case has some merit in that such taxation changes could encourage other construction firms to follow its successes. Business is increasingly represented in Canberra by peak organisations. No doubt the style of the Labor government has encouraged this, but it is difficult to see the process being reversed under a future government: it is too convenient an arrangement. In any case these peak bodies generate their own interests in terms of their personnel's careers and recruit new members in order to finance their aspirations. They range from the Federated Automobile Chamber of Commerce to the Australian Mining Federation and the Australian Chamber of Commerce and Industry. Some of the larger bodies have not only their own staff and premises permanently based in Canberra, but also their own buildings, some of which may be leased to other enterprises. Labor government consultations with peak bodies, which started with the economic summit of 1983, have encouraged the growth of these organisations. Indeed, the Beddall Report of 1990 on the small business sector lamented the lack of

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such a body to represent Australia's 750000 small firms, and one was established shortly thereafter.22 Peak organisations are expected to represent their sectors' interests in the running of the country. They have ready access to the relevant minister's office and government departments, they are expected to make submissions on policy direction from time to time and every year for the budget, and they are now expected to comment on policy developments in public as they occur. This process has been criticised by some as a form of creeping or actual corporatism, usurping democracy, and replacing 'real' politics. In fact this is a convenient way of ensuring open debate about national policy with sectional and special interests publicly represented. Others have worried that this process incorporates business too readily into the system of government. This is largely true between elections, but during campaigns some such bodies have still campaigned vigorously against the government. In 1992 the Housing Industry Association decided to oppose a particular piece of industrial relations legislation that had been designed to prevent employers from evading award provisions by reclassifying workers as subcontractors. The HIA claimed this would apply to the housebuilding industry in such a way as to produce militant union organisation in an efficient sector previously run by subcontract. HIA unsuccessfully lobbied government for a change in the legislation, then hired a political consultant who devised a campaign to spend millions of dollars campaigning against the government in the 1993 federal election in about a dozen marginal seats. It claimed some success in winning seats for the Opposition. It was later to pay the price of being treated by the reelected government as a branch of the Liberal Party and excluded from government councils. It also had to settle a defamation case by paying $27230 to a defeated Labor candidate. During the same election campaign the private medical insurance funds and the AGCI were active campaigners against the government, but not in a way which infringed the government's own informal rules of political propriety. Both were quickly reinstated to government consultancy processes. Business also interacts with government through meetings with ministers. Despite the continuing and close relationship with the Labor government (and Opposition parties) by business of all sectors and levels, some surprise and indeed indignation have been registered about ministers' personal relations with corporate leaders. Most famous in this respect was the photograph of Prime Minister Hawke dining in black tie and cigar with Australia's richest man, Kerry Packer. But on other occasions much has been made of Hawke's relationship with Sir Peter Abeles, then co-owner of Ansett Airlines with Rupert Murdoch, with Alan Bond and with the Ford Motor Company. More generally, Keating's


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relationship with property developer Warren Anderson and his part ownership of a pig farm have attracted attention. A number of other successful business people have also been close to members of the Labor Cabinet. Labor had been in office for over a decade with a program for restructuring the Australian economy and making it internationally competitive, which means getting Australian private firms to improve their production organisation, to export and invest overseas, and to make a special effort in Asia. A key component in making this happen has been business leadership: without the commitment of business managers to this program it cannot occur and could not have happened. Ministers spend some of their time going to business meetings, dinners and conferences, and exhorting business leaders and managers, some of whom have been less than enthusiastic about the program, to pursue globalisation and competitiveness. The more powerful, and probably the more wealthy, the corporate executives, the more important it is that they be persuaded. The key test is probity. While policies are designed and pursued for political purposes and not for personal gain, no impropriety exists. Leaders of the modern Labor Party must co-ordinate their programs with business, although, as we have seen, it is not business that designed them. Not all ministers have to be close to business. It is true that the Labor government has been dominated by its economic ministers, largely because its central task has been so obviously economic. But other constituencies and agendas have impinged. During the 1980s the security ministers had to devote considerable attention to transforming Labor Party foreign policy to a pro-Western and directly anti-Soviet position. This was not easy at a time when the international Left was campaigning hard against the American Reagan administration foreign policy. In New Zealand this campaign successfully took the country out of the ANZUS alliance after it refused to co-operate with American nuclear strategy. In Australia the anti-nuclear and anti-American demonstrations of the 1980s were quite substantial, and the peace candidates' votes in Senate elections were large enough to produce a couple of antinuclear senators. Within the government the Caucus did rebel over proposals for Australia to collaborate with US MX missile-testing. Other aspects of defence policy periodically produced difficulties, but government was able to hold the line on an anti-Soviet strategic posture. This attitude was integral to getting public support for the internationalisation of the economy, the renewal of the private sector and the defeat of proSoviet Left unions' economic program in the mid-1980s. It was also an essential component in persuading the Soviets to pursue arms control in the late 1980s after Moscow had recognised the determination of the Western alliance.

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The welfare ministers also had to adjust their programs and spending ambitions to the economic task in hand. As previously noted, transfer payments systems were increasingly means- and asset-tested to reduce their demand on revenue while targeting appropriate recipients. Programs for service delivery were more complex and were redesigned to both match Labor welfare programs and improve business inputs. Childcare services were subsidised and their range progressively expanded to include Commonwealth financial assistance to private child-care centres with a view to enabling mothers of young children to undertake paid work. Aged-care services, mostly actually delivered by private institutions, were brought into a rationalised financial and industry system. The national cost of health care was capped and the delivery of service universalised by Medicare. In these ways welfare ministers, who tend to have fewer contacts with the wider industry community, were brought into the ambitious economic strategy of the government. Finally, mention should be made of environmental issues. In all likelihood the environment would have quickly emerged for the government as a major political issue anyway during the 1980s. It had come to power in the middle of an environmental crisis involving the damming of Tasmania's Franklin River - which it stopped - and matured during a huge worldwide upsurge in public concern about the environment. The government's genius was to bring the Green movement effectively into the process of government. It did this by appointing one of its most powerful figures, Senator Richardson, to the Environment portfolio in 1988. During the mid-1980s the danger existed that a dissident vote of a Left-Green-Peace alliance would push Labor to the Left and destroy its economic agenda. Senator Richardson brought the Green movement into the tent to the extent that it is widely believed that the 1990 election was finally and narrowly won by Labor with the preferences of the environment movement. From that time appropriate compromises with the Greens on economic issues were usually to hand. Australia's economic restructuring has been the central national issue for the last decade. Some of this has involved changes in government policy, some of it micro-economic reform of economic institutions which are directly under the government's control. But the vast bulk of the economic restructuring of the economy to the standard of international competitiveness must be and has been achieved by private firms owned by capitalists, run by their managers and driven by their workers. It is the partnership of these people throughout the country that has been achieving the national economic program. Government cannot afford to ignore any of them. That is the relationship between business and government in Australia.

CHAPTER 6

The Public Sector Reinvented

The expansion of the world market ensured that the private sector in Australia had to face the task of becoming increasingly competitive internationally. After 1983 political decisions by the federal government, generally supported by the Opposition, recognised this challenge. The economy has been progressively opened in recognition of unavoidable reality, and related policies implemented to assist private sector institutions to meet the challenge. Owners of capital have been encouraged to invest in areas of best result as determined by market-driven returns; managers have been encouraged to pursue best-practice technology, methods of production and personnel management; scientists have been given incentives to develop and deploy front-line technologies; and changes to work practices, award restructuring and union amalgamations have encouraged greater labour productivity. It would make little sense to expose the Australian manufacturing, mining, services and farming private sectors to the full force of the world market without expecting a corresponding change in behaviour from the public sector. The organisation of the public sector determines many of the input costs to private industry and profoundly affects the national economy's efficiency. Its reform has come to be known under the general heading of 'micro-economic reform'. The logic of this is that major macroeconomic changes were made during the 1980s: deregulate the financial sector and float the dollar; cut barrier protection; pursue free trade internationally; reform the tax system; rearrange factor shares to the benefit of corporate profits. By the 1990s a corresponding reform process was applied to the public sector to reduce the cost of its services to business. In a profound sense this had become an implied social compact between the federal government and the private sector, as important to economic

107

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strategy as the Accord between the federal government and the ACTU. The ACTU had accepted the need for wage restraint by organised labour, and had delivered it for over a decade in exchange for the federal government's implementing a wide-ranging program of social reform through superannuation to child care. Industry had accepted the difficult task of becoming internationally competitive and expected the federal government to deliver on its part of the implied compact to reduce the costs of those inputs to the private economy over which the government had control. These were the twin pillars on which government economic strategy rested: understandings with labour and capital. The functions of the public sector in a developed capitalist democracy like Australia are immensely diverse. Those that deal exclusively with the social welfare program are best considered in detail in a discussion of wages policy with the ACTU, although they must never be separated entirely from economic policy planning. They provide a direct lever in national wage policy bargaining and are, in any case, part of the moral purpose of government which lies alongside that of order and economic prosperity as a major national strategic goal. As far as economic activity is concerned, there are a number of discrete functions of the public sector. Those that have received attention during the restructuring of the Australian economy and will require continuing policy work for the imaginable future, as technologies and circumstances develop, include transfer payments, service delivery, economic infrastructure, direct production and quasi-economic institutions. Transfer Payments Transfer payments comprise a large part of public sector activity. Essentially this is the process of collecting taxation revenue from individuals and companies, and redistributing that money in the form of public cash benefits to designated individuals. Most of the distribution is to recipients of aged or disability pensions, unemployment benefits and family allowance payments. Since these form a large part of the Commonwealth budget process some remarks about that are appropriately made here. Since the early 1980s Australia has been in continuing balance of payments deficit on the external account. In order to meet that obligation the national economy has had to borrow money to make up the shortfall, which has reached the cumulative figure of over $200 billion by 1995. To close this gap it was necessary for Australian industry to generate exports of at least equal value to imports - a situation which was achieved by 1992 and eroded since then. The annual deficit of $27 billion by 1995 was occasioned by the trade deficit plus service payments or interest on existing debt incurred during the decade of trade deficits. Some of

THE PUBLIC SECTOR REINVENTED

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this external borrowing was used to re-equip the Australian economy and make it more competitive and capable of paying its way. Some was also wasted on the * corporate excesses' of the 1980s and the unsuccessful speculative binges which marked that period. In one sense the deficit was a result of the gap between what Australians saved and what they wished to invest, the difference being imported from other people's savings, mosdy in the 1980s from Japan. Indeed during the 1980s Japan was one of the few substantial sources of savings, which were augmented by its large external surpluses. Japan exported capital. It should be borne in mind that the large rises in national external indebtedness that accompanied the process of globalisation were mitigated by other factors. Australia had long been a capital-deficient nation and one which imported investment funds. This was an appropriate condition for a developing economy, particularly if those funds were deployed into income-generating assets. During the colonial period government authorities provided the conduit for such transfers, as did State governments during the early twentieth century. In the early post-war years the Commonwealth made international borrowings to cover infrastructure development, notably of the Snowy Mountains Hydro-electric scheme.1 But private foreign direct investment quickly became more important during the 1950s and 1960s, such that Australia by the 1970s had one of the most foreign-controlled industrial sectors of any OECD country. The burgeoning mining industry was also the subject of much investment by multinational corporations. After financial deregulation in 1983 Australian enterprises could borrow these funds rather than having to surrender equity in their projects, and many did. As a result the shortfall on the capital account in the 1980s started to show up as accumulated foreign debt rather than, as in the 1970s, foreign ownership of the Australian economy. Either the economy borrowed money or it sold assets to cover its shortage of savings. The problem was not new. The policy objective was to keep the shortfall or deficit within bounds acceptable to the international markets. Figures on debt as a percentage of GDP show that debt levels were increasing in Australia before financial deregulation. In 1980-81 debt was 6.2 per cent of GDP, rising to 13.8 per cent by 1982-83. Debt rose substantially during the 1980s, rising to 35.5 per cent of GDP in 1989-90 before peaking at 42.9 per cent in 1992-93. Subsequendy debt has stabilised at around 37 per cent in 1994-95, reflecting a slight shift towards equity holdings by foreign investors. Increasing debt and current account deficit levels of the mid-1990s were caused by electorally driven fiscal stimulation: the One Nation, Investing in the Nation and Working Nation

statements, the destruction of the 1993 budget and the lax 1994 and 1995 budgets and the maintenance of the 'L.A.W.-law' income tax cuts.

Table 6.1 Current Balances as a ]Percentage of GDP Projections 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

Germany France Italy United Kingdom Canada Total of above countries

-0.7 1.6 0.8 -0.1 1.0 -0.1 -2.0 -0.1

Australia Austria Belgium-Luxembourg Denmark Finland Greece Iceland Ireland Mexico Netherlands New Zealand Norway Portugal Spain Sweden Switzerland Turkey Total of smaller countries

-3.0 -4.5 -0 7 -3.7 -0.3 -3.4 -2.6 -5.0 -2.2 0.5 -5.6 -14.0 -5.0 -1.4 -2 6 5.7 -5.1 -2.2

United States

Japan

-0.7 1.7 1.4 1.4 2.0 0.7 -2.0 0.4

0.0 -0.9 -0.7 0.9 1.6 -0.2 -1.8 -0.1

0.1 -1.0 -1.6 -0.6 -2.3 1.2 -0 4 -0.5

-0.4 0.6 0.8 -2.2 -1.7 1.7 0.8 -0.2

-1.3 1.8 0.7 -0.9 0.2 1.2 -0.4 -0.3

-2.6 2.8 1.6 -0.2 -0.7 0.4 -0.2 -0.8

-3.8 -2.0 -2.7 -4.8 -4.7 1.1 -1.2 -1.6 -2.1 -2.0 -0.9 -2.8 -4.2 -4.4 -2.7 -2.5 -4.5 -3.7 -3.2 -4.0 1.9 -0.3 -2.7 -1.0 -2.0 -2.5 -4.1 -4.6 -5.4 -4.2 0.9 -0.9 -2 4 -4.4 -8.3 -6.2 -12.3 -10.5 -13.4 -9.3 -2.9 -3.9 -5.4 -6.5 -2.2 3.0 1.9 -1.1 -1.4 -1.7 -2.9 -3.5 -4.4 -5.0 -7.2 3.8 1.1 1.9 -5.2 -2.2 -2.1 -0.2 -3.8 -16.8 -11.7 0.6 -2.4 -2.6 -2.4 1.0 -0.3 -2.2 -3.5 -2.6 -3.6 5.1 3.0 2.6 -0.5 4.2 -1.8 -2.0 -5.0 -2.6 -1.4 -1.0 -1.8 -3.1 -3.1 -2.0

-3.6 0.3 -0.5 -2.1 -2.3 -4.5 -2.2 -5.9 5.1 2.9 -4.4 3.7 -6.1 -1.6 -0.9 4.0 -2.9 -0.3

0.2 0.4 -0.5 -0.8 -2.3 2.5 -1.7 0.0

-0.1 -0.9 0.6 -1.3 -0.9

-3.5 4.3 4.5 0.2 0.3 -0.2 -2.8 -0.3

-3.7 3.6 4.2 -0.6 -0.3 -1.2 -2.8 -0.6

-2.6 2.7 4.2 -0.5 -0.8 -3.5 -3.5 -0.5

-2.0 2.0 4.8 -0.5 -1.4 -4.4 -4.1 -0.5

-1.7 1.2 3.3 -0.8 -1.6 -3.5 -3 8 -0.6

-0.1 2.2 -1.1 -0.5 -2.1 -1.4 -4.1 -0.1

-1.1 3.2 -1.1 0.3 -2.3 -1.6 -3.8 -0.2

-1.6 3.1 -0.8 0.7 1.2 -1.9 -4.3 0.0

-2.3 2.8 -1.1 0.7 1.5 0.0 -3.3 -0.2

-2.7 2.5 -0.7 0.9 1.3 -0.1 -2.2 -0.3

-2.5 2.2 -1.2 0.8 1.6 -0.1 -1.5 -0.3

-4.7 -0.3 -0.1 -3.0 -0.1 -5.3 -4.8 -5.5 2.6 3.8 -8.6 5.3 -2.6 1.3 0.6 4.8 -2.4 0.1

-5.4 -0.2 0.9 -4.7 -1.4 -8.2 -3.9 -3.4 0.8 3.9 -7.1 5.4 1.4 1.6 -1.4 5.4 -1.5 -0.2

-5.4 0.3 2.8 -5.5 -1.0 -3.5 0.5 -3.1 -0.9 2.8 -6.3 -6.5 3.4 1.7 -0.1 5.0 -1.9 -0.4

-3.7 -0.2 20 -2.9 -1.9 -2.2 -3.5 -0.3 3.0 1.3 -4.9 -4.8 1.1 0.0 -0.1 4.4 -0.9 -0.1

-4.0 -0.2 2.3 -1.2 -2.6 -1.5 -3.6 0.2 -1.4 2.2 -0.7 -4.3 -2.2 -1.1 -0 4 4.9 2.0 -0.4

-6.2 0.2 23 -1.1 -5.1 -3.9 -1.5 -1.4 -2.9 3.5 -3.1 0.3 0.3 -2.9 -1.8 4.0 0.9 -1.2

-5.0 0.7 19 1.0 -5.1 -4.3 -2.2 0.2 -3.1 3.5 -2.2 3.5 -0.3 -3.4 -2.8 3.8 -1.7 -1.1

-3.3 0.1 2.4 1.7 -5.5 -1.8 -4.7 3.3 -5.2 2.6 -1.5 4.8 -0.8 -3.2 -2.0 4.6 0.2 -0.8

-3.7 -0.1 3.0 3.4 -4.6 -2.2 -3.1 4.8 -7.6 2.1 -1.7 2.5 -0.2 -3.2 -3.5 6.2 -0.6 -1.0

-3.7 -0.5 5.4 4.1 -1.1 -0.8 0.0 -6.5 3.1 -2.1 2.1 0.8 -0.8 -2.1 7.9 -3.7 0.0

-4.6 -1.0 54 3.0 1.1 -0.1 ?2 6.9 -7.8 3.9 -2.1 3.3 -1.3 -1.1 0.4 6.9 2.1 0.2

-6.0 -1.4 58 2.9 1.8 -1.0 2.4 6.6 -1.5 3.8 -2.1 4.1 0.1 -1.0 2.9 6.8 2.1 1.2

-5.3 -1.7 58 3.5 1.2 -1.3 2.0 6.1 -0.7 3.7 -1.7 6.8 0.2 -1.3 4.5 6.9 1.6 1.4

-3.1 3.6

2.7

7.7

Total OECD

-0.4

0.2

-0.4

-1.0

-0.6

-0.5

-0.3

-0.7

-0.8

-0.3

-0.5

-0.5

-0.6

-0.7

-0.3

-0.4

0.0

-0.2

-0.1

-0.1

OECD North America OECD Europe EU Total OECD less the United States

-0.9 -0.5 -0.3

-0.9 0.8 0.8

-0.3 -0.3 -0.3

-0.3 -1.4 -1.5

-0.5 -0.7 -0.9

-0.5 -0.6 -0.7

-1.0 0.1 0.0

-2.3 0.5 0.4

-2.9 0.8 0.6

-3.4 1.2 1.3

-3.4 0.7 0.6

-2.7 0.2 0.1

-2.2 0.0 -0.2

-1.9 -0.3 -0.4

-0.7 -0.8 -1.1

-1.7 -0.7 -1.0

-2.1 0.3 0.1

-2.6 0.7 0.4

-2.6 0.9 0.6

-2.4 0.8 0.5

-0.3

0.6

-0.7

-1.5

-1.0

-0.5

0.5

0.9

1.2

1.7

1.3

0.7

0.1

-0.3

-0.3

0.0

0.7

0.9

1.1

1.0

Source: OECD, OECD Economic Outlook, Paris, June 1995.


111

Analysis of the June 1995 OECD Economic Outlook** shows Australia's current account deficit is the worst in the OECD by a considerable margin. While Australia ran these substantial deficits and seemed unlikely to work its way out of them, its currency moved downwards in the marketplace, notably in several big plunges, after the float in 1984, in 1986 following the Plaza Agreement to realign currencies, and in 1994-95. Floating the Australian dollar effectively nearly halved its value against the major British and US soft currencies and even more against the hard Dmark and yen currencies and provided a stimulus to exports, via the much-derided but nonetheless effective J-curve as discussed in Chapter 7. The international market, however, would adjust its perception of the future value of the Australian dollar according, among other things, to its evaluation of the determination and capacity of Australia to undertake the structural change necessary to rectify its deficit situation, and make the J-curve effect work. In the late 1980s the Australian dollar moved upwards by almost 20 per cent in the world boom, with commodity prices better and strong commitment to structural change by government. In the early 1990s the dollar moved down again with a slump in world commodity prices during recession and some nervousness about government determination in the pre-1993 election period. In 1994 it briefly once more strengthened, with good economic figures on growth and inflation and a firm government commitment to continuing structural adjustment. In 1995 it again dived against the yen. The object for policy managers was to keep the Australian dollar in a band where it retained a competitive (low) value for exporters but did not fall enough to make servicing the external debt, written in foreign currency, too great a burden. The low interest rates of the mid-1990s helped in the pursuit of the latter objective. But in the longer term, where continuing domestic budget deficits are to be avoided, it would be necessary to pursue sound public sector economic structures. In boom periods like the mid-1980s, the borrowings necessary to finance budget deficits would either come from the crowded domestic money markets, thereby pushing private enterprises into foreign loans, or be borrowed externally direcdy by government. This is what the 'twin-deficit theory' amounted to: in a period of a deregulated financial system, it was not possible to again run three decades of domestic deficit (as had just happened) without the consequence being added to national external debt. A new discipline had been imposed on domesticfiscalpolicy, which now had to be formulated to a large degree in response to the dictates of the international financial markets. While this 'twin-deficit theory' has been the subject of much subsequent criticism,3 it is nonetheless the case that domestic budget deficits will add to external deficits or reduce external

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surpluses. The mechanism may be simply the stimulation of aggregate domestic demand, a proportion of which will be met by imports. It was now necessary to manage the Commonwealth budget sector in broad balance over the period of a business cycle. This could be achieved by running budget surpluses during a period of boom when revenue from the two major sources of company and personal income tax would be high and unemployment benefit payments correspondingly low, and permitting expansion of Commonwealth outlays, particularly on valued and identified economic infrastructure projects, when private economic activity was at a lower ebb. This is partly the policy government pursued over the 1987-95 cycle, although the stimulation of the later period took a longer time to take effect. Since the revenue side of the budget was constrained by electoral considerations and the need to maintain company taxes at levels commensurate with Australia's major trading partners and competitors for investment capital, and this increasingly meant the AsiaPacific economies, downward pressure had to be continually exerted on outlay growth. This had been achieved during the 1980s by economic ministers pursuing continuing rounds of expenditure-cutting, by targeting welfare payments and by privatising public assets (like CBA, Qantas, the Pipeline Authority, embassy grounds), which was thought desirable anyway for reasons of efficiency. Service Delivery

In some sectors of government expenditure, such as the delivery of necessary services, more creative strategies had to be pursued, as a few examples will show. Since the average age of the population was rising and the number of persons in the retirement age group was increasing relative to the work force, it was feared that this 'dependency ratio' would put eventual pressure on the tax-paying capacity of the working population to meet the aged pension bill. Government tried to resolve this problem by pushing the work force into compulsory private savings schemes for retirement. It combined this with an effective wage freeze by trading a superannuation levy paid by employers for a few years of the ACTU reducing its wage claims. The employer bodies and unions administered the funds; bosses contributed to them with moneys that would otherwise have gone to increasing money wages; workers appeared to acquire portable and private superannuation entidements they didn't pay for; and the Commonwealth budget would not be liable for those aged pension payments which future superannuants would be means-tested out of. The pursuit of this structural balance of the national budget, which would swing through the cycle but create no overall additional Commonwealth debt, meant political discipline. This was pursued by the


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simple method of having the economic levers of government run by very dry Right and Centre Left ministers who dominated the powerful Expenditure Review Committee of Cabinet. During the late 1980s ministers were routinely instructed to cut their portfolio budgets by 1 or 2 per cent and told that new programs had to be matched by savings elsewhere. There were some politically inspired breakouts during the recessionary lead-up to the 1993 election, but most of the expenditure increases even then were into economically justifiable investment areas and were finite and sunset-claused rather than ongoing programs. The post-election 1993-94 budget was dominated by an effort to bring Commonwealth finances back into balance by 1997. The terminal date was decided by the economic cycle and a three-year electoral cycle. This involved new taxes, particularly on wine and leaded petrol, justified ostensibly on equity and environmental grounds. Since the government did not control the Senate, this simple exercise produced a huge political breakout and threatened the entire structure of government discipline. The Coalition opposed the budget because its leader looked irrelevant to national debate and saw a chance to create mischief against fiscal rectitude on behalf of low-income earners, leaded petrol users and wine drinkers. The Democrats bargained with the government to give their leader the chance to look sensible, knowledgeable and powerful. The Greens, both from Western Australia, ceased being principled Trotskyites and adopted a States' rights posture as they toured the local vineyards. The Tasmanian Independent, Senator Harradine, seized his opportunity to get some changes to the government's pro-family planning foreign aid donations, and to protest against abortion. Keating had personally vetoed the obvious choice of abandoning the One Nation *L.A.W.-law' income tax cuts.4 This process of producing a compromise budget which the Senate would pass took three months. Meanwhile Caucus discipline collapsed. Faced with everyone else in the country forcing Treasurer Dawkins to rewrite his unpopular budget, the aggrieved on the backbench began their own protest. Everyone wanted to be Robin Hood. The many Queenslanders who had been excluded from the ministry held committee meetings in public to change the budget. The disaffected left-wingers complained on equity grounds. Andright-wingersfelt they had to share the public spoils of power and, led by those who felt they deserved preferment after the 1993 election, joined the scramble to crucify the Treasurer. Nonetheless, the budget's financial discipline was necessary and had to be imposed at the start of the three-year cycle before the electoral pressure mounted again. In future, government would try to do its bargaining with the Senate's loose cannons before the budget. These policies designed to get government borrowing requirements to

114


minimal levels over the course of the cycle did not imply resiling from the provision of social services. Quite apart from the requirement of fulfilling ALP policy objectives in this respect, they were a component of wages policy, without which a Commonwealth government could not survive. By 1995 Labor was up to Accord Mark VIII with the ACTU and relied on union co-operation to maintain the low-inflation regime. Better and more cost-effective ways had to be found for providing services. Under the federal system many services are in fact provided by the State governments in the fields of education, health and aged care. Since most of the States' revenue comes from the Commonwealth, the most effective way to put pressure on their service delivery is to reduce their funds, or tie them to identified behaviour, or offer them taxation revenue sources from which they may raise money for themselves, like State income taxes. During the decade the Commonwealth pursued all three options with varying success. No matter their party-political complexion, States would routinely complain about Canberra cutting their entitlements, interfering in States' rights, or forcing them to impose new taxes on their residents. To make matters worse, the State-based media usually sided with the States, as did the federal Opposition. Then during a leadership brawl, as with Hawke and Keating, the challenger could be relied on to take the opposite tack to embarrass the incumbent. In this case Keating attacked Hawke for co-operating with the States in 1991, with a proposed 'new federalism', thereby endangering Commonwealth budget integrity. Needless to say, as prime minister, Keating was to do the same himself. But the States will not go away. The Australian Constitution is an agreement between the (then) six colonial states to form the Australian federal state. Australians will not substantially amend that Constitution through referendums and it has to be lived with. In any case it limits the power of central government, which is no bad thing for a democracy. It also ensures that all regions of Australia get a say in national resource allocation. It would, however, be unreasonable to continue tying the Senate numbers with those of the House if the latter expands further, since the Senate quota in a double dissolution would then drop below 8 per cent of preferential votes and much less than that of primaries. This would be inviting those representing a very small section of the Australian population to control the balance of national power. The solution presendy is to hold annual Council of Australian Governments meetings at which the Commonwealth constructs a majority coalition of States to push through its offered financial arrangement and advises States on how services can be delivered within the agreed financial parameters. If the complaining States' cases are justified and demonstrable, the Commonwealth will pay the electoral price at the next federal election. The actual delivery of social and community services should follow


115

some broad patterns including community involvement, competition among providers, inspections of standards and financial administrative guidelines. Because the provision of many community services was initially undertaken by non-government agencies, as with the Salvation Army and emergency services, in most of Australia there already exist service organisations that are doing the job. It is often quicker, cheaper and more effective for government to provide financial assistance to them than to develop a whole new delivery system run direcdy by government. Where possible, it is also better for the customers from among the general public to have a choice between competing agencies, since competition usually improves product, as long as government ratifies their quality and provides financial support on strict criteria, applicable equally to all. During the 1980s the provision of child care became an increasingly important political issue.5 About one and a half million new jobs were created during seven years after the 1983 election, and 60 per cent of them were filled by women. Many more mothers were anxious to enter the work force and, as women became correspondingly more prominent in powerful positions in the ACTU, the improvements in conditions for paid working women became a stronger component of each stage of the Accord negotiations. Of course there was an understandable ideological dimension to this process involving feminist assertions about the need for the state to provide conditions for a mother to leave an intolerable spouse. From this derived the argument that child-care centres (and women's refuges) should be provided by the state in a national network on the same geographic lines as state primary schools, owned and staffed in the same permanent way. In the early 1980s the program was indeed commenced in that fashion. It soon became clear it was not financially possible to grow places at the same rate as jobs because the start-up capital gearing requirements were too large. In a further difficulty it was die State governments who laid much of the regulatory regime for child-care centres and, not being their financiers, set the standards extremely high. To make matters worse, sections of the public believed that these effective subsidies to paid working mothers discriminated against mothers who cared for children at home. They were supported in the ACTU and in the ALP by some unions, particularly the old Catholic DLP unions that had re-entered the party in the 1980s. Periodically the Liberal Party would encourage and support women's groups to agitate along those lines. On stricdy equity criteria it is difficult to quarrel with this argument, but on economic grounds it would do nothing to augment the national work force with women otherwise unable to leave the home. The government re-evaluated this program and over six years took a number of initiatives which offered a better solution to the problem than

116


its initial plan. It dealt first with the problem of low-income families with dependent children and one parent working. It introduced the Family Allowance Supplement which was heavily targeted at low single income families, paying high rent to private landlords and having many children. Although this was in itself a remarkable reform, its achievement was diluted by Hawke's misspeaking his script at the Sydney Opera House campaign speech in 1987 from 'No child need live in poverty by 1990' to 'No child will live in poverty by 1990'. The other reforms were phased in after prolonged debate within the government. The key one was that private child-care centres would be eligible for the fee relief that was part of the 1990 election platform. In effect mothers could shop around for a service provider for their children, and would take the subsidy with them. The subsidy would be in the form of fee relief rather than an income tax concession, as proposed by the Opposition, since it targeted lowerincome groups better. This form of subsidy permitted a more rapid expansion of child-care places, since the capital was provided from private sources, and Commonwealth programs had to find only recurrent subsidies. The system was later extended to employer-provided child-care places which were, uniquely, made exempt from the Fringe Benefits Tax. The result of these reforms was extensive. Child-care places were greatly expanded, from 40000 in 1983 to around 200000 in the mid1990s, but the cost was controlled. The diversity in demand was met by encouraging private suppliers to enter the industry, subject to inspection and satisfactory standards of performance. Community, religious, profitseeking and local government providers quickly entered the field. Mothers wishing to enter the work force found the gap between their capacity to pay and the cost of service provision often matched by the government subsidy in the form of fee relief. The national economy was improved by enhancing the productive contribution from mothers who would have otherwise left the work force for long enough for their talents to decay, perhaps preventing their re-entry. And the children concerned would be assured of some personal value from their care by government inspection of service providers. The aged-care sector presented similar financial difficulties but different administrative problems.6 Unlike child care, an extensive industry already existed in 1983. It had been brought under the Commonwealth financial umbrella, notably during the Menzies period, by a series of election promises by well-intentioned governments who had nonetheless produced a very haphazard outcome. The service provided varied greatly in quality and cost. Victoria and South Australia provided, by government survey results, the best and most expensive nursing homes on average, a supposed result of their initiatory Liberal and Labor governments taking quick advantage of Commonwealth programs. By contrast, Queensland


117

provided the worst residential aged-care services as a result of its Country/National Party government being unwilling to pursue such funds, lest it be left holding the responsibility were the program wound back. The Commonwealth's financial obligations were to meet the difference between the cost of the provision of the service and the capacity of aged pensioners to pay. Aged people were admitted to homes on the basis of request and availability of beds. Nursing homes for the aged were understandably concentrated in areas where people with the capacity to pay lived when the homes were founded - in higher-income areas. The cost-plus funding system also invited proprietors to blow up their costs to attract greater public subsidies. Government had to meet the need of those aged people requiring residential care, do so in a fashion that did not blow out expenditure, and provide the service equitably throughout the nation. It came close to meeting all these requirements. A survey conducted to determine the real demand for aged residential care on scientific medical grounds recommended the provision of about eighty beds per 1000 persons over 70 years, forty in nursing homes and thirty in hostels, spread appropriately geographically and supported by other domiciliary arrangements, like nurse and meal provision.7 The government also assessed the real cost of each item of nursing home residential care, from laundry to food to heating, and then set a corresponding subsidy structure. It conversely determined proper standards and established an inspectorate for enforcing them. Nursing homes wishing to attract a subsidy to supplement the 85 per cent of pension which residents paid would need to join the scheme; residents could only be admitted after a medical team declared their condition required it. Designated nursing homes were then given five years to phase their standards up or their costs down. The scheme was phased in by the early 1990s and had a number of benefits. It capped the cost for the Commonwealth of providing appropriate residential aged care for its citizens. It ensured that the service was made available for those citizens that needed it on a medically tested basis. It eventually produced a more equitable provision of services between different States and regions by forcing Queensland's services up, Victorian and South Australian costs down, and encouraging the movement of licensed beds to lower-income areas. Almost none of the services were directly provided by the Commonwealth, which divided the providers into two categories: religious and charitable, and profit-seeking. Only the former became eligible for capital subsidies, one result of which is that there often remains a large gulf in quality between services provided in these sectors from Commonwealth funds, a matter which deserves urgent attention. During the 1960s the private school education system had been one of

118


the great divisive issues of Australian political life.8 Its origins lay in the history of Catholic education in Australia. Starting in the nineteenth century, the Catholic population had developed a separate education system based on parish primary schools, but with a secondary school component which had become quite substantial during the post-war years. Given the long affiliation of the Irish Catholic community to the Labor Party, especially in New South Wales, Commonwealth subsidies for private schools became a divisive political issue. In 1963 the Menzies government agreed to implement such a policy and the ALP followed suit later. But much of the funding to independent schools from the Coalition government went in fact to the private, expensive and wealthy colleges found in every capital city. In 1983 the new Labor government came into conflict with the betteroff private school system after its Centre Left feminist Education minister, Senator Susan Ryan, made some remarks interpreted as meaning that she intended to close them by withdrawing subsidies. In fact the government developed a policy of providing very substantial aid to private schools through their systemic authorities: Catholic, Anglican, Uniting Church and the like. Schools were then graded in accord with their need and received a per capita grant on that basis; in addition, the poorer schools were eligible for a capital grant, if necessary, to upgrade their facilities. In this way parents were given some choice in school education for their children, while receiving a substantial Commonwealth subsidy on the basis of need, which all but eliminated fees for poorer Catholic parish schools. The state's financial obligations were correspondingly reduced. But it was in the area of health services that the most effective and farreaching reform system was achieved.9 By 1983 the Liberal government had dismantled the Whitlam-initiated Medibank system of public health care and again produced a network of private health insurance in which over 2 million people were not covered. The new Health minister, Dr Neil Blewett, introduced the public provision of medical services through Medicare, funded by a 1 per cent levy on all incomes and with compulsory universal membership. A doctor's consultation standard fee was set, and Medicare provided 85 per cent of that to the patient, or all of the fee if the general practitioner directly billed Medicare. The system was not perfect. The levy had to be increased to meet costs, especially as ever-increasing numbers of Australians abandoned private insurance. Some doctors complained they were being controlled by governmentrecommended fees lower than those recommended by their union, the AMA. Many patients wanted to insure the 15 per cent gap between fee and refund, which the government maintained was needed to deter overuse. The system also did not fully cover the provision of hospital services. Nonetheless the Medicare system provided universal medical


119

cover, choice of doctor and financial relief for patients. It did so while capping the cost of medical services for the nation as a whole, to 8 per cent of GDP, at a time when the new US President Clinton in 1993 feared the US health bill might reach 20 per cent of GDP before the end of the decade. In these various ways government sought to provide diverse, quality services with consumer choice, within a financial framework the Commonwealth could afford. Similar innovations were made in pharmaceuticals and, less successfully, in hospitals, which were under the Constitution the responsibility of the States. Each of these reforms met resistance, notably from private providers like profitable aged-care homes, doctors, private health funds, private colleges, and chemists, who resented what they viewed as excessive bureaucratic intervention in their activities and as limiting their financial supports. If government is to provide equitable universal services and cap their price, some such conflict is probably unavoidable. But one of the reasons for Labor's 1990 and 1993 election victories was the popularity of the Medicare systems which the Opposition, egged on by the private medical funds and the doctors, promised to dismantle. Good public policy can bring a reward. Infrastructure Provision

The Australian state also delivers a wide range of economic services, including many to private industry. The cost at which they are provided and the quality of their delivery has a direct bearing on the production costs of Australian industry and therefore its capacity to compete. Most of these services may be described as infrastructure, but they also comprise industries in their own right, including transport, energy provision, telecommunications and postal services. In the main they exhibited the same structural problems: they were monopolies, often governmentowned, with politically powerful unions covering their work force. Each of them involved high-cost inputs to the Australian economy. Government could not devise in detail the reforms which would lower these costs, but believed they could be most readily reduced by deregulation, the abolition of monopolies and competition among service providers. Such a resolution was not always so easily arrived at. The structure of land transport has not been easily rationalised. Since the Second World War, road haulage has replaced rail transport as the main interstate carrier, being more secure, cheaper and more flexible. This advantage has been maintained despite the Commonwealth enforcing higher road transport registration fees for heavy transporters, which do most of the damage to the surfaces of the interstate highway system. The national rail network became uncompetitive because of its unco-

120


ordinated State-based ownership, farm product-oriented route structure, antiquarian work practices, and overstaffing in both the rolling stock and service facilities. In any case some producers, notably car assemblers, would not move their product by rail because of alleged excessive damage. The task involved reducing staffing levels by redundancy packages; closing underused routes and rationalising use of the remainder; putting servicing out to tender, including by private companies; standardising the gauge of all national lines, and bringing them under one administrative structure. Rail would have to compete with road for custom. This involved spending money in the short term on infrastructure to produce a costeffective economic service in the long run. The task is continuing and is facing continuing resistance from the powerful rail unions. 10 The air transport system was easier to deal with. The Menzies government had maintained a two-airline policy of Australian/Qantas (formerly TAA) and Ansett running a duopoly, with little competition on timetable or fares. As a result, costs were high relative to other countries and service only fair. Shortly before its defeat the Fraser government had agreed to an extension of this system for seven years. In 1987 it came up for renegotiation. 11 All parties agreed to a break-up of the duopoly system, an extension of services, greater competition and two new airline licences. The only opposition to this agreement proved to be the pilots* union who, in an ill-advised action, led their members to a strike/lockout which effectively closed the normal aviation sector for six months. They were, however, defeated, a number of them were sacked, and a new generation of pilots recruited into the industry, many from overseas. A new company also entered the industry, Compass Airlines, which was to be twice bankrupted by a combination of poor pricing strategy and stiff price and facility competition from the existing companies. But the results were evident. Price flexibility and competition entered the industry, with seats being filled by discounting tickets. Planes flew full and the average price of seats tumbled as a new generation of Australians took to the air for the first time. As a result, air transport costs for business dropped and greater economic efficiency was a result. The ports, however, were to prove more difficult.12 The pre-Second World War Australian docks had for generations been notorious for bad employment practices which exploited the labour force. As a consequence waterside workers built a justified reputation for militancy by the 1960s, when most of the unions involved were also communist-led. In the late 1960s, with the development of container technology which greatly cheapened international trade transport costs, the then Liberal government feared a long struggle and strike on the Australian wharfs against the introduction of containers. In a compromise solution, a very attractive sweetheart agreement was offered to the unions involving effective


121

lifetime employment guarantees, weekly wages and hefty penalty rates, and a register of all workers in the industry as a closed-shop employment base. The result was to build in high-cost labour practices, on top of the capital structure, heavily oriented to traditional bulk food handling. By the mid-1980s Australian ports had throughput costs among the highest in the world. The government determined to tackle this problem by getting more enterprise-based arrangements and reducing staffing levels. In 1989-92 the Commonwealth spent $450 million paying out thousands of waterfront workers in order to prevent the future cost of the wages bill from adding to the cost of port-handling charges. It also provided funds in One Nation in 1992 to improve the link between docks and the national rail system in various ports. It then attempted to change the employment basis of wharf workers so that they could be employed directly by stevedoring companies, with whom efficiency and productivity agreements could be made, instead of by industry-wide register and labour pools. In early 1994 the waterfront went on national strike and the subsequent legislation stopped the reform process, much to the disgust of the employers. Australian port charges had dropped significantly, but they remained high by international standards and had yet to be fully addressed. Direct Production

The State governments run energy-providing authorities, notably in gas and electricity supply. Because of geographic and geological factors the costs of these provisions vary, yet they are often state monopolies and frequently state-owned. Competition usually only exists between gas and electricity, which may be both state-owned and are, in any case, not perfect substitutes. In such circumstances there was no ready mechanism for determining whether energy costs reflected efficient production. As an initial response to this problem in 1992, the federal government proposed in One Nation to permit competitive bidding for the provision of electricity to an east coast grid which would permit new privately constructed electricity-generating plants.13 It was widely assumed this would quickly reflect the cheap cost of producing electricity from the New South Wales coal deposits. Continued encouragement of such competition as a means of ensuring efficient energy sources would probably be necessary. In the main, however, the privatisation, deregulation and abolition of monopolies in the sector would be pursued, as further advocated by the Hilmer Report on competition policy in 1993.14 Finally, the distribution of information by telecommunications and post had been handled by government monopolies.15 Initially this had

122


been one institution, but in 1975 had been divided into Australia Post and Telecom. These public monopolies had at first been justified on the grounds of the need to provide a simple national service in phones and postal service to all households at low cost. By the 1980s these considerations no longer applied. In telecommunications a technological revolution was under way which involved huge improvements in productivity and diversification in product. As part of the information revolution they would both improve the national capacity to compete internationally, and form the basis for an export industry. Opportunities would be particularly rich in Asia, where an industrial revolution was occurring in a region without a system of basic phone infrastructures. Telecom, after 1995 Telstra, as a national monopoly, had no way of demonstrating whether it was introducing technological change quickly enough, was price/cost-competitive, whether it was overstaffed, or whether it was winning appropriate export contracts. Similarly, by the 1980s the post monopoly was being challenged by private courier services, particularly in the CBDs, and interstate express parcel deliveries, which Australia Post unions complained interfered with national services. A simple resolution to the Telecom problem was not at hand. Indeed in 1990 the then treasurer, Paul Keating, and then Communications minister, Kim Beazley, had quite different ideas about how to proceed. They did, however, agree on one thing: the need to introduce competitive service providers. During 1990 an intense debate proceeded within the government, with Keating advocating deregulation of the industry. Beazley advocated a duopoly on existing lines, with a new licensed and regulated company being introduced, and then further entrants into the cellular phone market. Beazley's position prevailed. The opposition of the Telecom unions was defeated at a special ALP conference in 1990 and competition emerged in telecommunications, with Optus gaining the licence in 1992. In postal services a different and simpler solution was on offer in the form of progressively reducing the extent of the Australia Post monopoly by fixing it at a maximum item price level which by 1994 was down to $4.50. As this came down and prices rose the monopoly could be eliminated altogether. The public sector also owned productive enterprises. There has long been discussion about the relative merit of privately and publicly owned industries, particularly factories. Privately owned enterprises can often produce commodities cheaper, and publicly owned enterprises will perform better when faced with competition, especially from the private sector. Rarely can publicly owned enterprises be expected to set industry-best, let alone world-best, standards. This conclusion has been reached by government in Australia over the last decade, and acted on as a feature of policy. During that time it has often been contested, usually


123

by workers in public sector enterprises fearful of job losses, or people committed to such a posture for ideological reasons. But in an era of globalisation, public sector enterprises have to be judged on their capacity to provide services for the rest of the economy and community, not just on how well they treat their workers. If there are other reasons for keeping enterprises publicly owned - nation-building or national security - that override considerations of commercial efficiency, then these should be openly stated, costed and argued about. Government has seen no reason for the public to own factories and these have been progressively privatised during the last decade in Australia. There seems little good reason for the public to own transport fleets when these can be run more cheaply by, and then hired from, private operators. Government clothing factories, state-run construction firms and railway rolling stock producers have all been progressively sold off. The big arguments have revolved around the state-owned airlines and the banks. Both these institutions have evolved out of varieties of 'market failures'. Fifty years ago there was some concern that private capital in Australia would not take up the challenge of commercial air transport quickly enough.16 Since this relatively new technology offered an important opportunity to develop Australia's national transport system and link it to the world, it was appropriate that the public sector ensured it was developed. Qantas and Australian Airlines/TAA were developed in that context, and then protected by government regulation against international competition and domestic market failure. By the 1980s these circumstances no longer existed. Air travel had expanded so rapidly that, far from there being a potential market failure, it was feared public ownership inhibited the purchase of sufficient aeroplanes. And regulation was no longer preserving routes, but maintaining high prices. Since the private sector could raise the capital and do the job, why tie up public funds in owning planes and, in Australian Airlines' case, luxury resorts off the Queensland coast? It was difficult to resist the case for divesting these operations from public ownership. In 1995 the merged Qantas/TAA was privatised. The publicly owned banks had evolved from two other purposes. The State banks had been set up in the nineteenth century to provide regional banking services and later to meet social goals, especially of mortgages for home ownership, and they were highly regulated for that purpose. The Commonwealth Bank was set up in 1911 by the ALP to provide competition on the domestic market for the private banks like the Bank of New South Wales (later Westpac), which was also thought to be unalterably Tory.17 By the 1980s little of this logic could be applied. Since the deregulation of the financial sector, there was little any State bank could do to change the price of money to its regional lenders, without

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ruining its own loan book and providing funds at below cost. This is, of course, precisely what the State banks of Victoria and South Australia did. 18 The privately owned Bank of Adelaide had collapsed in similar circumstances in the 1970s. The CBA was, on the other hand, extremely well run and, like the private National Australia Bank, experienced only minimal losses during the 1990s assets price collapse. Nonetheless it was unclear why the government needed to own and run a bank when it had admitted foreign banks into the market and was issuing banking licences to numerous other institutions. The CBA had already been partially privatised to meet the cost of buying the SBV. But the fact is that, since public ownership of the CBA serves no social or political purpose, government revenue could as easily and more reliably be raised by taxing private bank profits. In May 1995 government announced its intention to fully privatise the CBA. Resistance to the sale of banking assets came from their employees and from workers in other similar assets who feared that the sale of them would follow. As was the case with Telecom, the fear was a loss of superior conditions of work. In 1994 the resistance to the sale of the SBSA, which had already lost $3 billion, was led by employees, who feared diminution of their superannuation entitlements to those of general industry. Public policy cannot be run by such considerations. A serious objection to privatising public enterprises can be made on the basis of nation-building requirements. People's fears of privatisation can be particularly compelling when they involve a clear market failure or have a regional or cultural dimension. (The regional dimensions of structural change will be considered in Chapter 8.) Left to itself the market would not necessarily produce an even greater concentration of population than at present. A federal system of government ensures some decentralisation of government services and employment. In addition, the subsidisation of both the Northern Territory and Tasmania is in recognition of the national responsibility to declining regions and the need to populate the North. From this perspective some consideration might also be given to the Alice Springs-Darwin rail link as part of the national infrastructure network. Similarly, in the cultural sphere the market alone cannot always determine priorities. Government should demonstrate a desire to develop a distinctly Australian cultural perspective and identity, and it has done so in two policy areas in particular: the ABC and the ownership of Australia's media. The ABC costs the Australian community about half a billion dollars a year, a sum that has been cut substantially over the last decade but is presently guaranteed and indexed. During the 1993 election campaign the Coalition policy was to cut 10 per cent of its funding, which would have placed the ABC closer to the resource levels of its commercial equiv-


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alents. However, the ABC has a charter which obliges it to do more than just meet commercial requirements. It does provide a quality newsgathering and dissemination service, it often conducts investigative journalism at the highest and most unbiased level and, its campaign against the Gulf War notwithstanding, it generally presents all sides of a case fairly. Alongside these estimable services, however, it also brings in commercial product from Great Britain and the BBC, which the public should not have to pay for from taxes when it can be and is provided equally well by commercial channels. Ownership of Australia's media by foreign nationals has excited considerable controversy, but has been punctured in two respects. One of the largest media companies in Australia is NewsCorp controlled by Rupert Murdoch and registered in Adelaide where the group started with the now defunct News. NewsCorp is now not only Australia's second largest company (to BHP) but also one of the largest media companies in the world. Rupert Murdoch has also become an American citizen to satisfy some American business nationality requirements. In addition, when the Fairfax media empire went bankrupt some of it was bought by the Canadian media baron Conrad Black.19 In other words two foreigners already own large parts of the Australian media. With the introduction of new narrowcast technology, existing print and electronic media news dissemination will almost certainly be challenged by 24-hour news services. In short the role of the ABC in a vastly changed media structure will require extensive re-examination, particularly in view of the political power wielded by media proprietors at election time. Quasi-economic Institutions

The public sector also contains a number of quasi-economic institutions which can be of great value to the Australian economy if their policies are fine-tuned with that end in mind. They include the university system and the CSIRO. The university and college sector developed in Australia largely under the auspices of State governments, which retained responsibility for education under the Constitution.20 All State capitals had therefore a 'pre-war university' of some vintage and prestige where the local elite received their education. Most also had technical colleges relating to local industries - agriculture and mining - and teachers' training colleges. During the Menzies years other, new universities were added to this list but were still controlled by State legislation. The Whitlam government decided to take over direct funding for universities, which welcomed the decision because the funds were at the same time greatly increased. This produced the anomalous situation where the universities were funded by

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the Commonwealth but governed by legislation passed by the States, which also made appointments to their Councils. The universities jealously guarded their autonomy but were funded almost entirely by the taxpayer. In addition, there remained a broad grading of salary rewards for those new entrants to the work force on the basis of awards gained, whether from secondary school study completed - about one-third of the age cohort in 1983 - through college awards, to degrees from the oldest and most prestigious universities. This stratification of the education system may have been appropriate for a closed economy, but it did not provide a work force suitable for developing an open, modern and diverse economic structure, capable of competing in the world market. The reforms of the late 1980s under a new Education minister, John Dawkins, a Centre Left activist who as Trade minister had become acutely aware of Australia's economic handicaps with respect to the world market, were designed to adjust the university sector to new national economic priorities. The reform of the university and college education sector involved a number of changes. Institutions were encouraged to amalgamate such that the total number was about halved to thirty-five, all of which were designated universities. The number of student places was increased by 50 per cent and, while finance per student dropped, the total expenditure rose considerably. All universities were to be funded equally, although an increasing proportion of public funds was to be allocated competitively, to be designated for particular purposes or courses of national priority, or to be disbursed in accord with government policy, like quality enhancement. And finally, the universities were expected to earn more of their own budget from other sources like consulting, designated research, full fee-paying foreign students, or commercial activities, and they established commercial arms for that purpose. Much of this was of course resented by universities which had developed traditions derived from the medieval English universities. They viewed many of the academics at the 'Dawkins universities' as being ill qualified and over-promoted schoolteachers not capable of genuine intellectual work. They also saw this as treading on their autonomy and 'academic freedoms'. To some degree this was true, but since they had been funded by the Commonwealth they would have to respond to its priorities. Universities would be of no use to the national economic agenda if they became just government departments, and so the controls of government had to be exercised lighdy enough to allow intellectual life to flourish, but firmly enough to extinguish gross self-indulgence. The integration of Australia into the world market was creating economic imperatives that could no longer tolerate the use of the ivory tower argument to justify the university sector, costing $4.5 billion annually, remaining aloof from


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structural adjustment. Similarly the CSIRO budget was changed to require the organisation to earn more of its budget from non-government sources, thereby developing its commercial links with industry. The experience of Australia with its public sector was not unique. Many semi-peripheral or satellite or post-colonial societies used their government sectors to assist their process of economic development by regulating their economies, but later found the extent of regulation inappropriate for a more developed economy. Many high-income countries, particularly in Europe, extended the range and generosity of their welfare provisions, but eventually found these an impediment to structural adjustment, a disincentive to economic activity or an obstacle to efficiency and development in the service industry. Similarly, the extensive network of government business enterprises (GBEs) existing in many economies had come under more careful scrutiny because of their inefficiency. After 1983 the Labor government in Australia similarly reassessed the role of the public sector and took action to restructure it, giving it a form more appropriate to an open trading economy. This involved reducing the degree of government regulation, making clear obligations in the area of community service, and increasing the status of efficiency as a criterion of assessment. The welfare sector was also substantially reformed to provide a safety net for targeted recipients, rather than a universal set of rights. Because the entitlement to these sources was withdrawn from those who failed the income or other means tests, the continuing level of services could be increased to remaining recipients. This was appropriate since the operation of the strategic thrust of government macro-economic policy was almost certain to make Australian private society more unequal. Indeed most of the studies of the distribution of pre-tax income and assets in Australia post-1983 suggested that this trend had emerged.21 This should hardly occasion surprise since one element of enhancing the market mechanism would be the likely increase of incentives and rewards. In this context the appropriate role of a social democratic public sector would be to provide a basic provision of income, goods and services, and this is what the government had sought to create: a safety net displaced a system of rights. Government business enterprises had also been reassessed. These had come into existence over a long time for both practical and ideological/political reasons. Some had arisen because of 'market failure' where private capital had been unwilling to invest, such as in the railway system; others were to encourage competition where a private oligopoly might fix price and service delivery, as in the banks, airlines or insurance industries; and others again were to ensure that private industry did not take profits from a natural monopoly in the provision of gas or electricity. Some GBEs

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also existed to redistribute income through cross-subsidisation, for example to the country populations. But the conditions under which these GBEs were created were not permanent and had to be offset against their generally lower rate of return on capital invested, and correspondingly high price of service delivery.22 During the 1980s Australia began the process of ensuring that GBEs were deregulated and subjected to competition, corporatised and exposed to performance scrutiny, and, if necessary, privatised. Without this process the public sector would put a brake on the efficient performance of the Australian economy as a whole. In a highly regulated economy, such as Australia has been, relations with the international economy can vary from sector to sector. As long as the external balance is kept, manufacturing can be isolated from the world market by barrier protection, while agriculture and mining earn enough foreign exchange to pay for whatever is bought externally: capital goods for factories, foreign travel by citizens, or consumer goods not produced at home. Entry into the world market dictates that each sector becomes a cost for others and the services of each economic institution become inputs for others. It was no longer possible to treat cultural bodies, educational institutions or public utilities as merely providers of services for the general community. The market had made their existing economic functions transparent and created demands that they develop new ones. The task of making Australia competitive had become a task for everyone.

CHAPTER 7

Australian Industry Restructures

After the economic and political crisis of 1983, which involved a severe recession and a change of government, the political elites of Australia became progressively more strongly committed to opening the Australian economy to the world market. The consequences of this policy shift were to be felt throughout the country, impinging on a wide range of social, economic and political institutions. Although acceptance of the policy among the managerial strata became more widespread, among the general public and public sector intelligentsia attacks on 'economic rationalism' remained common into the 1990s.1 This direction of policy was in fact unavoidable, though the degree to which it succeeded was in no way predetermined. Government used several macro-economic policy initiatives to drive change in the structure of the Australian economy. Their effectiveness requires analysis. Financial Deregulation

The entry-level economic reform was the float of the dollar and the lifting of most foreign exchange controls in December 1983 and the admission of foreign banks in February 1985. Previously, as described in Chapter 3, Australian individuals and companies wishing to borrow money were either restricted to domestic lending institutions or had to receive government permission to borrow overseas. This policy change enabled them to borrow funds by either going to foreign banks operating in Australia, which could call on their international assets, or going direcdy or through Australian banks to foreign money markets. In the 1980s much of the world's saving was taking place in East Asia, and much of that in Japan. The Japanese not only had a high domestic and household savings ratio but also were adding to this by running very large 129

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annual trade surpluses, particularly with the United States. As these surpluses continued through the 1980s the Japanese became anxious to recycle these funds, either by direct investments in real estate and corporate assets, or by lending money internationally. The decision to deregulate the financial system in Australia enabled these, and other sources of finance, to be available to Australians. Further, the deregulation of the domestic financial market ensured that finance would be available to all applicants on equal terms, regardless of the purpose for which they wanted loans. It was the price of money, interest rates and the customer's ability to pay which determined whether a loan application would prove successful. Although the whole sector was not immediately deregulated and domestic mortgage rates, for example, remained regulated for some time, its problems showed up early. Since money was now much more readily available and its price known, the element of commercial risk became a much more important component of determining the quality of a projected loan. In other words, if financial lending institutions were very liquid, as they could well be under the new deregulated regime, chasing borrowers to build up a substantial loan book could be a very attractive short-term strategy. But managers in the system were lacking in adequate skills and experience in risk assessment, since these had not been so necessary under the regulated regime. This raised the question of whether commercial loans, including those from overseas, were actually being used to augment the national capital asset structure, in a way that would produce a future economic return sufficient to match the service payments on the money borrowed. The answer to this would be provided by the performance of the economic managers undertaking the borrowing and the financial intermediaries who made judgments about their projects across Australia for the 1980s. Their performance proved to be very mixed, some contributing to the expression 'excesses of the 1980s'. Nonetheless, even with hindsight it is difficult to see what public policy could be designed to enhance these judgments in the short term, since so much depended on commercial criteria and experience, as decision-making shifted from public sector regulators to private sector managers. 2 At about the same time in 1983 the Australian currency was floated. During the Bretton Woods regime, 1945-71, it had been effectively fixed like other currencies against the US dollar. When the United States abandoned this system in 1971 the Australian dollar had then been refixed at various rates, until the Fraser government decided to regulate it by administratively setting a new price from day to day. The effect was to give some stability to exchange rates, but also to 'overvalue' the dollar. In a free market the value of a country's currency is determined by a range of factors, particularly its trading performance. If a country runs a

AUSTRALIAN INDUSTRY RESTRUCTURES

131

continuing external deficit its paper money supply held by foreigners will increase correspondingly and decline in value. The currency will thereby be devalued. If it runs surpluses its currency will become scarce and go up in value or appreciate against other currencies. Under the regulatory system the Australian external current account was controlled by restricting imports through barrier protection of tariffs, quotas, import licensing and financial controls. The abolition of this system meant that the value of the Australian dollar would be determined to a greater extent by the market's assessment of the performance of the Australian economy, especially, though not only, its trading figures. The effect of floating the dollar was to devalue the Australian currency by a considerable amount. It fell from US$1.15 in 1982 to 60 cents in 1986, and by larger figures against the East Asian hard currencies like the yen or Singapore dollar. Most of this fall took place in 1985-86. It was widely speculated in Australia at the time that the market, and particularly the young money market operators or 'screen jockeys', had miscalculated or overreacted in writing down the Australian dollar. In fact they were reflecting the assessment of the Australian economy of those holders of hard currencies, which importers or borrowers wished to buy with Australian dollars, and it was that assessment which set the price of the currency. What they saw was Australians wanting to borrow money in part to offset trading deficits, which began to mount as the reduction in barrier protection encouraged an increase in imports. Public policy would need to prevent this situation from continuing. Making the J-curve Work

Economists and the Treasurer, Paul Keating, were quick to point to the textbook cure for this malaise in the form of the J-curve.3 This is an observable phenomenon which usually follows the devaluation of a nation's currency in a free-market situation. Its effect is to increase the price of imports and reduce the price of Australian goods and exports. In the short term, however, there is little flexibility in consuming patterns and as a result the trade deficit actually gets worse as the same quantity of imports costs more and the same quantity of exports earns less. Hence the current account shows a worsening deficit and goes down the short left-hand side of the J. As domestic consumers move away from dearer imports and foreigners buy more of the cheaper Australian exports this relationship changes, and the current account moves up the long righthand side of the J and, depending on the situation, into surplus. The J-curve has no time span or dimensions attached to it but is merely an observable relationship between categories. In Australia in the 1980s, because the float coincided with deregulation and reduced barrier


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Per cent 65 -,

60 .

55 -

50 J 1960 -61

1964 -65

1968 -69

1972 -73

1976 -77

1980 -81

1984 -85

1988 -89

1992 -93

1980 -81

1984 -85

1988 -89

1992 -93

Figure 7.1 Wages Share of GDP (I) at Factor Cost

Per cent 18 -i

16 -

14 -

12 J 1960 -61

1964 -65

1968 -69

1972 -73

1976 -77

Figure 7.2 Profits Share of GDP(I) at Factor Cost Source: Australian Bureau of Statistics, Year Book Australia 1995, Canberra: AGPS, 1994.


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protection, the initial slump could be expected to be strong, and it was. The turnaround would be inhibited by two other factors. As Industry Minister John Button pointed out at the time,4 the Australian economy was commodity-based, not a flexible, advanced, open industrial society used to trading diverse value-added goods and services on the world market. As a result, it could not quickly move capital assets into sectors that could use their new cost competitiveness to augment sales, as a small industrial European economy might have done. Further, its new industries would clearly be determined partly by the collective decisions then being made by the financial institutions' lending patterns and the economic managers' investment decisions. To the extent that these were channelled into efficient, export-enhancing or import-displacing production facilities this problem would be resolved; to the extent that they concentrated the nation's new financial obligations into unsuccessful and/or unproductive speculation, the problem would be exacerbated. The speculative reconstruction of CBD high-rise clearly visible in every Australian city in the mid-1980s was certainly cause for concern. Government policy in these circumstances would need to try to concentrate the effects of the J-curve and get productive industry to maximise its benefits, by augmenting the production of tradable product. The J-curve, however, also had adverse inflationary implications. As the price of imports rose and people continued to buy them, inflation would be increased. Only after consumers turned to domestically produced goods, and only when these were available, would prices stabilise. In fact the reduction in barrier protection offset some of these effects by reducing the price of, for example, TCF and other commodities from low-cost countries. But the dominant short-term effect was inflationary as imported consumer durables like prestige automobiles became relatively cheaper but enjoyed attractive value appreciation as the dollar declined. At the same time imported capital goods, for mining, manufacturing or office re-equipment, such as computers, rose in price for those industries augmenting their capital stock to take advantage of new trading opportunities. This presented some unforeseen problems for government. It had come to power promising growth to offset record double-figure unemployment levels but without the record double-digit inflation rates because of wage restraint under the Accord. It found it couldn't deliver entirely by the mid-1980s. In 1986 inflation again began to rise, induced by the dislocation of the currency. The devaluation had been particularly sharp because it reflected not only Australia's trading performance but also the Plaza Agreement of 19855 by the Group of Seven to appreciate the yen against other currencies. The Australian currency moved down with the US dollar. This realignment caused a downturn in world trade while it

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Table 7.1 Commonwealth Budget Outlays, Revenue and Balance, 1960-61 to 1998-99 Revenue

Outlays % Real $m Growth

1960-61 1961-62 1962-63 1963-64 1964-65 1965-66 1966-67 1967-68 1968-69 1969-70 1970-71 1971-72 1972-73 1973-74 1974-75 1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 (estimate) 1995-96 (estimate) 1996-97 (projection) 1997-98 (projection) 1998-99 (projection)

3237 3620 3770 4145 4532 5029 5640 6225 6613 7348 8102 9047 10166 12240 17914 21944 24231 26861 29200 31750 36307 41517 49391 57294 64686 70914 76185 79497 82900 87950 96171 102846 109623 114400 122433 123730 130953 136455 143481

2.1 9.0 2.5 7.8 5.5 7.4 8.1 6.2 1.8 5.6 3.8 4.5 4.8 6.1

20.4 5.2

-0.8 2.5 1.7

-0.8 3.3 2.7 7.1 8.7 6.7 2.4 0.2

-2.2 -3.8 -0.4 5.0 5.0 5.3 3.3 5.4

-2.5 2.5 1.2 2.1

%of GDP

21.3 23.2 22.4 22.2 22.0 23.3 23.7 24.4 23.0 23.1 23.1 23.0 22.7 22.8 27.7 28.6 27.7 28.2 26.9 25.8 25.8 26.2 28.6 29.3 29.8 29.4 28.7 26.5 24.4 23.7 25.4 26.6 27.1 26.7 26.7 25.1 24.9 24.3 24.0

% Real $m Growth

3204 3262 3356 3725 4349 4774 5088 5583 6228 7157 8093 8913 9471 11978 15431 18365 21546 23601 25814 29793 35320 41010 44879 49308 57989 65278 73553 81558 88796 95991 98085 93503 95059 100737 110283 124448 134354 140965 150880

9.4

-0.8 1.3 8.9

12.7 6.2 2.7 5.6 6.9 9.2 6.5 3.1

-0.9 11.4 6.0 2.2 5.4 1.3 2.3 5.3 7.1 4.3

-1.5 2.9

11.1 5.1 5.1 3.9 0.4 1.5

-1.9 -6.4 0.5 4.9 7.9 8.9 4.6 1.9 3.9

Balance %of GDP

$m

21.1 -32 20.9 -358 19.9 -415 19.9 -419 21.1 -183 22.1 -255 21.3 -552 21.9 -643 21.7 -386 22.5 -191 -10 23.0 22.7 -134 -696 21.1 22.3 -263 23.8 -2483 24.0 -3579 24.6 -2685 24.8 -3260 23.8 -3387 24.2 -1957 25.1 -987 25.8 -507 26.0 -4512 25.2 -7987 26.7 -6696 27.1 -5636 27.8 -2631 2061 27.2 26.1 5896 25.9 8041 25.9 1913 24.2 -9342 23.5 -14564 23.5 -13664 24.1 -12150 25.3 718 25.5 3401 25.1 4510 25.2 7399

%of GDP

-0.2 -2.3 -2.5 -2.2 -0.9 -1.2 -2.3 -2.5 -1.3 -0.6 0.0

-0.3 -1.6 -0.5 -3.8 -4.7 -3.1 -3.4 -3.1 -1.6 -0.7 -0.3 -2.6 -4.1 -3.1 -2.3 -1.0 0.7 1.7 2.2 0.5

-2.4 -3.6 -3.2 -2.7 0.1 0.6 0.8 1.2

(a) Data for the period since 1974-75 are classified on a consistent basis. Earlier data are classified on the basis applying in the relevant Budget year. Source: Department of Treasury, Budget Speech and Statements 1 and 2 of Budget Paper No. 1 1995-96, Canberra: AGPS, 1995.

AUSTRALIAN INDUSTRY RESTRUCTURES 32

Per cent of GDP

135

Per cent of GDP

30 28 26 24 22 20 -2 -4

1974-75 1977-78 1980-81 1983-84 1986-87 1989-90 1992-93 1995-96 1998-99 Figure 7.3 Budget Aggregates Source: Department of Treasury, Budget Speech and Statements 1 and 2 of Budget Paper No. 1 1995-96, Canberra: AGPS, 1995.

was implemented, and as commodity prices dropped the Australian dollar fell with, and further than, the US dollar. The government now faced a simultaneous slackening of economic activity, a new rise in inflation and a currency depreciation, with a year to go to a federal election. It was against that backdrop that the ALP Left launched a push for financial stimulus to the economy and a degree of reregulation at the 1986 Hobart Conference. Government defeated this move and launched its 'restraint with equity' policy. This was important not only to control inflationary pressures, but also to maintain its factor shares objective by controlling public sector spending. One objective of the Accord had been to enable the economy to grow quickly and create jobs without exacerbating the already high inflation rate of 1982-83. It also improved the share of national output going to profits. The Labor government agreed with the Fraser government's assessment that the redistribution of national income from profits to wages that had occurred in the mid-1970s had to be reversed if corporate investment patterns were to be restored. The Fraser government had been unable to attain that objective partly because it never achieved a

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good working relationship with the ACTU after the events of 1975. As a result it never had a wages policy that was very effective, and in 1982 even the restraint of the Arbitration Commission collapsed. The Hawke government did restore the pre-1974 wage:profit ratio by using wage restraint during the growth phase of the cycle to lift profits share of GDP. It achieved this in part by trading ACTU-enforced real wage cuts for increases in the Commonwealth government's share, which it then redistributed as reformed and augmented social welfare programs. In 1986 this expansion of public spending had to be checked as part of the twindeficit theory. A more rigorous pruning of expenditure and application of taxes was undertaken. The twin-deficit theory was that the external deficit on the current account was fuelled by the domestic budget deficit. The external deficit was caused by imports of capital borrowed by private institutions which had to make these borrowings from overseas because domestic funds were not available. If the government were running a budget deficit it was in fact borrowing money on the domestic money markets to pay for this deficit. This had the effect of lessening the amount of domestic loans available for the private sector, which would then have to borrow overseas. One way of reducing the external deficit was to enable more of these borrowings to be made on the domestic market, which in turn meant reducing the government's domestic borrowing requirements by running a smaller deficit or, better again, a surplus. One obvious way of doing this was to reduce Commonwealth expenditure, a course on which the government embarked. Hawke termed this a policy of * restraint with equity' because it involved more careful targeting of welfare programs. The policy of 'restraint with equity' involved three general commitments known as the 'trilogy'. For the next few years government was committed to not raising government expenditure as a proportion of GDP, not raising taxes as a proportion of GDP, and not letting the Commonwealth budget deficit increase. All these objectives were to be met during the late 1980s as revenue fell from a peak of 27.8 per cent of GDP in 1986-87 to 25.9 per cent of GDP in 1990-91, expenditure fell by similar amounts, and the budget recorded four successive surpluses for the first time in three decades. Much of this structural adjustment had been in response to the externally generated economic crisis which had led to the decline of the dollar. The urgency of the situation had fuelled rapid action, in part because of fear of intervention by the IMF to impose a stabilisation program which could have been even more severe. The Commonwealth share of GDP fell from 29.3 per cent in 1983-84 to 23.7 per cent in 1989-90, rising to 27.1 per cent in 1992-93. One result of this stabilisation strategy was to channel even more resources into corporate profits. Rather unexpectedly, and despite the


137

October 1987 stock market slump, a further growth phase in the cycle got under way in 1988-90. As far as the private corporate sector was concerned, it now was as well heeled financially as at any time in postwar history: it had a historically large share of GDP, the Commonwealth was retiring debt and not calling on the finance markets, finance was deregulated, and foreign money markets were accessible. Since this also coincided with an international upswing in the business cycle, recovering from the hiccup of the 1985-86 currency realignments, it is hardly surprising that the economy boomed. Treasurer Keating was later to claim that about $30 billion per year, that is 7 per cent of a $400 billion-plus GDP, had been redistributed to corporate profits.6 Hardly surprisingly, this conjunction of world trade growth, record corporate profits, wage restraint and a deregulated financial market produced a record economic growth rate and asset appreciation boom. In November 1987 the world stock exchanges recorded a significant adjustment or slump, in part occasioned by the currency realignments, which only served to drive cash into real assets. It was enough of a scare to government policy managers, including those in Australia, spooked by media commentaries about a repeat of the 1930s depression, for them to slacken monetary policy and encourage growth. In 1988 and 1989 they got it. By early 1989 the Australian national product was growing at over 4 per cent annually, but demand was growing at 8 per cent. The difference was necessarily met by imports of 4 per cent of GDP, and the trade deficit expanded correspondingly. Since the government no longer had the power to control imports by administrative means and the trade gap could not be arrested quickly enough by increased exports, it had to resort to deflationary policy to check the trade deficit. It already had a wage restraint policy of falling real wages. It was cutting Commonwealth outlays as fast as it could politically within the Accord. It resorted to the very blunt instrument of aggregate interest rate increases. The twindeficit theory had not in itself produced the appropriate response from the economy, explaining in part its rejection by some economists.7 The 1990-91 Recession Interest rates were increased from mid-1988 throughout 1989 until they had the desired effect of increasing the price of borrowing money to a level that started to slow down economic activity. Since they reached record high levels by January 1990, at which time the government started its year-long program of bringing them down, it is not surprising that they did work and flatten economic activity. The Australian economy slowed down into 1991, by which time the rest of the world economy was also going into the deepest recession since the war, for Japan, Australia's

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largest customer, arguably the first recession since 1945. The effect was to prolong and deepen Australia's recession into the longest since the 1930s. In late 1990 Keating announced that this was the recession 'we had to have'. It was to overshadow the achievements of the 1980s and to cast great gloom over Australia until the recovery took place in 1993 in improved circumstances. Government policy did not cause the recession of 1990-91 which was a global phenomenon and probably unavoidable as Australia's major trading partners encountered negative growth. It was, however, lengthened and worsened by monetary policy. In 1987 Australia was experiencing strong growth which many then feared would be reversed into a slump by the stock exchange collapse. Government made money cheaper to offset an anticipated and feared slowdown. In fact people only moved money out of stocks and into assets and now found it easier to borrow the money to so do. Government had only fuelled another boom, a miscalculation it shared with most other governments and commentators. It then had to stop it and resorted to its bluntest and most reliable weapon, interest rates. It is commonly believed these have a lead time of eighteen months, and indeed it took that long for them to work. By mid-1990, the high interest rate regime had flattened economic activity. Recessions cause a number of things to occur. Most obviously unemployment rises as firms experience a decline in demand and lay off workers or don't hire new ones. The number of firms going bankrupt increases. Financiers find more loans going bad, experience a fall in income, and lend less money. Governments spend more money on unemployment and other relief measures but raise less revenue from company and personal income taxes. They run budget deficits as a result. In such circumstances wage rates and asset prices tend to fall or not rise as quickly and so inflation drops. All these things happened in Australia in the early 1990s. But in addition recessions accelerate structural change in economic activity. Weaker companies go out of business; stronger firms strive to operate better to survive; and even the most powerful have to seek out their opportunities with greater diligence. This is also what happened in the early 1990s recession in Australia. Government had hoped to time the slowing of the Australian economy so well that it would produce a 'soft landing', but bad timing and bad luck produced the worst recession in 60 years. Its stated objective was to arrest the growth of the Australian economy, thereby slowing imports, and to encourage producers to divert commodities to export markets and close the external deficit. This structural change was accelerated in an economy that stopped, shrank, redirected resources of labour and capital and then spluttered back into firm growth in 1993. Australian industry did restructure, in response to market signals, international change, the


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recession of the early 1990s and government policy, and the changes were most profoundly marked by its international performance. It is not always possible to identify which of these influences was dominant and, in any case, the responses were those of economic managers to a change in overall opportunities presented to them. Out of this a broad picture of structural adjustment may be discerned. Structural Change As the Australian economy was opened to the world market, the percentage of the GDP which was traded internationally increased. This was a trend consistent with increasing the growth rate and quality of the Australian economy since, as we have seen, the best-performed economies in terms of recent growth have been those most integrated with the international economy and best able to access its markets. This increase was a reflection of government policy and placed Australian producers in markets growing more quickly than Australia's. 22% 21% 20% 19%

f\ s*

i ft^y

i 1 NX

11°L

J^ Imports/GDP

16%

^

* |

15% *[AQL

13% 12%

^^

f

Dec 71

Dec 73

Exports/GDP

11% 10% Dec 75

Dec 77

Dec 79

Dec 81

Dec 83

Dec 85

Dec 87

Dec 89

Dec 91

Dec 93

Figure 7.4 Trade/GDP Ratios Constant 1989-90 prices; moving annual averages Source: P. J. Sheehan, Nick Pappas and Einjang Cheng, The Rebirth of Australian Industry: Australian Trade in Elaborately Transformed Manufactures 1979-1993,

Melbourne: Centre for Strategic Economic Studies, 1994.

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The markets into which Australia sold its products shifted greatly from the mid-1980s to the mid-1990s. Japan remained the largest single export market, but as the rest of East and South-east Asia underwent industrialisation and rapid economic growth, these countries became more significant markets for Australian goods than the older markets in Europe. South Korea became Australia's third largest market after Japan and the United States, and ASEAN became a bigger market than the European Community. This shift reflected changes in the distribution of world economic strength and also the tendency in the 1980s for the EC to close its markets. It also helped integrate the Australian economy into the fastestgrowing part of the world economy. The type of commodity which Australia produced and exported also changed. Minerals and energy output remained the single largest component of Australia's exports, with 30-35 per cent of the total. Not only did Australia have a natural comparative advantage in this sector, but the industry had historically been relatively unregulated and was one of the most efficient in the world. The remaining exports were broken fairly evenly between agriculture, services, and manufactured goods. These now presented, as in a developed economy, a more evenly distributed mix of commodities than a society dependent on primary product. The fastestgrowing single component of exports had become elaborately transformed manufactures (ETMs) to East Asia. Their product varied from auto components to computer software into niche markets throughout the region. The biggest single export-oriented project, however, has been the development of the liquid petroleum gas fields off the north-west of Western Australia, which would provide energy for Japan and Korea. The restructuring that made this performance possible had been achieved in part by a wave of investment. To finance this Australia has used the increased domestic savings rate, much of which has been placed into the superannuation funds. It has also borrowed heavily overseas and increased its external debt to over $200 billion, most of this privately owned and not therefore a claim on the government or taxpayer. In addition the international trade account came into rough balance in 1992 with the remaining deficit caused by service of existing borrowings. As the economy entered the recovery/growth phase, however, the deficit grew again to reach $27 billion in 1995, that is, about 6 per cent of GDP or the same proportion which sparked the banana republic crisis ten years earlier. It is difficult to assess what proportion of private foreign borrowings was used to augment Australia's productive resources. Many entrepreneurs who did borrow heavily went broke during that period. Typically, they would borrow large sums of money to buy assets in the late 1980s in a rapidly rising market in property prices and many other assets including companies. Their paper worth would then appreciate, allowing


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collateral for further borrowing and buying as two dozen or so rich Australians became near household names for their business activities. They were known as property magnates, corporate raiders or asset strippers. Some of them got caught in the rapid collapse of asset prices in the early 1990s and a wave of spectacular corporate losses followed: Alan Bond, Laurie Connell, Warwick Fairfax, John Spalvins (Adsteam), Christopher Skase and John Elliott (Foster's), to name a few. Some of them later went bankrupt and/or were charged, gaoled or sued.8 What they shared was a capacity to borrow large sums of money against existing assets to make further purchases. Because deregulation had made such sources of finance more accessible, more people became involved in the process. One even tried to buy Australia's largest company, BHP, by this means. Their principal mistake was to buy assets that were not producing sufficient revenue - that is, had an unfavourable price: earnings (P/E) ratio - at the tail-end of a rising market. When the slump caused a reduction in the sale price of assets, they were reduced to their earnings-derived value. In the case of the Channel 9 television network, this proved to be 25 per cent of the price that Alan Bond paid for it in 1987. In addition, the banks lost a lot of money. In fact most Australian banks, excluding the CBA and NAB, lost money during 1991-92. The reasons were fairly straightforward. They had borrowed money on the international market, notably in Japan, and lent to local business, they also often had a substantial property-holding in their loan book. With the 1991 downturn they had to devalue their capital assets and often found many of their investments 'non-performing', like CBD buildings without tenants. To make matters worse they often had borrowed in a market like Japan and their loans had to be repaid in an appreciated currency. This often meant that at the depth of the recession in 1990-91, money was scarce and expensive as the banks tried to retrieve losses from bad debts with better earnings from good ones. This had the effect of imposing a secondary credit squeeze on those businesses wanting to take out new loans as parts of the economy struggled back into life. Two banks in particular, of course, experienced spectacular losses and publicity, in part because they were publicly owned. The State Bank of Victoria, at Victorian State government instigation, used its commercial arm, Tricontinental, to lend aggressively to Victorian business in the 1980s to stimulate local economic activity. This appeared to work in a rising asset price situation but left it over-exposed when asset prices collapsed (see Chapter 4).9 As a result the economic recession in Victoria was deeper and longer than elsewhere in the country. Since Victoria comprises about a quarter of Australia's output and population, this had a severe effect on national economic performance. Indeed, some

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commentators have concluded that the severity of the 1990-91 recession can be attributed to Victoria, without which the downturn would have been more benign or 'normal'. 10 A similar chain of events occurred in South Australia.11 In 1983 various state-owned financial institutions had been amalgamated into the State Bank of South Australia with the aim of providing a capital source for local industry. At the State Opposition's insistence it was controlled by legislation designed to keep the State government, its owner, at arm's length. The intended result was very slack supervision by the major shareholder. The only moderately experienced Board of Directors lunged into a very rapid asset accumulation process, much of it interstate and in New Zealand. In addition it financed a large high-rise headquarters and a shopping centre in Adelaide. As the downturn in asset prices entered the bank's books in 1990-91, it became clear it had a number of non-performing loans. In other words the returns on assets would not service the loans it had taken out to buy them. In a series of announcements over the next two years it was revealed the bank had lost over $3 billion. The CBD shopping centre that had cost about $800 million to build was worth a little over $100 million. It also provided almost exactly the number of shop fronts vacant elsewhere in the Adelaide CBD in 1992. These losses occurred mostly as a result of bad, not criminal, management decisions. In the late 1980s some capital assets were being bought for a P/E ratio of 100:1: an investment of $100 would realise earnings of $1 per annum. The only reason for undertaking such a purchase, or financing it for someone else, was anticipation of a continuing, substantial capital gain. This ran out in 1990. As speculative purchasers went bust their bankers found themselves managing assets in which they had no interest or expertise: shopping centres, television stations or vacation resorts. This process had always occurred in recessions, but deregulation of the financial sector had enabled it to happen on a much larger scale. The Japanese thought of this as ending the 'Bubble Economy'. These problems of the deregulated financial sector may have been unavoidable. They signified a transition from a regulated to deregulated environment in which managers often lacked the appropriate skills to identify quality investment opportunities. This was particularly true of public sector finance institution managers who were driven to some degree by political agendas. But this did not occur with the CBA, which had eight decades of experience and close supervision by a cautious board. It was also not confined to the public sector, as the Westpac and ANZ records demonstrated. Indeed, overindulgence in speculative assets was a common phenomenon of the 1980s in Japan and the United States, also suggesting that the momentum may in part have sprung from the greatly increased mobility and speed of finance capital movements in the


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1980s, resulting partly from technological changes in the financial industry. But in any case substantial changes in the economic structure of Australia did take place during this period, and were accelerated by the recession. These changes may be summarised as: globalisation, a change in the direction and composition of trade, and a new level of efficiency. As might have been expected, the reduction in barrier protection assisted the globalisation of the Australian economy, which began to show up most quickly in the rate of import penetration of domestic markets. This did not start in the 1980s but was assisted by the change-enhancing policy of government during that decade. It contributed to the external debt as money was borrowed to pay for the imports, but it also served to dampen inflation, by providing cheaper consumer goods, and to provide equipment for the restructuring of Australian industry. It also, of course, contained 'luxury' items like expensive motor vehicles which became the subject of some controversy as visible contributions to the national debt by conspicuous consumers. The resulting tax on luxury cars in the 1990 budget was designed in part as a revenue-raiser, in part as a political statement by government to its supporters in the domestic car industry. Although cleverly designed, it nonetheless disproportionately hit European imported cars and was almost certainly contrary to the GATT. It might be argued that since EU agricultural policy also discriminated against Australia this was appropriate. But the issue was a larger one. Joining the international economy meant that Australia would import more goods. These goods would not be confined to sectors in which Australia did not produce, and some would serve to put Australian enterprises out of business, a process which would occasion alarm in a community wondering why Australia had to import food, automobiles and clothing which it could produce itself. In response orange-growers dumped truckloads of their product at high-profile venues, car and auto component companies launched publicity campaigns, and TCF workers were continually active, attacking the 1986 ALP National Conference venue in Hobart. Such protests were common in the 1990s to countries joining the international market. In France farmers and fishermen protested violently against the proposed GATT deal of December 1993. In Korea and Japan farmers hit the streets against the same agreement, which would open up their domestic markets to imported rice. In India large and violent demonstrations accompanied the government's decision to accept an IMF stabilisation package in late 1991 and to join the GATT in 1994. The response from Australia's protected sectors seems quite benign in contrast. The source of many of the imported products was the industrial revolution occurring in the Asian region. One factor which enabled this process to be so rapid was the export-oriented industrialisation strategies

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most of the countries of the region had undertaken. First Japan and then its successors targeted the wealthy developed countries' markets and exported consumer products to them. North America was the most important external market in this respect, but since Australia had a similar income level and consumption pattern it was hardly surprising that as barrier protection was reduced the same products entered Australia. As East Asian countries entered the development cycle, their exports to Australia typically passed from labour-intensive, TCF-style product, through the evolutionary process to motor vehicles and, very likely in the future, capital equipment. Japan by the 1980s was providing finance and capital equipment, Taiwan and Korea were exporting electronic equipment and motor vehicles, while most of the ASEAN countries were concentrating on TCF (like Indonesia), food products (like Thailand), or both (like Malaysia). In this way was Australia contributing to and participating in the process of industrial revolution in East Asia. The appropriate response to this increasing level of imports was not to renew barrier protection but to increase exports. During the decade Australia almost doubled the proportion of its GDP devoted to exports. This was in line with the strategic thinking in Canberra that if Australia was to improve its long-term growth performance it should participate more fully in the world market. There was an almost direct correlation between national growth rates and degrees of globalisation, which appeared to explain Australia's poor recent growth record. It was also believed that since Australia's northern neighbours had the world's highest growth rates it would be similarly beneficial to penetrate their fast-growing markets. Australian exports grew as quickly as imports, but with an appreciable lag of two to three years. This may have been a further dimension to the J-curve. When the currency was devalued in the mid-1980s exports became substantially more competitive, but there was a time lag while their producers reorganised themselves to sell into foreign markets, re-equipping their capital stock, researching new markets, or arranging transportation facilities. For many importers these arrangements had already been made by the mid-1980s. This ability to rapidly expand imports exacerbated the J-curve effect on the balance of payments. As a result, for many exporters the real benefits of the most substantial macro-economic reform for exports, currency deregulation and devaluation were not felt until the end of the 1980s. In the early 1990s a contraction of the domestic Australian market coincided with the lagged effect of the devalued Australian currency to produce a substantial surge in Australian exports. This was a stated objective of the 1990 budget strategy: to reduce domestic sales opportunities, cut imports, and encourage Australian producers to export. It succeeded, although in a recession that was far more severe than policy-makers


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intended or anticipated. Producers for the domestic market faced depressed sales prospects; importers of consumer goods faced greater domestic competition in a depressed market; but Australian exporters confronted a regional economy that, with the exception of Japan, continued to grow throughout the world recession of the early 1990s. Australian exports into non-developed East Asia grew rapidly after 1983 and accelerated in the 1990s. The Japanese economy had emerged during the late 1960s as Australia's major market, and during the 1970s it replaced the United Kingdom and the European Union as they closed their doors on traditional Australian agricultural products. Japan remained the biggest Australian export destination, by the 1980s dominated by minerals, energy and foodstuffs. As the Industrial Revolution spread throughout East Asia this pattern of bilateral trade between Australia and other East Asian countries spread with it. But there also emerged substantial differences. Japan had become a major market for Australian product at a time when the Australian economy remained highly regulated and inflexible. As a result, only those sectors of the Australian economy that had been effectively designated as export-oriented were able to take advantage of the Japanese boom, and these were almost exclusively primary producers. In addition, there were controls on financial and investment movements both ways between Australia and Asia. During the post-regulatory period Australia was able to participate more widely in the East Asian Industrial Revolution. At first most of the growth in Australian exports into East Asia were from those same sectors which had earlier been able to benefit from the growth of the Japanese market: raw materials, energy and foodstuffs. But as the benefits of deregulation fed more widely into the cost structure of Australian production, and currency readjustment assisted their competitive advantage, more Australian producers joined the export boom. Australia progressively began to add refined raw materials, value-added energy, processed foodstuffs, elaborately transformed manufactures, services, capital and technology, infrastructure and finally finance capital to its export portfolio to East Asia, a process which would not have been possible without the deregulation of the Australian economy. Australia also posted trade surpluses with its Asian trade partners, drawing its deficit from North America and Europe. Rapid growth in East Asia had been made possible by the region's joining the world market. This enabled its countries to find markets for their products which grew more rapidly than their own domestic consumption, thereby permitting their enterprise earnings to experience rapid growth. They could use these earnings to supplement already high domestic savings to construct advanced infrastructure and capital patterns so that

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they might more rapidly develop world-best performance in these areas. At first cheap labour assisted this process, but as the growth strategy succeeded, domestic consumption patterns grew for food, clothing, accommodation, services and travel. As Australia in turn integrated more fully into the world market, it was in a position to supply some of this demand to each country in the region, at whatever stage of development that economy then enjoyed. But Australian enterprises had to be competitive within the world market to do so. As barrier protection was reduced, those Australian enterprises which survived were effectively trading in the world market of which Australia was becoming a part. Australian products competed with the same products in Australia as in overseas markets, though their price differential varied somewhat to accommodate different transport and marketing costs. Part of government's role was to minimise these costs for Australian producers.

Sectoral Policies During this process of structural change it was possible to identify which sectors of the Australian economy enjoyed a natural comparative advantage, but not necessarily, however, those which would perform best during and after the transition. Clearly, Australia as a lightly populated, highly developed, resource-endowed and spacious economy had a natural comparative advantage in many foodstuffs, primary commodities and infrastructure industries relative to its rapidly growing but developing neighbours. Unsurprisingly these were to provide the lead sectors in the export boom of the 1990s. But as a result of its 'fortress Australia' past, during which it had sought to produce almost everything behind barrier protection, it also had a diverse producing and service sector which would need to undergo extensive restructuring as it was opened up to world competition. Those enterprises which would flourish in this process could not be predicted solely with reference to natural comparative advantage. Indeed during the process of intense structural change enterprise experience varied gready. Performances were greatly affected by the ability and flexibility of personnel in different enterprises and sectors. In the mid-1980s the Australian automobile industry comprised five assemblers, producing thirteen models, supported by a large number of component manufacturers and exporting less than $200 million of product.12 Because the production runs were small compared with the major European and Japanese producers, the market was well protected at the frontier to ensure the survival of domestic assemblers with a higher marginal unit cost. As a result, sweetheart deals were common in an oligopolistic industry producing an expensive but poor product. During


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the next decade barrier protection - tariffs and quotas - was gready reduced, thereby accelerating change by permitting cheaper imports. To encourage domestic producers to find longer production runs by entering foreign markets with their improved product, exporters were allowed to import product to the same value as their exports duty-free. This was intended to encourage exports by providing an effective subsidy from consumers. It was probably also contrary to the GATT. The reorganisation of the Australian car industry was achieved by fundamentally changing the parameters within which its managers operated. As protection was reduced, managers of the five assemblers had to get longer production runs, better product and cheaper suppliers. One assembler, Nissan, ceased to produce locally in 1992. About a third of domestic component suppliers went out of business. The number of models produced in Australia fell to five by 1995: Falcon, Commodore, Magna, Camry, Corolla. This reorganisation left many people unemployed, a larger section of the domestic market supplied by imports, and a gready reduced automobile component industry. It also produced a relatively cheaper and better range of Australian cars, more Australian automotive exports and a growing level of investment in the industry by the mid-1990s. Australian cars were being exported throughout the world and its component producers were supplying car assemblers in the United States, Europe and East Asia. A new Toyota plant was built in Melbourne for $500 million and the other assemblers were engaged in substantial investment programs. Australia had moved from having an automobile industry which produced a substantially, almost wholly, Australian product in isolation, to one which was increasingly globalised. Its cars would be more like the world car products which the multinational automobile producers marketed throughout the world. This process was not achieved without pain. During the reorganisation of the car industry many people lost their jobs and many firms went bankrupt. In some cases this was unavoidable, since Australian product runs of 10 per cent those of Japan made marginal costs too high to compete against imports, even with moderate tariffs. In other cases closures were due to bad production practices. One factory closed when it lost an assemblers' contract, only to have its plant bought by another company who, with new workers, pursued the same contract. In others again, the same situation presented growth opportunities as wheels were exported to Germany and engine parts to Japan. In all, over eighty component manufacturers were exporting to all continents by 1993. The situation of the early 1980s could not have been sustained. With Japanese production runs at ten times Australian average and international transport costs at about 3 per cent of unit retail price, the nearly stagnant domestic market would have required ever-increasing

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protection levels for Australian producers to survive in it. Further, the cost of motor vehicles was an input price to many other industries also seeking to compete in the world market. The Australian car industry had to globalise. A similar sectoral policy was pursued with respect to TCF, with more devastating consequences. 13 During the 1980s Canberra hoped to reconstruct the TCF sector in a similar fashion to cars and introduced investment allowances and export credit schemes with a view to producing a similar result. By the early 1990s it had become clear that East Asian countries operating with similar capital and technology, but with lower labour costs, could produce similar product more cheaply and land it on the Australian market at a better price. This was exacerbated by dumping from, and government subsidy policies in, some developing states. Consequently, Australian factories which had pursued determined modernisation practices in the 1980s with heavy investment and labourshedding still found the going difficult. When the government accelerated the reduction of protection in March 1991, many of these enterprises faced closure and their workers unemployment. Again, the TCF sector would very likely survive in niche markets, but with gready reduced production and employment levels. One large multi-factory TCF company complained, with some justification, that it complied with the 1980s government plan only to face being closed by its 1991 program. In the whitegoods industry similar processes occurred as a sector tailored for sheltered domestic production faced increased import competition, but also enhanced export opportunities. One factory manager in South Australia employed two production experts to find him 3.5 per cent productivity increase each year to compensate for 2.5 per cent annual tariff cuts, plus an adverse relative inflation rate. They found it in quality circles and labour-shedding. The product was hugely improved in the process; by 1993 the factory exported to thirty-six foreign markets. In 1993 the Australian Manufacturing Council released the results of a survey it had commissioned by McKinsey & Co. called Emerging Exporters: Australia's High Value-added Manufacturing Exporters.1* This identified a new sector of small medium enterprises (SMEs) oriented towards exporting value-added products, which had been the fastest-growing category of Australian exports during the 1986-90 post-devaluation period. While their products varied gready, the study showed the characteristics these enterprises shared: top-quality management with vision; competitive products in terms of value not just price; and a strong customer orientation. In this, as in other sectors, the growth of SME exports was heavily dependent on the quality of management and its capacity to take advantage of the new macro-economic circumstances in which the Australian enterprise found itself in the 1990s.


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In the service sector whole new industries arose, which became heavily export-oriented. Until the 1980s international tourism to Australia had been extremely restricted as a result of high long-distance transport prices, and a high domestic cost structure. During the 1980s both these circumstances changed. The deregulation of the international airline industry and more efficient aeroplanes brought the cost of intercontinental air flight down dramatically. At the same time the devaluation of the Australian dollar reduced the costs of tourism in Australia by substantial amounts. Australia responded quickly, though at varying rates in different regions, to produce a tourism infrastructure of international class. This was most marked in Queensland where the ruling National Party government accommodated demands for resort construction by both domestic and foreign entrepreneurs. The result was a huge growth in incoming tourists from the East Asian growth economies: first Japan, then the four Tigers, and later the other nations of the region. As in any other industry, capital had to be oudaid, but the nation's return in jobs, wealth and assets was substantial.15 Similar benefits were obtained in the education sector. Two products proved to be profitable here. In the tertiary sector the partial deregulation of universities to enable them to attract full fee-paying foreign students led many universities to market their products commercially into Asia, which meant providing courses overseas and for foreign students in Australia. By 1993 a number of universities were to be found in the list of Australia's top 500 export-earning institutions including Monash University with $41 million export earnings. Short courses in English as a second language (ELICOS) also blossomed from nothing in the mid-1980s into a billion-dollar-plus export earner by the early 1990s. Both these processes encountered growing pains and complaints from the previously highly regulated education sector, but both also took profits from an Australian comparative advantage. As the exporting performance of the Australian economy improved, it became the object of periodic debates over appropriate 'industry policy'. When Labor was first elected it confronted a number of sectors which could be identified as facing collapse through a combination of recession, import competition, lack of investment and management uncertainty. Notable here were automobiles, steel, TCF and heavy engineering. It acted to isolate these sectors, identifying their problems and introducing plans specific to them. These became known appropriately as 'sectoral plans', and government effectively provided subsidies to them from the economy as a whole in recognition of their particular difficulties in restructuring. But as time progressed it was another strand of government policies which became more important for exporters, that is, the pursuit of the 'level playing field'. In this mode government generally

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chose not to 'pick winners' between sectors or firms, but rather to create a macro-economic climate of wages, prices and profits and a microeconomic environment of input costs which would enable Australia's managers to compete effectively against their foreign counterparts. On this analysis public servants or politicians would be no better, and probably much worse, at predicting market signals than managers driven by the price mechanism and profit motive. The eventually ensuing diversification in Australia's export performance broadly supports this analysis. But this was at first disguised by the spectacular corporate failures referred to earlier. There was always, however, some tension between government rhetoric and performance. In the urgent days following its election it developed sectoral policies which it maintained into the 1990s. It also occasionally added to these by, for example, subsidising Kodak production in Hawke's Melbourne electorate and introducing the Factor (f) program designed to ensure that Australia had a pharmaceutical production industry. After 1987 it also committed itself to develop the Multi-Function Polis for vaguely high-technology industries to be located after 1990 in Adelaide. Other exceptions could be found. But broadly, it moved away from industry-specific policies, which almost invariably meant transferring resources from one industry to another, to more general policies. Since government could not pick winners very well, it had to concentrate on getting the environment competitive, cheap and efficient. The sectors and firms which prospered in such an environment would be those whose owners, managers and workers were able to make a natural comparative advantage into a competitive advantage in the marketplace. In this perspective and policy framework, government's role was not so much interventionist as environmental. First, it had corrected the factor shares and given corporate Australia the profits to work with. It then reduced tax rates to give companies the incentive to pursue gain. It restructured taxes to make earnings more attractive than capital gains. By the 1990s it had finally reduced inflation to a level where capital gains were more difficult to achieve than profits, and returns on capital could be calculated rationally in a nearly stable price environment. At that stage its efforts could shift to consolidating the gains in corporate Australia. It needed to augment the skills and training of management - the critical ingredient of any economic institution - the commitment of workers to their product, and the accessibility of capital to successful ventures. In the meantime the process of restructuring had come a long way. In August 1994 Australian Business Monthly published a list of Australia's 500 largest exporting institutions. The study reveals some continuities with the past but also some positive new developments. 16 Commodity exporters still dominate - 8 out of the top ten, 75 out of the top hundred


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- but ETM exporters are increasing their presence in the top 500. The make-up of the list is increasingly diverse: from high-technology exports to wine through to 'exports' of education. There has been a definite shift towards Asia, with 75 per cent of merchandise exports ending up there. The main commodity exports are coal, gold, wool, beef and veal, iron ore and wheat. ETMs grew by 14 per cent in 1993; exports of non-ferrous metals, copper, aluminium, lead, chemicals and non-metallic manufactures all increased. Engineering products have grown at 20 per cent a year for the past ten years; the car industry recorded a 38 per cent increase in exports in 1993. Simply transformed manufactures have also increased, including processed food, processed fuel, and mineral and metal manufactures. Trade with APEC grew by 10 per cent in 1993 and constituted 72 per cent of total trade. Japan remains the largest market. The top ten companies are: Mitsui & Co. (Australia) Ltd, Mitsubishi Australia Ltd, Qantas Airways Ltd, BHP Minerals, Australian Wheat Board, Alcoa of Australia Ltd, Marubeni Australia Ltd, BHP steel, Hochu Australia Ltd and MIM Holdings Ltd. It is interesting to note the number of foreign-owned, especially Japanese, firms in this short list as well as in the top 500. If the various divisions of BHP are combined (including BHP petroleum which is ranked 24) then it is our largest exporter. The diversity of product, activity, location and foreign market is clearly revealed. Any policy designed to improve Australia's economic performance must contribute to the capacity of these enterprises to compete in the international marketplace and assist other Australian enterprises to join them. The task is easily stated, but its accomplishment is achieved only with difficulty. Policies must be targeted to enterprises, not sectors. Social Consequences of Restructuring

This process of restructuring Australian industry was not without pain for the general community. Much of the pain in the private and public sector was in labour-shedding, as industries in manufacturing or construction or agriculture closed or were downsized or sought to take advantage of productivity gains from new equipment. It is true that new industries grew, but these were often less labour-intensive, like mining or high-tech SMEs, or required different skills like educational services, or were in different parts of the country, like tourism. The result was a rise in both structural and cyclical unemployment. At each successive trough of the cycle - 1974-75, 1982-83, 1990-91 - the level and duration of unemployment grew and during each succeeding growth phase it remained higher. The classic counter-cyclicalfiscalmeasures were no longer able to contain the oscillations of the cycle, and pump-priming policies were no

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longer able to reduce unemployment levels to those that prevailed at the equivalent stage of the preceding cycle.17 Unemployment first rose significandy in Australia, as it did in most of the rest of the developed world, during the post-1973 OPEC-driven oil crisis. The rise in Australia was from a comparatively lower rate to a comparatively higher rate than the OECD average. Unemployment was the subject of considerable study during the following twenty years and became periodically a major political issue. Its increase has been attributed to various causes including technological change, trade union greed, government policy of too much or too litde spending, world market changes and voluntary idleness. Some observations about its relationship to the deregulation of the Australian economy are therefore in order. The role of technological change is double-sided. On the one hand, technological improvement increases productivity and lowers prices, thus increasing demand and employment, but on the other hand, it displaces workers and makes certain jobs obsolete. Over the long term it is doubtful that technological improvement lessens total employment. 18 However, particularly following a period of structural rigidity, rapid technological innovation may produce labour-shedding and short-term rises in unemployment. Compounding this problem for the young was that technological change had obliterated job opportunities in many of the traditional entry-level, low-skill, low-experience occupations that school leavers had taken up in the 1950s and 1960s: clerks, tellers, factory hands, service station attendants, railway workers, small shop assistants and so on. Many of these jobs were replaced by cheaper machinery. Youth unemployment rose sharply in the 1980s and was one factor driving the higher school retention ratios and demand for university places. It was also quickly realised that the work force of a modern industrial society would require a higher level of skills than that of a primary produce-exporting, but protected and regulated, domestic economy. Government policy sought to meet this by increasing education and training expenditure to an internationally high level. Nonetheless, unemployment was augmented, even during growth phases in the cycle, by labour-shedding in sectors being deregulated, like public sector instrumentalities, and those which were opened to the world market, like private sector industry. In some areas and at times of high unemployment, government was continually urged to modify its tough micro- and macro-economic reform program in order to accommodate the political pressure of job losses. But for the most part the Labor government refused to acquiesce in these demands. In 1986 it defeated a left-wing move to increase government spending to offset rising unemployment, because it feared the effect on the balance of


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payments and the currency crisis. In 1989 it continued its tough monetary stand despite fears that its necessary attack on the external deficit would cost it the 1990 election. In March 1991, although a deeper recession was clearly looming, it held its nerve and introduced a more rapid tariff reduction program. True, in the lead-up to the 1993 election it expanded its counter-cyclical expenditure program, but only modestly. But it did not effectively act to reduce this stimulation into the growth phase, and partly as a result the external deficit was running at the same proportion of GDP as in the previous growth phase a decade earlier. The Keating Labor government's reaction to the 1990-91 recession compares interestingly with the Fraser Coalition government's reaction to the 1982-83 recession. In both cases a government which had spent some earlier time instructing the populace on the evils of loose fiscal policy opened its purse when faced with the menace of an election during a recession. The Fraser government failed to rescue itself because it had too much other baggage to carry - high inflation, tax scams, a sick leader and a drought. The Keating government never destroyed its credibility and targeted its 1992-93 election spending at items which could be independently justified: transport infrastructure, corporate taxation cuts, training programs, investment allowances. Certainly, some of the minor programs were less well targeted, and the Local Government Capital Works Program seems to have used $500 million in brick-paving many high streets in Australia; the very small recreational facilities program later led to Minister Ros Kelly's resignation after the so-called Sports Rorts Affair. But in general the expanded budget deficit of 1992-93 resulted from the recession itself, which produced increased relief expenditure and decreased income tax revenue. These tough stances by government designed to force structural economic change undoubtedly contributed to rising unemployment and probably intensified the shakeout of labour and capital in 1990-92. Government was convinced that only such a restructuring could produce an economic structure viable in the long term. In this it was once again assisted by the Opposition, which produced an even tougher restructuring package, Fightbackl, in time for an election fought on economic recovery. At that stage the government's principal plank for the unemployed was to promise to maintain the extensive social welfare and income support net it had itself augmented during the last decade. The Opposition pledged in Jobsback19 to deflate it in the interest of making long-term unemployment a less attractive prospect and a more difficult one to sustain. By 1994 the Labor government was coming to a similar conclusion, but when it tightened dole eligibility it also undertook a substantial increase in training expenditure which made its fiscal constraint unattainable. During the decade of change a number of studies claimed to discern

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an increase in inequality taking place in several ways within Australian society.20 It was asserted that incomes were becoming more unequal, that wealth was becoming more concentrated, that regions were developing more unevenly and that more people were forming into a permanent underclass, many almost permanently unemployed. It would be extremely surprising if this were not the case. In all these areas policies had been developed designed to increase the role of market mechanisms in the production of outcomes. Wages were being determined by greater reference to labour productivity, which had been deliberately checked by the creation and extension of the award system a hundred years ago. Wealth had been unusually widely dispersed by international standards by a complex system of regulation and subsidy. Regional variations had been minimised by a federal system of fiscal equalisation. And employment levels had been sustained through labour-hoarding in publicly owned and regulated industries. As these systems were dismantled it is hardly surprising that inequalities should increase. The role of government was to reinstate the market-produced incentive structure which regulation had masked. In the place of universal, subsidised social benefits it tried to provide a welfare safety net designed to sustain the targeted needy. The cost and adequacy of this result were properly a subject of continuing national debate. 21 The decade of restructuring to 1995 had produced mixed results: clear short-term pain but some long-term gains. Unemployment had remained historically high throughout the cycle; money wages for those in work had been restrained and real average wages reduced; some of the increased level of national foreign debt had been absorbed and wasted by the 'excesses of the 1980s'; but corporate Australia had increased its profit share. These developments had been softened by the creation of a more equitable, widespread and efficient welfare sector and income support system. But structural change in the economy had been achieved: it traded into more open and faster-growing markets a more diverse range of products, and its factor shares of wages, prices and profits were at pre1974 levels. For the first time in a century Australians were receiving and reacting to clear signals by the international market. And their civilisation had not collapsed under the pressure. But the external deficit level was the same as a decade earlier.

CHAPTER 8

Geographic Dimensions of Change

The structural changes described in the last three chapters also affected the geographic distribution of people, industries and wealth in Australia. Such geographic changes have been a historical part of Australian economic development, but globalisation has induced new configurations. The only economies which don't change are those which are stagnant. This is a characteristic which some authorities have attributed to imperial-bureaucratic economies like late classical Rome or the pre-modern Chinese Empire. Wittfogel and Marx appeared to believe that the oriental despotisms exhibited this feature as long as the central power controlled the supply of water. It was also long thought that hunter-gatherer societies maintained a static relationship with their natural environment. Modern scholarship questions these interpretations. Technological innovation and economic progress continued in both the Roman and Chinese Empires, though in their later phases at a speed insufficient to maintain their military superiority over their external opponents. There is now enough evidence to conclude that in the naturally more abundant regions of Australia, even in that most isolated of human civilisations, the Aboriginal people were undertaking reasonably permanent settlements, the first step on the progress to agricultural economy. Progress and change are probably integral features of the human condition. It is even more certain that capitalist economies cannot remain stagnant for any period of time. On the contrary, an economy driven by the market mechanism is in a continual process of change as the individuals within it are given the freedom to adjust their desires or market demands, invent new products or technologies, or undertake to distribute them differendy to the market. During the lastfivecenturies of Western culture the market has progressively expanded as the chief driver of economic production, to a degree where it has supplanted earlier dominant 155

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administrative mechanisms. Continuous change has become the principal engine of growth in commodity production; new products have generated new production methods and demands for the raw materials to create them. As new technologies have been installed to enhance productivity, displaced labour has sought other opportunities for its employment. The pursuit of increased supplies of those raw materials and energy necessary to create these products has driven geographic and geological explorations, more recently on a global scale, to satisfy these demands. And as the scale of resources required to mobilise these expanding ambitions has exponentially increased, the administrative, military and political structures necessary to organise them have expanded. Modern Australia was created by this process and developed initially as a commodity-producing satellite economy. The process was and remains one of unending and accelerating change, and has interrelated economic and geographic dimensions. The Satellite Economies The creation by the European colonial powers of a number of separate and competing yet interrelating world markets ensured that their component parts were influenced by even wider rhythms of development. The early settlement of New South Wales was linked only tenuously to the world economy as it struggled to survive on a narrow coastal plain with limited output and effective British imperial subsidies of food and slave labour. The breakout into the fertile Murray-Darling River system, Australia's most productive agricultural region, joined Australia and its fortunes to the world market as a supplier of wool to the mass production textile industries of Britain, and especially Yorkshire. This greatly enhanced the population of New South Wales as settlement chased land to the extremities of grazing and to Port Phillip Bay. Australia supplanted the sheep runs of Scotland and Germany as a major world producer of wool.1 When gold was discovered in Victoria a new phase of development was entered as population growth accelerated in the southern colony.2 New transport systems were created to export the precious mineral and to service the labour that worked it. As the diggings became deeper and more complex, new companies were formed to mobilise capital and deploy the new technology required to win the product. Wealthy new settlements like Ballarat and Bendigo sprang up, presenting high Victorian architecture and wide main thoroughfares to satisfy the demands of the new populations. The financial and transport hub of this gold rush emerged as Melbourne, which went from a tent settlement in the 1850s to a culturally thriving Victorian metropolis by the late 1880s. By that stage it was the continent's premier city, one of the largest European urban centres

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in the British Empire, and one replete with protected secondary industry. It became the obvious site for the head offices of the emerging domestic corporations that profited from the mining boom initiated by gold but sustained by other discoveries. The largest of these proved to be Broken Hill Proprietary, formed around the rich mineral deposits of lead, silver and other ores at Broken Hill in the far west of New South Wales; for a long time BHP had twice the assets of the second largest Australian company. BHP also played a focal role in sustaining the Melbourne-based protected industry lobby and its pivotal support for the anti-Labor parties. By the time of the 1890s depression, VictoriarivalledNew South Wales in population size, a position it was to lose by federation and thereafter. South Australia also benefited from the Victorian gold rush.3 The initial settlement in 1836 had attracted non-convict labour in substantial numbers because of the lure of land which the Wakefield settlement scheme provided at cheap prices from the Crown. This land had, of course, been acquired in the first place by conquest of the indigenous population, which was almost destroyed in the process. The early settlement was therefore based on grain-producing and animal-raising smallholders, and a major urban settlement at Adelaide. This was soon augmented by mineral discoveries, notably of copper and later iron, a more diversified farming output and some secondary industry. For a time much of the Victorian goldfield imports and exports went through South Australia on the River Murray linked first to Victor Harbor and then to Adelaide by rail. In addition, and partly because South Australia was nearer via the clipper route to Europe than were the east coast colonies, Adelaide and the numerous smaller ports became major exporters of commodities to the British market. By the 1890s the colony hosted over 12 per cent of the continent's population, a proportion it was unable to sustain, despite a recovery in the 1950s, against a secular decline to just over 7 per cent in the mid-1990s. Queensland faced the other direction, into the Asia-Pacific region, and despite its considerable territory and early settlement as an extension of the New South Wales penal colony, took long to establish a substantial growth base.4 Its lack of early valuable mineral discoveries found it heavily dependent on beef cattle farming, some dairy production and a rich coastal sugar economy during the nineteenth century. Its trading links with the Pacific islands provided some supplements to a decentralised but largely coastal-based population. While some gold and other mineral production, including coal, produced some additional growth near Cairns and at Mount Isa and Collie, and in the Bowen Basin, Queensland's growth produced a population only half that of Victoria and barely greater than South Australia's at the time of federation, despite a greater landmass and considerably greater water supplies.

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50 N.S.W.

40 -

1£ 30 -

Vic.

1

Percent

0

S.A.

10

W.A.

Tas. ~ ACT

N.T. 0 i

1900

i

i

i

i i

1910 1920 1930 1940 1950 1960 1970 1980 1985 Year

Figure 8.1 Distribution of Population among States and Territories, 1901-83 Note: 1901-71 - estimates as at census date, not adjusted for underenumeration. 1976-84 - estimated Resident Population (on the basis of usual residence and adjusted for underenumeration).

Western Australia also got off to a desultory start at King George Sound in 1826.5 A later project in 1829 at Swan River was more successful, and a sparse population survived on the output of the south-western wool and wheat belt and its associated products to provide 5 per cent of the continent's population at federation. Perth was connected chiefly to the world market, with the ocean passage to Europe being much shorter than from the eastern seaboard, and as a result the colony was not a great enthusiast for the national market and for the tariff protection for southeastern Australian industry which it brought - indeed, during the 1930s depression the population voted to secede from Australia. Nonetheless its outward-looking economy developed at somewhat above the national average as its agricultural exports were progressively supplemented by mineral discoveries, starting with the goldfields at Kalgoorlie in the 1890s and subsequendy augmented by iron, coal, bauxite, nickel and natural gas. Perth became the financial hub for a commodity-based and exportoriented economy which encompassed over a third of the continent and eventually, by the 1990s, provided the largest export value of any State. At federation, Tasmania6 had a population about equal to that of Western Australia. It had been setded as a strategic outpost of the Sydney penal colony and had used convict labour to construct the basis for a fishing, whaling, dairy farming and orchard fruit economy. It was long and


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wrongly assumed that these settlers had entirely eliminated the distinctive Tasmanian Aboriginal population by round-up, killing and resettlement on a Bass Strait island. Tasmania's population as a proportion of the continent's total progressively declined from a peak in the 1820s to cross that of Western Australia at federation and only match that of the Australian Capital Territory in the 1990s. This relative contraction was ensured as the limited market for temperate foodstuffs and fish product was reduced by the 1971 British entry into the European Community. The new industries of paper products and mineral extraction and mining were heavily dependent on hydro-electric power, for the development of which there was no universal support. This has recently ensured periodic and sharp conflict over development projects, particularly hydro-electric powergenerating dams, which have been arbitrated by the federal Labor government in favour of the Greens. From its earliest times as a convict settlement, the economic development of Australia has thus been geographically uneven. Different regions have benefited at different times from their geographic locations, geological possessions, technological innovations, market changes or political leaderships. And as the country has moved from being a coastal settlement, to an agricultural and mining economy, to a protected manufacturing industry base, and then to having a more diversified, open and competitive economic structure, so the centres of population growth have moved between country and city, and from State to State. Figure 8.1 depicts this change during the sixty years following federation. It shows a continuing movement away from agriculture-based rural settlement as agriculture declined and became more capital-intensive, a relocation into metropolitan and other urban settlements as industrial centres became more important, and finally a move from capital cities to regional centres, as tertiary industries like retirement and tourism started to assume greater significance in the late twentieth century. But at no stage did these shifts to new growth centres and industries occur automatically. In each instance the mobilisation of resources to take advantage of new market conditions, emerging technologies or demanded commodities required the leadership of politicians, bureaucrats, company executives or entrepreneurs. These changes also did not occur in the simple linear fashion depicted in the rather smooth lines of the long-term trends of the chart, though like other capitalist societies, Australia has experienced some long-term cycles during its growth. These may be depicted in brief as: the woolbased growth phase of the 1820s and 1830s, followed by slow growth in the 1840s when Europe was depressed; a Long Boom following the discovery of gold in 1851 fuelled by population inflow and the development of construction and secondary industry, which ended in the

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depression of the 1890s; the growth phase following federation and limited industrialisation which ended with the 1930s world depression; and finally, the Second World War and post-war boom of migration and broad industrialisation, which ended with the 1970s recession. Each of the growth phases has been terminated as the primary pulse industry sectors and regions have largely exhausted their potential. Each following depression has seen a reorganisation of the economy both geographically and sectorally as capital and labour have been redeployed. And each renewed growth phase has been initiated on a different geographic and industrial platform. National Cyclical Growth

These long cycles, which can last for up to half a century, have been the subject of quite sustained academic disputation about their causation. They are often called long-wave or Kondratieff cycles, after the Russian economist who was among the first to describe them.7 Elsewhere they have been attributed to bunched waves of inventions, generations of entrepreneurs or, in agricultural societies, long-term variations in weather patterns. For Australia a simpler point can be made. Each sustained downturn drove new initiatives to create conditions for renewed growth. In 1851 the gold discoveries provided the first new impetus, of which the renewed drive in the 1890s towards a national and protected market for Australian industry was a result. The 1930s produced a national consensus for a broad-based industrial economy with a larger population base. The crisis of the early 1980s has begun a reorientation towards a more open and competitive economy taking advantage of strong regional growth in the Asia-Pacific region. Within the longer Kondratieff cycles there co-exists the short-term trade cycle which has been observed within market industrial economies since these emerged in Western Europe in the eighteenth century. These trade cycles have a life span of eight to ten years and see higher unemployment, increased business bankruptcies and negative economic growth in their troughs and the reverse phenomena during their peaks. They are usually attributed to the uneven pattern in the growth of capital investment and the production of consumer goods, which sees capital investment growth slow, with overproduction of goods, and sends waves of retrenchment through the economy until stocks are depleted, demand revives and investment recommences. The business cycle is a lesser version of the larger shakeout which occurs during the Kondratieff cycle and produces structural change as weaker firms go bankrupt and their capital, finance and labour are liberated until a new deployment opportunity evolves. Their weakness may derive from poor product, production processes, management or labour, but will be measured by a lower profit rate, which makes them most vulnerable to the market downturn.


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The 1930s depression occasioned considerable speculation about the means for avoiding such depressions. This was not new: the 1840s depression in Europe had produced the 1848 Communist Manifesto of Marx and Engels which sought to abolish the cycle altogether by abolishing the emerging market system which created it. The 1930s also found adherents to their logic, but in Australia they did not form a majority of the political classes. Instead the doctrines of the English economist John Maynard Keynes entered the Canberra clearing house for political ideas, the federal Parliament, through his scholarly disciples and through the practical Australian experience of the 1930s. The combined result was a commitment to an increased degree of state economic intervention designed to minimise unemployment, maximise industrial growth and level out the business cycles. During the 1950s and 1960s there appeared to be some evidence that this project had succeeded and the business cycle, although present, moved through such small oscillations as to give little concern to policy-makers or voters. This also was the experience elsewhere in the world market. It now seems more appropriate to assume that the cycle was modified in Australia by the steady growth of the world market, rather than by the astute and periodic adjustments of Canberra's policy-makers. It is now commonly assumed that the twenty-five years which followed the Second World War were an exceptional period of growth throughout the entire world capitalist economy.8 The business cycle returned in earnest with the downturn in 1974-75 which produced the first serious post-war unemployment crisis. After some recovery in the late 1970s, the Australian economy again plunged into a trough with the world economy in 1982-83. It recovered into the global boom for the rest of the 1980s and then again entered (early) the world recession of 1991-92. Two features of these three business cycle troughs need to be observed. While there is room for debate about the extent to which policy-makers' errors contributed to each, the troughs themselves were each time occasioned by changes in the growth patterns of the world market.9 Moreover, each recession became more severe when measured by duration, rate of labour unemployment or loss of production from the average trend rate occasioned. Some structural problems were clearly in evidence.10 In addition, these recessions had geographic dimensions which also became progressively more apparent. Industries often cluster into geographic concentrations for various reasons which include geographic location, climatic conditions, geological features or deposits, human resources or public policy. These clusters tend to create further reasons for additional and kindred firms to locate nearby, because the necessary networks of information and skills are already in existence. The same features which thereby produce a concentrated growth process can, in reverse, produce a cumulative contraction as an entire industry is hit with adverse circumstances. Firm closures

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across a sector may be also regionally concentrated, making investment in related industries unattractive, so exacerbating the downturn. In this process such regions tend to move down further and more quickly into the cyclical trough and then find it more difficult to attract new investment to kick-start them into the growth phase of the cycle. These cyclical movements in the geographic dispersal of capital accumulation rates create sociological and demographic features. Regional Disparities

Regions where industry growth is slowest tend to experience an ageing demographic structure with a corresponding slowing of population and market growth. This occurs because young people with less of their lives invested in a home and occupation tend to be more mobile and will be among the first to leave a declining region. This in turn tends to devalue capital assets, particularly in the housing sector, as there is a reduced rate of household formation. This makes it more difficult for older people to relocate even when they are part of the work force that is shed during the recession, since their home values are depressed relative to those of growth regions where the reverse process is occurring. As new capital formation takes place in the growth phase, so a population influx takes place in search of work. These people will be disproportionately young and bring with them an increased rate of household formation, demand for housing and a resulting increase in capital values. Related and service industries grow on the increased market demand. Entrepreneurs and speculators find this a more attractive investment environment and leave contracting regions for growth centres, hence exacerbating the differences. Central governments which seek to arrest this process are inhibiting economic change, development and growth. These geographically uneven rates of growth are an integral part of a capitalist economy and are unlikely to disappear. Indeed, the process of the formation of the first industrial capitalist economy in Britain was marked by the massive changes in the distribution of the British population, notably into the northern industrial cities. Similarly, in Australia economic development has been uneven as industry growth has shifted between regions and population has followed it. In general it has been those regions which have hosted industries best able to benefit from world economies that have grown most rapidly. But in a protected and regulated domestic economy, this has not always been allowed to be the case. As a result, the impact of the opening of the Australian economy to the world market during the last twenty years has been unevenly experienced. But its impact was unavoidable. During the post-Napoleonic War boom the key sector driving the


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Australian economy was wool production.11 This was concentrated in the Murray-Darling basin and population growth was strongest there and in those regions required to service the growth of the industry and its integration into the world market, which at that time meant the British imperial trading system. The financial and commercial centre for that process was Sydney. The investment boom was concentrated into fencing sheep runs, breeding sheep-dogs, building roads and creating a mobile work force to graze and shear the sheep and transport the wool to the coast. The research and development budget was devoted largely to breeding improved breeds of sheep and the wool they produced. From that base other industries developed in beef cattle, lamb production, dairy produce and the like. During this period population growth was concentrated into the Murray Basin and its feeders. The 1840s recession in Europe arrested this pattern and it was then diverted. The discovery of gold in 1851 changed this pattern fundamentally.12 The rush to extract from easily won gold deposits lasted a decade, after which it became more important to deploy expensive mining equipment. The resulting population increase attracted first by gold and thereafter by the need to create an extensive infrastructure for its continued extraction diverted population growth to the colony of Victoria and its capital Melbourne. For thirty years the growing population was kept busy building a transport system of road, rail and ports, a small enterprise-based and protected industrial sector, and a metropolis to rival many in Europe. That task came to an end in 1890 and Victoria never again enjoyed that level of pre-eminence in the nation's population. From federation to the Second World War national growth was concentrated in New South Wales, and to a lesser extent Western Australia. The emerging steel-based industries found a ready economic advantage in coastal New South Wales where the shallower and readily mined black coal field provided the basis for industry and population growth in Sydney and its two satellite steel centres in Newcasde and Wollongong. The key organisational force in this development was BHP, which began in mining but diversified into steel production during and after the First World War. The growth in the West was partly due to continued agricultural development, but increasingly as the result of additional mineral discovery and development across a huge and geologically promising land surface. During and after the Second World War population growth moved once more to the South, where South Australia and Victoria proved best able to take advantage of the opportunities offered by the Commonwealth policy of heavy immigration and protected industry development. In part this was a result of the previous development of protectionist industry by the colonial governments, which laid a network of

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infrastructure, skills and basic production. This was augmented by the wartime strategy of locating production far from the war zone. In the post-war period, therefore, Adelaide and Melbourne were well placed to take quick advantage of the potential for industry oriented to the domestic market that the Labor and Liberal governments in Canberra were to promote. The strength of the South Australian and Victorian divisions of the Liberal Party during the Menzies period may also have made the attraction of industry to those States that much easier, depending, as it so often did, on State subvention. Tasmania, despite its early settlement and relatively well developed infrastructure, experienced a steady decline in its proportion of national population and production from the late nineteenth century. After federation, it depended heavily on three industries, one of which was the extraction of natural resources. It found some mineral deposits, and small mining communities sprang up around the island to work them; its extensive forests provided for a timber industry of limited scale; and, of course, it continued to pursue fishing. Second, it developed electricity generation based on its extensive water resources and mountainous terrain. After 1945 it tried to unite these two sectors into resourceprocessing, particularly in those areas where energy was heavily-involved, like zinc and paper production. But none of these industries were labourintensive and they produced little population growth. The third sector was temperate fruit production, mainly for the British market. This did deploy considerable labour and large and impressive docks were built, especially in Hobart, to service the trade of the 'Apple Isle'. British entry into the European Union (then the European Economic Community) in the early 1970s effectively closed this market and shut down much of the industry. As a result population growth slowed even further, younger people left in even larger numbers, and investment and capital growth declined. By the 1980s Tasmania achieved the oldest, slowest-growing and lowest-income population of any Australian State. It did, however, continue to receive small numbers of Australian migrants attracted by its cheap housing and low levels of development. Indeed, declining regions often do attract an inflow of low-income migrants seeking cheap basic commodities, particularly housing. This is especially true of people on low, portable fixed incomes, who tend to fall into three categories. Retired people, whether on superannuation or a pension, will find a fixed income goes further in a declining region of low property values. As transport costs, travel times and communications have improved, particularly as a result of recent micro-economic reforms, more Australians have moved their place of residence on retirement. Some have gone to cheaper regions in economic decline, though the attractions of northern climates have usually provided a stronger lure


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than the southern States. People on fixed-income welfare benefits have also found declining regions attractive for the same reasons as retirees, a calculation often enhanced by the availability of welfare housing, as in some Victorian and South Australian country towns. And, finally, the long-term unemployed have sometimes found unemployment benefits go further in depressed regions, although the likelihood of employment is correspondingly diminished. While these inflows tend to offset the depressing impact on the regional market which the exodus of the young and entrepreneurial creates, they also tend to change the sociological characteristics of the population. The remaining population is even less amenable to dynamic development and less capable of flexible response to changing world market conditions, since they are not typically the population groups from which developmental leadership skills derive. Globalisation and the Regions: Growth

As Australia has opened to the world market, disparities in regional and State growth rates have increasingly reflected differing abilities to take advantage of new international conditions. This has been driven home most severely during the three recent recessions but has also been reflected in growth phases. During those twenty years growth has been most rapid in Queensland, Western Australia and the Northern Territory and slowest in Victoria, South Australia and Tasmania. New South Wales has had a declining share of national population growth despite gaining about 40 per cent of international migrant arrivals. But, if taken together with the ACT, it has enjoyed about national average performance rates. These differential regional growth rates have resulted from different rates of growth in concentrations of industries in different States, accompanied by uneven public policy performances by government authorities at State and local level. A similar process during the same time frame was observable in Britain and the United States. The older British industrial regions in Wales, Scotland and northern England underwent decline as the post-1979 Conservative government allowed the industrial shakeout dictated by the world market to take place, and as southern England prospered. In the United States the industrial heartland of the north-east experienced industrial decline as the 'rust belt', while the southern and western 'sunbelt' enjoyed faster growth. In 1992 Access Economics adapted this terminology to Australia and contrasted the rustbelt southeastern States to the sunbelt of the North and West.13 The use was simplistic but nonetheless illuminating. As Australia opened to the world market, the regional economies of Queensland, Western Australia and the Northern Territory were able to create export-oriented industries more rapidly and successfully than

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other States, and benefited from that process. New South Wales and the ACT, with over a third of the national economy, were large enough to have regions and sectors which were both beneficiaries and losers from the process. The three south-eastern States were generally unable to seize their opportunities quickly, although within that general pattern some areas fared worse than others. These regional disparities were masked somewhat by the 1980s generalised boom but were first indicated in the 1974-75 recession, revealed in the 1981-82 shakeout and thrown up in sharp relief in 1990-91. During that slump Queensland growth continued unabated, while in the South business was so bad that one source termed Australia's downturn the 'Victorian-based recession'.14 The strong growth in Queensland has been fuelled by the rapid development of three major industries: international tourism, minerals, and residential retirement. International tourism became an opportunity for Australia in the 1980s following the floating of the Australian dollar and its depreciation against the US dollar by 50 per cent and the yen by 200 per cent. In the 1970s the Australian dollar had reached US$1.51 and ¥400; by the 1990s it traded at about US 70 cents and ¥75. This opportunity was vigorously pursued by the first Labor Tourism minister, John Brown, but was taken up unevenly across the country. In order to attract foreign tourists an extensive infrastructure had to be created in the form of airports, resorts, hotels and entertainment. States also had to be aggressively marketed in a competitive international environment. Queensland was the first State to take advantage of this opportunity and pockets of its coastline were developed for this purpose. The Far North coast demonstrates this process better than any other region. The Far North of Queensland was long an agricultural region, centred on the port of Cairns, and pursuing sugar production and other farming products like dairy, fruit and beef. It also had a valuable fishing and mining industry, built ships (patrol boats) at Cairns, and had an iron foundry at Innisfail. The growth of the tourism industry transformed this situation into a regional boom which started with the devaluation of the dollar in the early 1980s and accelerated after 1984 when the new international airport was opened in Cairns. International tourist numbers more than doubled in the next ten years, with over half a million foreign tourists visiting the area in 1991-92. They spent nearly a billion dollars, employed over 20 000 people, stayed in the newly constructed infrastructure, and were entertained by a variety of sea, air and train tours. This industry alone was worth over two-thirds of a billion dollars in export earnings. This was enjoyed broadly in the community, including the Aboriginal people, whose culture became in strong demand. Cairns and its environs was one of the fastest-growing areas in the country, its population increasing by 33 per cent from 1981 to 1991. 15


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Queensland has benefited from the development of Australia's minerals industry in exports, first to Japan and later to the other industrialising countries of Asia. The central Queensland coast from Bowen to Gladstone has been transformed by this process. Previously an agricultural region, concentrating in beef catde from the hinterland and coastal sugar cane, it is now a major exporter of industrial feed stock. In the early 1990s the Mackay region was exporting over $1.5 billion of coal annually, most of it to Japan. Further south Comalco was a major aluminium producer at the Gladstone smelter on Boyne Island. With extensive deposits of open-cut coal, shale oil, natural gas and mineral sands, the region can expect further growth as a centre of heavy industry. During the development of these industries most of the urban centres of the region enjoyed a 1981-91 growth rate of up to 20 per cent as dedicated ports, roads and railways were constructed. These are now being complemented by educational and cultural facilities to match the service needs of the augmented population. Queensland has also been a major destination for internal Australian migration, particularly from Victoria and New South Wales.16 Much of this has been fuelled by retirees moving to a warmer climate and, initially anyway, cheaper housing and living costs. This influx has concentrated in the region south of Brisbane, notably at the Gold Coast, which grew by 66 per cent between 1981 and 1991 to nearly match Newcasde and Canberra in size by reaching 225000 people. The impetus from this growth was at first tourism and retirement. As the population bulk has risen, however, it has been able to attract other industries including some manufacturing like plastics, fibreglass, boat-building, and film production. It was also chosen as the site of Australia's first private university, named after its coowner and later failed entrepreneur Alan Bond. To a limited degree its growth has also fed off spillover growth from Brisbane, which has been second only to Perth in its growth rate of 21.5 per cent during 1981-91, to 1.145 million. At this rate, and since Brisbane has fast-growing regions to its south, centred in the Gold Coast, and north around the Sunshine Coast, it may be expected that it will overtake Melbourne early in the next century as Australia's second largest urban concentration. Queensland was well placed to take advantage of Australia's economic shift to the Asia-Pacific region. It is geographically closer to the new focus of Australia's trading pattern and not at the end of a longer sea route to Europe, as had long been the case. Apart from sugar, it had not developed a significant protected manufacturing sector which required drastic restructuring and downsizing. Its climate and proximity to Asia facilitated tourism, and its geology assisted the resource extraction industry to a degree that enabled ready complementarity with the emerging Asian industrial economies. It was also run, during the formative years of this

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process, 1957-89, by a strongly pro-development Coalition and then National Party State government. As a result of a rural-weighted electoral system inherited from its long-reigning Labor predecessor, the Nationals were later able to govern without the need for urban middle-class support in Brisbane. Partly as a consequence, environmental, Aboriginal, equity and probity issues that strongly influenced politics elsewhere were less important, and projects which would have found it difficult to gain community support in other States were achieved. Despite its considerable development record, however, this style of government was discredited in the late 1980s by the findings of the Fitzgerald Commission of widespread corrupt practices between die State government and the business sector. Nonetheless, the basis for growth had been laid, and was continued by the Goss Labor government after 1989. By the mid-1990s Queensland budgets simultaneously saw increased oudays on public infrastructure and services and zero State debt levels. Queensland hardly noticed the 1990-91 recession. Western Australia has also been a major beneficiary of Australia's opening to the world market, becoming Australia's premier exporting State in the early 1990s. As a disproportionately large host to international and Australian migrants, it overtook South Australia in population size in the 1980s. It also hardly noticed the early 1990s slump. The Western Australian economy has throughout its history been heavily dependent on primary production in the south-west agricultural belt, and in dispersed mining communities throughout its vast territory. Since it possessed little protected manufacturing industry, it suffered litde from the reduction in tariff rates and benefited from the cost reductions which flowed from that process and from deregulation. Perth emerged from that growth as the major financial and commercial centre of the economic development of one-third of the continent, containing as a result a large number of people made quickly rich by the periodic mineral booms. Perth grew by 25 per cent from 1981 to 1991 to just over a million people, with 1.3 million in the metropolitan region. It is expected to double that figure by 2020. Perth has always had some small manufacturing and some heavy industry concentrated on minerals processing at Kwinana. New industries are now evolving to meet new opportunities. These include the shipbuilding complex which has sprung up south of Fremantle at Henderson, which direcdy involves over 2000 workers and produces luxury yachts, high-tech catamaran ferries and military patrol boats, almost entirely for export. But the State's wealth is mostly produced elsewhere. Western Australia has long been reliant on mineral production. An early stimulus to its development occurred when gold was discovered at Kalgoorlie in the south-east in 1894. Since that time gold has been


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produced there by an industry that has diversified into other minerals, notably nickel. The total value of annual production exceeds $2 billion, much of which is exported through the port of Esperance. In the northwest of the State the Pilbara region contains one of the world's largest known reserves of iron ore. During the last twenty-five years the region has been developed to export the ore, much of it to Japan, and specialist towns, railways and ports have been built to do this. The region exports over 100 million tonnes a year worth nearly $3 billion, and the workers live in the new towns like Paraburdoo, Newman and Tom Price. Much of the infrastructure, including the railways and electricity and gas supplies, has been provided by private capital. In addition there are extensive offshore deposits of petroleum and gas which have been exploited since 1964 and are undergoing a major expansion in the 1990s. This is a result of new technologies enabling the gas to be frozen and transported to Japan, Korea and elsewhere in Asia as stored energy for domestic or industrial use. Already worth over $2.5 billion annually, the project is expected to generate over $2 billion a year in exports by the mid-1990s. The project involves an expected investment of $12 billion, a 70000 increase in employment, and the payment of up to $200 million annually in royalties to the State government. In the south-east Peel region around Mandurah, mineral extraction and processing, particularly of bauxite and aluminium worth about $2 billion annually, provides the basis for the State's fastest-growing regional population. The region to its south around Bunbury is also growing quickly, based on bauxite, coal and mineral sands and, more recently, wine. The growth of these and other primary production-based regional economies in Western Australia has been assisted by the opening and deregulating of the Australian economy. Production costs have been reduced, the lower currency rate has reflected market assessments, and access to Australian and international development capital has been facilitated. And throughout this period the government of Western Australia has been strongly pro-development. This first occurred under the Liberal government of Sir Charles Court, who was close to the mining companies and high-profile entrepreneurs of the 1970s. In 1983 the Labor government of Brian Burke came to power, but by then Labor too was market-dominated. Burke's family background and political orientation were right-wing Labor. He was a former media presenter and he fronted the Opposition with great skill to achieve power. He also developed Labor's links with the newer money in Perth in a fashion that was later to see both sides of that relationship prosecuted for lack of probity, and Burke gaoled. At a federal level the Western Australian Labor Party was dominated by very dry Centre Left ministers like Peter Walsh, John Dawkins and Peter

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Cook, or right-wingers, including leadership contender Kim Beazley, few of whom had much sympathy for tariff protection or extensive State regulation of the economy. When Labor lost the 1992 State election to the Liberals, led by Sir Charles Court's son, Richard Court, the differences on policies of economic development had become minimal although it might be noted that the Western Australian Liberals provided John Hewson with his strongest support base in 1993-94 and on that score must be reckoned very dry indeed. Since Fightback! was a program designed to benefit big business exporters and mining in particular, it was understandable that its strongest support should come from a State where prosperity had been built by large mining companies. Similarly, opposition to the Mabo-derived Aboriginal land rights federal legislation was strongest in Western Australia where the mining industry was relatively strongest. In addition, since much of the State was recently conquered, potential Aboriginal land claims were most widely spread. Globalisation and the Regions: Problems

The states which have benefited least from the globalisation of the Australian economy are South Australia and Victoria. Both had relatively small areas of potential settlement because of Victoria's size, and in South Australia's case, the lack of water. Both did fairly well in the nineteenth century as a result of mineral discoveries, the availability of cheap arable land and relative proximity to Europe. After federation, however, their population share began to decline until it was arrested during and after the Second World War by the policy of broad-based protected industrialisation. Both became major industrial centres dominated by large manufacturing metropolises, Melbourne and Adelaide. During the post-war boom both also became major centres of Liberal Party national power. In Victoria, 1955 saw a deep split in the Labor movement, with the DLP thereafter effectively supporting the Liberals with its preferences. In South Australia a long-standing and substantial electoral gerrymander kept Premier Sir Thomas Playford in power for twenty-eight years. At the same time both States also became major centres of left-wing industrial and political power, based in the powerful unions in the State-owned and tariff-protected industries. Both States were to find adjustment to deregulation and globalisation difficult, particularly in areas where protected industries had concentrated. Victoria was ruled by an interventionist and regulatory Liberal State government throughout the post-war boom until 1982. During that time it also produced most of the Australian Liberal prime ministers, including Robert Menzies and Malcolm Fraser, none of whom would open up the Australian economy. But already in the 1970s Victoria's growth rate was slowing and it seemed likely to miss the minerals boom on which the


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rest of the country, with Fraser's advice, was then pinning its hopes. As Victoria went into the 1981-82 recession the Liberals were divided on strategy, and then defeated by Labor, which produced a State government led by John Cain (1982-90).17 The Cain Labor government was not left-wing, but was influenced heavily by the political demands of its union base for stimulatory economic policy designed to reduce unemployment. During the 1980s and despite the cuts to tariffs, Victoria recorded the nation's lowest unemployment rate for six consecutive years. This was achieved by two mechanisms: the general boom of that period benefited the tradable goods-producing sector which was concentrated in Victoria and still enjoyed considerable protection; and the State government used its financial agencies, particularly the SBV and Tricontinental, to provide cheap money to Victorian business. As with the other banks, much of this loan book went into property development in the Melbourne CBD. In 1990, after two years of high interest rates and a resultant period of declining property values, especially in the CBD, the SBV/Tricontinental faced debts of $3 billion, or 75 per cent of its loans. At the same time a major financial company centred in western Victoria failed. Shordy after, the national economy entered a serious recession which depressed the demand for the output of Victorian secondary industry. During this recession the federal government accelerated the pace of tariff reductions in March 1991. The Victorian Labor government was faced with increased debt and falling revenue but could not act to rectify this situation because its political base was in the public sector unions, which would not tolerate substantial reform as this would threaten their members' working conditions and tenure. Indeed in early 1991 they closed much of the public transport system rather than make it more efficient. In 1990 the Labor government changed personnel to a more electorally attractive line-up behind new Premier Joan Kirner (1990-92), but still could not change the political structure they inherited. Instead they were defeated in the election of late 1992 while continuing to borrow money to pay for recurrent expenditure, thereby worsening the debt situation. The combination of these circumstances produced a collapse of business confidence and a virtual cessation of private investment in 1991-92. The succeeding Liberal government led by a tough political survivor, Jeff Kennett (1992- ), acted more resolutely. Enjoying a record majority in both Houses and with four years to an election, the Liberals quickly cut public expenditure and sacked public servants, increased taxes on individuals but not business, and deregulated areas of the State economy including retailing. This was at first hugely unpopular, but as the national economic recovery took Victoria up with it and the ALP relapsed into internal warfare, the Victorian Liberal government faced 1995 with substantial public support.

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The Victorian economy required considerable change to adjust to the globalisation process. In particular, its protected manufacturing would have faced a shakeout anyway, without the federal tariff-cutting policy and the financial disaster imposed by the mismanagement of State Labor. The protected industries comprised TCF, motor vehicles and general manufacturing, located chiefly in the northern and western suburbs of Melbourne and the region to the west centred on the stagnant town of Geelong. Together these areas hosted around 50 per cent of industry jobs in Victoria and were badly affected by the 1990s recession, with all data collection areas posting unemployment rates well above the national average. The region was also heavily dependent on some major employers, on which others depended, such as Ford, Toyota, ICI, Kodak, Ericsson and Amecon. Hence the federal government had been attuned to their needs, particularly since the whole region remorselessly voted ALP. Kodak received a special $36 million subsidy to stay open; Toyota restructured to produce automotive product, some for export, in a new $500 million plant at Altona; and Ford met continually with the federal government about its problems in producing a new-generation Falcon with similar continuing high local content levels. But in the longer term the region could only prosper by finding bigger export markets and by 1995 there were clear signs that it was using its fine transport facilities to achieve that outcome after five very hard years. But the halcyon days of Victorian industry providing to a national market protected for it were at an end. South Australia was a city-state with the heaviest concentration of population in its capital of Adelaide, with 1 million of its 1.5 million people. As the period of protected manufacturing development, so successfully pursued by Playford, came to an end in the early 1970s, development opportunities dried up in South Australia. Its farming sector was damaged by the closure of the British market and struggled to find new buyers. The northern Iron Triangle towns of Whyalla, Port Augusta and Port Pirie continued to rely on steel, railways and lead mining respectively, after the Whyalla shipyards closed in the mid-1970s. Mineral development presented few opportunities, although one large uranium mine was opened at Roxby Downs in the mid-1980s. And the city-state faced a reduction in tariff protection levels for its industry base, which had enjoyed privileged access to the domestic market since federation. South Australia was run by a Labor government during much of the relevant twenty-five years (1970-95), led chiefly by Premiers Don Dunstan (1970-79) and John Bannon (1982-92). Its complexion was factionally Centre Left, although it was not formally organised as such until 1984. But after that time, because of the State's heavy reliance on tariffs, its federal free-trade members of Parliament were generally out of step with


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its State-based protectionist politicians. Ironically, the most dry Labor faction federally had its major base in the State most reliant on protected secondary industry. The 1970s South Australian Labor government was a national leader in social reform and development of the arts, but it failed almost totally to adjust the State's economic structure.18 The three-year Liberal government under Premier David Tonkin (1979-82) tried for minerals development in keeping with the national mood, but succeeded only in starting the uranium mine. The succeeding Bannon Labor government presided over the Long Boom in the production of tradable goods to 1990. This finally petered out into the deep recession of 1990-91, which hit South Australia a litde later but much worse than other mainland regions. As in Victoria, it was worsened by the failure of its State Bank. In the mid-1980s the SBSA had been created by Labor through mergers to provide a financial base for the regional economy, and its management was left by legislation at arm's length to government. Under chairman Tim Marcus Clarke, its board operated largely autonomously. The SBSA then expanded rapidly by borrowing internationally and investing mosdy in Australia and heavily in property. In 1991 it was revealed that with the falls in commercial property asset prices it had lost $1 billion, a figure later revised to over $3 billion. It was proportionately and absolutely the worst financial disaster in the history of Australia. The State government took over the losses and as a result became a heavily, as opposed to moderately, indebted State: State debt rose from over $4 billion to over $7 billion. With the downturn in the world and domestic markets, South Australian business confidence collapsed, and with it popular support for the government. In September 1992 Bannon resigned and was replaced as premier by Lyn Arnold (1992-93), whose government foundered through a period of paralysis before losing the December 1993 election by a record majority. The succeeding Liberal government under leading wet Dean Brown (1993- ) shortly undertook necessary and unpopular fiscal remedies by cutting public spending, increasing State charges and selling State assets. South Australia's problems resembled Victoria's: it had a heavily protected industry structure that had to be reorganised. Sectors of its industry, notably automobiles and wine, were performing extremely well, but it had not fully seized the exporting opportunities offered in the AsiaPacific region. It had, further, so far badly handled opportunities in tourism, mining and food-processing. In 1990 it had won the competition to host the national Multi-Function Polis (Technopolis) but had not developed it well. It was acquiring a reputation, to some extent justified, as a place where nothing happened and whose people were antidevelopment. The State voted for twenty years, more strongly than any

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other, for anti-development Democrats and regulationist Left Labor. It had some of the best-organised residential lobbies in the country. Its population was the oldest, slowest growing and most conservative in mainland Australia. In December 1993 it appeared to vote to break these habits, but few tangible indications emerged that it had done so. It appeared more likely to continue the century-long decline in its importance to the nation, a decline temporarily arrested by post-war industrialisation. Efforts to reverse this process initiated by the new government were meeting quick resistance in an Upper House it did not control and in State by-election results. To 1995 it continued to record the lowest growth rate of any mainland State. While New South Wales has not experienced the traumatic challenges faced by South Australia and Victoria, it has also been forced to restructure by national globalisation policies. As a result, some of its regions have done better than others. Unlike the sunbelt it has not experienced almost universal strong growth, and unlike the rustbelt it has not seen nearly uniform stagnation. During the process of globalisation Sydney has become the unrivalled business capital of Australia.19 It is the capital of the State with the largest population, with a third of the national economy. As the destination of about 40 per cent of international immigrants, the city has a more pronounced Asian-Pacific ethnic character than any other in Australia, reflecting the pattern of recent immigration sources. It hosts the headquarters of most of Australia's largest companies, two-thirds of its financial institutions and about 40 cent of the business service sector's national revenue. It is also the location of 80 per cent of foreign trading and merchant banks, and it actively attracts more of them and security funds, insurance companies and investment fund managers. It has the biggest and most active stock exchange which operates through electronic communications to the smaller capitals where active exchanges have closed. Alongside this it hosts about 50 per cent of the nation's capacity in advanced communication software and technology research and industry, and is the headquarters for the overwhelming majority of its computer companies. About 70 per cent of international visitors to Australia arrive at Sydney airport. As a major CBD with a good international communications and transport network and a low cost structure, Sydney is also pursuing regional headquarters for major international companies with some success. It also will host the Olympics in 2000. Western Sydney will soon account for about half its projected population, 2.25 million of 4.1 million in 2011, and is more of an industrial centre. As the city's population centre has moved west and grown, so the mosdy unprotected industries of food-processing, metal products, chemicals, pharmaceuticals, paper and printing have developed. The new international airport to be developed at Badgery's Creek will assist this


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process. Together these regions will continue to produce the major cultural concentration of the Australian nation and its principal Asia-Pacific regional centre. Unsurprisingly, the main national political thrust for globalisation of the Australian economy has come from Sydney in both major parties -just as the resistance to it has come most strongly from Melbourne. Property prices have risen most strongly in Sydney, though they have also been most subject to cyclical variations. Elsewhere in New South Wales the picture has been more varied. The south-east region centred in Canberra and including the south coast leisure and recreation regions has experienced continued growth based largely on the expansion of government in the national capital. As public service departments have continued to concentrate there, per capita incomes have remained at almost twice the national average despite the move to self-government in the 1980s and its attendant withdrawal of subsidies from the Commonwealth government. Canberra's population of 276000 by 1991 was sufficient, together with its 1981-91 growth rate of 25 per cent, to ensure that other industries grew up around the capital to augment property development and construction as major employers. Among these were included tourism, timber, education services and communications. Similarly, the northern and central coastal regions of New South Wales have experienced population growth centred on retirement opportunities for people from the southern States and Sydney, chasing the climate or cheaper real estate. The increased population has also encouraged some industry development based on lower costs and an expanding market. Conversely, the more traditional industrial centres of New South Wales have found development opportunities harder, especially in the miningbased centres of Broken Hill, Newcastle and Wollongong. Broken Hill prospered and conceived BHP on a base of silver, lead and zinc mining for more than a century, reaching a peak population of 34 000. Laboursaving mining techniques and the exhaustion of reserves have seen this decline to under 29 000, with little chance of economic diversification in a remote semi-desert environment. The Hunter Valley, based on Newcastle with an almost stagnant population of 260 000, remains a major export centre based on coal deposits, heavy industry, steel production and shipbuilding. But these declining industries cannot support the work force and the Hunter has actively organised and successfully diversified into wine production and tourism. This has still left large pools of unemployed workers requiring new skills for new industries. This is also true of Wollongong, with a stable population of 211 000, the regional centre for the Illawarra. Also formerly a heavy industry centre, it too has had to diversify, in its case into new heavy industry opportunities like oilrigs,and towards information technology and education services.

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A significant exception to the general picture of coastal drift is presented by Albury-Wodonga, an inland centre of 100 000 people astride the Victoria-New South Wales border. Designated a growth centre during the Whitlam government by Tom Uren, Minister for Urban and Regional Development, it has grown since. The area has defied trends by attracting a high level of diverse manufacturing investment to take advantage of its location on the main Sydney-Melbourne transport corridor. It has continued to be the regional focus for the farming area centred on the Murray River, which runs through the middle of the twin towns. As a part of the Ned Kelly country it has also been able to develop some tourism. Perhaps most importantly its development has long been in the hands of an active and dedicated organisation of regional councils, known as Development Albury Wodonga 2000. This has pursued industry development based on the area's existing advantages, and lays some claim to being the most successful regional development authority in the country, running as it has against the adverse trends in south-eastern rural Australia during the period of globalisation. Regional Development Policy Options

The process of combined and uneven regional development is a feature of all national capitalist economies, including Australia. The history of the federated national state, with its built-in opportunities for claimant State governments, together with the long period of regulated industry and state-induced development, gave Australia's settlement pattern a distinctive character. When it was exposed to deregulation and globalisation the economy readjusted rapidly to its new geographic imperatives. The Commonwealth government had no specific policy for dealing with this matter. Periodically Australian governments had devoted their energies to regional development to offset what often appeared to be the inexorable concentration of the population into the major cities of the day. In the 1960s and 1970s decentralisation had been fashionable. The Victorian Liberal government pursued protected industrialisation for country towns which left them quite exposed in the 1980s. The South Australian Labor government unsuccessfully promoted the regional centre of Monarto which later became a wildlife reserve. The Whitlam government set up the Department of Urban and Regional Development under Tom Uren, and it tried to encourage decentralisation, with some limited success in Albury-Wodonga. Later, Fraser promoted effective statehood status for the Northern Territory, which, combined with Commonwealth subsidies, did lead to accelerated growth in that area. The period of globalisation rendered regional development issues unfashionable. In the 1990-91 recession this issue was again placed firmly


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on the national agenda by the sharply disparate rates of development being experienced by different parts of the country. The Tasmanian government was already in receipt of a direct Commonwealth subsidy, corresponding to its status as a signatory to the Act of Federation. In 1990 the failure of the State Bank of Victoria led to a bail-out by the Commonwealth government, through the mechanism of buying the SBV through the Commonwealth Bank of Australia and selling off enough of the CBA to raise the money. In late 1992 the Labor State government of South Australia was offered $600 million by Prime Minister Keating, in part conditional on its sale of the failed State Bank, to partly remedy its deteriorating debt position. At the 1993 federal election campaign Keating intensified the debate about regional development, which had become at that time a code name for the recession in the south-eastern States, by promising to establish a department to deal with the matter. This was in part a response to the ALP's expected poor electoral performance in these States. Following the Labor victory in March 1993 this became a serious matter. It had done very well in Tasmania with four from five seats, had recovered four of the nine seats lost in 1990 in Victoria, and experienced a near disaster in South Australia where it lost three of its seven seats of the total twelve. It began to backpedal on the issue, however, and with little discernible complaint decided to merge Regional Development into Industry and Technology to form DITARD. A year later this was further downgraded into the reformed Department of Industry, Science and Technology. Regional Development policy was left as announced in the statement of May 1994 and transferred to the portfolio of the retiring Deputy Prime Minister, Brian Howe. During its brief year-long life the Regional Development Unit had commissioned three studies into the problems of regional development. The first was an inquiry by the Industry Commission into impediments to economic development and change in regional Australia. That notoriously dry and theoretical body took the view that centralised determination of wage rates and welfare payments like regional subsidies only served to discourage declining regions from changing their orientation towards cheapening costs and encouraging the development of new industry. For example, it argued: 'There is evidence that, on balance, people have been moving from relatively low to high unemployment areas. The uniformity and duration of unemployment benefits are seen as contributing to people migrating to and remaining in regions with lower costs of living and lifestyle advantages'.20 The second report was prepared by a task force headed by ACTU secretary Bill Kelty and comprising mostly private sector employers, who toured many regions of Australia and produced a very enlightening

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empirical study. They also recommended enhanced Commonwealth spending on a large infrastructure program of transport and educational services, and infrastructure bonds designed to make it easier for declining regions to compete in the national and world markets. 21 The third report was a survey by the management consultants McKinsey & Co. into why private companies choose to invest in some regions and not in others. The survey concluded that while some regions were in decline, some were growing rapidly and others were doing about the national average in terms of capital investment and growth. It suggested that the key factor determining the degree of regional success was the quality of its leadership in the development process.22 The May 1994 budget dealt with the issue by appropriating funds to assist regional authorities to design development strategies by offering Commonwealth matching moneys to help pay the costs. This enabled the Commonwealth to maintain its basic policy of globalisation and geographic structural adjustment to meet that process. It also met the illjudged commitment deployed in the heat of the election campaign, without incurring any great costs or impeding change-enhancing policies. And it encouraged regional authorities to combine to address problems of regional decline and take action to meet, arrest and reverse that process. Regional development policies could finally only come from the regions concerned, from the people within them and from their corporate, economic and political leadership. Each would require a development strategy defining strengths, weaknesses, opportunities and dangers, and one being pursued around these. By 1995 the worst performing regional economy was that of South Australia, and its situation may be used to define the problem. For twenty years its population had effectively supported a low-growth regime of Left-supported Labor government. It had the slowest mainland growth, the oldest population, and all regions within it were relatively declining, except the retirement-based south coast. It had also developed a serious debt problem out of the State Bank. In 1992 the Arthur D. Little Report into its economy predicted that if no serious change was made it would by the twenty-first century have 150000 people more than its economic structure could bear. 23 During the following year the State government made some modest efforts to modify economic strategy but was paralysed by its own political power base in the unions, by electoral hostility, zero business confidence, media campaigns of disparagement, and poor personnel. In December 1993 the Liberals won the State election by a record majority in the Lower House but with equal numbers in the Upper House, with them providing the president. They then discovered the Labor government had also already lost the contract for the Grand Prix,


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the State's premier circus, after 1995. If the new government were to produce substantial economic growth as the national economy entered the growth phase of the cycle and took advantage of its new structural orientation to the Asia-Pacific region, it would need to change direction. It commissioned an audit report into the State's economic policy which made over 300 recommendations of reform. The main items were designed to reduce State debt from its excessive level with resulting high service payments and unhealthy credit rating. This involved raising charges, lowering outlays and selling assets. The audit commissioner's report was used in government the same way as Hawke's discovery on the Monday after his election victory on Saturday, 15 March 1983: the situation is much worse than we had realised. Using this by then common excuse, it became clear that the new government intended more rapid structural adjustment to its fiscal situation than had been foreseen before the election. The audit commission proposed the retrenchment of over 5000 public sector employees over the next few years, including schoolteachers, nurses and public servants, as a principal mechanism for reducing the State's debt and cutting its annual $300 million-plus deficit. This quickly excited hostility and within four days the Liberals lost a by-election with a swing of nearly 10 per cent. Subsequently it announced some modest increases to charges for State government services. Much more importandy, it began the process of selling State-owned assets. Like all Australian governments, the South Australian government owned a number of GBEs ranging from an art gallery, to electricity generation and supply, to the SBSA. It determined to sell a number of these for two main reasons. The first was to provide funds to retire State debt in order to reduce interest payments and cut taxes. If State debt in a declining region like South Australia were higher than in a growth State like Queensland, where it was projected soon to be zero, then incentives for business investment would be minimised. Second, state-run GBEs were often less efficient than if they were privately run and thereby placed an additional cost on industry in South Australia. Of course this process would disadvantage many public sector workers and, if badly handled, would reduce government services. This was an unavoidable strategy if South Australia's decline were not to continue. But in addition, government needed to deliver some investment proposals to provide evidence of the turning fortunes of the State's economy. In early 1994 it succeeded in getting announcements of investment decisions by Motorola to locate mobile phone research facilities at the Technopolis, Australis TV to locate its subscription centre in Adelaide, and a Malaysian company to declare its intention to invest heavily in a tourist resort south of Adelaide. All of these projects probably

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involved heavy government subsidies but were an unavoidable part of turning the depressed situation around. Whether the Liberal government had the fortitude to maintain this strategy in the teeth of public complaints would be a test of its capacity. It might in any case be too late to reverse decline in the State's economic fortunes. Australia could no more avoid the process of uneven regional economic development than it had in the past. It had avoided the temptation in 1993-94 to arrest the decline of some regions by vigorous national government intervention which would have effectively offset its other structural adjustment policies. Some regions will decline because they lack the resources to maintain a status to which different historical circumstances had elevated them - it is difficult to envisage Broken Hill regaining its pre-eminence. Other regions have the opportunities to build on their base of human and economic resources, but have not yet thrown up the leadership skills to do so. The whole of South Australia and its Iron Triangle region in particular has had a history of misused opportunities for nearly twenty years. Other regions again have used fairly meagre resources to actively promote successful economic development strategies, notably the Albury-Wodonga region. And others have built on natural endowments to achieve quite spectacular results during a period of national uncertainty. The State of Queensland is an exemplar in this respect, with few areas being able to match the record of the Far North centred in Cairns. Regional development records depend on a combination of natural endowments, historical circumstances and human skills. They are also progressively more deeply affected by the structure of demand and production created by the world market. As for Australia as a whole and for its economic institutions, the performance of its various regions would depend in some measure on the ability of their leadership to take advantage of the new opportunities they offered. In the 1990s these opportunities were to be found increasingly in the Asia-Pacific region.

CHAPTER 9

Australia Joins the Asia-Pacific Region: from ANZUS to APEC

In 1945 Australia self-consciously considered itself a rich, British-derived, white Anglo-Celtic nation of 7.5 million people, on a sparsely populated continent located off the coast of poor, densely peopled Asia. Almost all its politicians, business leaders and opinion formers were Anglo-Celtic males. Its Aboriginal inhabitants had no place in its power structure and were not even counted in the census. Its six major cities held over 80 per cent of a population that had grown very slowly during the previous fifteen years of depression and war. It exported primary products to and imported manufactures and capital from its principal trading partner, Great Britain. Its cautious Labor government determined to industrialise the country to avoid again the impoverished fate of a primary-producing country during a world depression. To assist this process and for strategic reasons it commenced a program of white immigration, soon running at over 1 per cent of population. Australia was also a victorious power and member of the British Empire, one of the supposed three Great Powers. It had just made its first serious venture into Asia - as a military presence pursuing the defeat of Japan. It represented the British Empire during the post-war occupation of that country. It had also been deeply scarred by the experience of a war fought on Australian soil for the first time since European conquest of the continent. These events served only to confirm for Australians the alien nature of the geographic region in which they found themselves as a European settler-democracy. The sudden collapse of British regional power represented by the Japanese sinking of the Repulse and the Prince of Wales left them strategically vulnerable, a condition only temporarily ameliorated by the US-co-ordinated victory of 1945. Influenced by race, ideology and military strategy, Australia energetically sought an alliance with the dominant Western power of the period, the United States of 181

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America. The conclusion of the ANZUS treaty in 1951 provided the pivot for Australian foreign relations in the succeeding four decades dominated by the Cold War. By the mid-1990s Australia had undergone a profound transformation. Its population had increased by 250 per cent and had been greatly diversified by the injection of nearly 5 million immigrants and their offspring; White Australia had been abandoned for multiculturalism. It was also committed to policies designed to increase the social status and political power of women, Aborigines and the new ethnic communities. It remained somewhat dependent on primary products for its export earnings and its currency was still affected by fluctuations in their price, but to a lesser degree than had been the case. Its exports were more diverse and their direction more varied. The link to Britain as a trading partner and a source of immigrants, laws and culture had been greatly diminished. London still provided the Head of State, but the government was pursuing a republic with some energy. It retained an alliance with the United States but the end of the Cold War had greatly reduced the military significance of this connection and periodically aspects of the relationship were being abandoned as redundant. Australia's economic, military and cultural relations were increasingly with the countries of the Asia-Pacific region. Both Foreign ministers of the Labor government, Bill Hayden and Gareth Evans, periodically referred to Australia as an 'Asian Country'. The Cold War and ANZUS

During the first phase of the Cold War, from 1948 to 1973, the AsiaPacific region was of concern to Australia mainly as an object of strategic purpose focused on two considerations. One was the assessed strategic threat posed by communism as represented in Asia after 1949 by the revolutionary Chinese communist state and its dependent allies in the communist national revolutionary forces in other countries of the region, which were seen as the Asian manifestation of Soviet aggression. There was often some confusion about the relationship between these forces and other anti-colonial political movements in Asia and emerging radical post-colonial regimes. This was understandable since they often shared the same political rhetoric as Sukarno's Indonesia. But in general Australian policy-makers viewed communism as an economic and ideological threat to Australia's international trading interests and a military threat to its strategic environment and neighbouring friendly regimes. On the other side was the defence strategy which sprang from this situation, known as 'defence in depth'. After 1949, communist China was regarded as the nerve centre of Asian revolutionary movements,

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supplying them with propaganda, aid and weaponry. China could most effectively pursue this policy with contiguous borders, and its allies were most active in neighbouring states like Korea or French Indochina. Australia sought to check this expansion close to its source by pursuing a counter-revolutionary strategy as far from its own shores as possible, or in depth'. Allies were vital for the successful prosecution of this role, and the European colonial powers - Dutch, French, British - were encouraged to stay in the region or to ensure that their successor post-colonial regimes were aligned to Australian purposes. But increasingly central to this strategy was the US military presence in Asia.1 During the early 1950s the Americans constructed a defence system in the Asia-Pacific region which resembled that which it had earlier encouraged in Europe, centred on NATO, and which had military, political and economic dimensions. In the military sphere the Americans built an extensive system of interlocking alliances which ringed China in much the same way as its containment policy had been constructed in Europe through NATO against the Soviet Union. In Asia, however, it had to fight wars to hold its defensive perimeter, first in Korea and later in Indochina. It also engaged in lower-level counter-revolutionary activities, known by various euphemisms like pacification, in a number of other countries of the region. This military strategy involved the deployment of ground forces in support of allied Asian forces, the provision of aid, training and material to friendly regimes, and occasionally the destabilisation of hostile ones. In all these activities Australia provided diplomatic encouragement and material support to buttress American resolve. Australian forces fought in almost all America's Asian conflicts during that first phase of the Cold War.2 In the political sphere the United States encouraged the creation of an anti-communist bloc in Asia. This was not so easily managed as had been the case in Europe. Antagonisms between the often newly independent nations of East Asia made the creation of a NATO equivalent with a unified strategic purpose and command structure impossible. There was no community of like-minded nations at a similar level of development with near-identical strategic interests. What held the coalition together was American strategic determination as it pursued different tactics with each country in pursuit of its central purpose - the containment of Asian communism within the borders of the revolutionary Chinese state. It rehabilitated Japan under the right-wing LDP government by the mid-1950s. It provided civil and military aid to the near-pariah military dictatorships in South Korea and Taiwan. It encouraged the European colonial powers to delay their departures from the region until appropriate post-colonial independence regimes could be constructed. It used aid, trade and covert policies to assist anti-communist political movements achieve and

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retain power. And when regime changes suited its strategic purposes, as occurred in Indonesia in 1965-66, the United States was quick to provide succour and support for its friendly regime. In pursuit of its grand strategy American power was often badly used. Defining its larger objective in various rhetorical ways - freedom, a liberal economic system, democracy, opposition to totalitarianism - the United States let the ends justify the means. The regimes and political movements with which it became embroiled were too often so inimical to its ostensible larger purpose as to defy it. In the name of democracy, freedom or self-determination, it was hugely difficult to excuse alignment with the Saigon oligarchy, the Kuomintang rump on Taiwan, the Marcos dictatorship or the Indonesian junta. The system became unsustainable for American and world opinion when 600 000 military personnel were deployed to sustain a military expedition on behalf of a Vietnamese regime led by generals. Although in the longer historical perspective Washington could justify its strategy, the immediate disjunction between rhetoric and reality was often too great to disguise. Destroying Vietnamese cities in order to save them became indefensible.3 In most of these ventures Australia supported America for its own larger strategic purpose: a continued commitment by American military forces to the encirclement of Soviet-Chinese revolutionary power. The objectives of Canberra's strategic planners were distinct from those of Washington and less afflicted by moral purpose; since their aims were solely geopolitical they were also less influenced by the moral ambiguities of some of America's activities. In many ways indeed this strategy coincided with the prevailing post-war Australian perspective on Asia as a mysterious, alien and dangerous continent unfortunately near to Australia. As in the United States, the turning point in this perspective was the war in Vietnam. 4 Defeat in Vietnam For the US strategists the war against the revolutionary communist movement in Vietnam was fought for larger strategic purposes. It was a test case to show the communist movement that the United States was determined to maintain its policy of containment wherever it was threatened. This was made clear to the White House by the McNaughton Memorandum of 1964, as revealed in the Pentagon Papers.5 Vietnam was the coincidental site of a test of American will; the actual local issues and interests were very much subordinate to this larger global geopolitical context. Australia encouraged this perspective and during Washington's strategic debates of 1963-65 threw what weight it could muster behind the American hawks.6 For Canberra the moral dimensions of the conflict


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within Vietnam were always subordinate to the larger objective of tying American ground forces to the perimeter of the Sino-Soviet bloc, adjacent to Australia. The moral dimension only became important for the Australian government when it sought to mobilise popular sentiment behind the war, which it was forced to do when introducing conscription. It could not seriously pursue its cause in Washington without a substantial military commitment which could in turn only be provided by conscription. As in the United States, popular revulsion was quickly aroused when the disjunction between the ostensible purposes of the war - defeat aggression, preserve democracy, contain China - and its actual prosecution against a civilian population became apparent on the TV news each night. But for modern democracies it may be impossible to fight long wars for strategic and seemingly abstract principles like credibility of commitment.7 For popular sentiment the Vietnam War became only more absurd when in the early 1970s Washington (and Canberra) pursued detente with the supposed instigator of the conflict, communist China. In the political culture of Australia, the defeat of the United States and its allies in the Vietnam War marked two decisive changes. The first concerned the relationship of the media to the political process. During the course of the war it became apparent that American politicians were seeking to explain their prosecution of that conflict with reference to a set of moral principles that did not apply. This was understandable, since these principles never had applied. The purpose was credibility; morality was only the excuse and ostensible justification. The American media became aware that the first casualty of war is truth and hounded their politicians for merely enunciating the time-honoured script of wartime propaganda. After the Tet Offensive of 1968 no reporter would believe it. And after President Nixon resigned in 1974, having been exposed by the media, exposes of investigative journalism became the stock-in-trade of a journalistic career. This mood quickly spread to Australia where cynicism about politicians and the political process, already high, reached unprecedented levels. The consequences of the political exposes of the Vietnam War and the gap between politicians' rhetoric and their real strategic purposes were long lasting: a generation of Australians became acutely suspicious of political power and the purposes to which it was put. The media's attitudes matched this process. Previously it had been common to see the Australian media as totally controlled by the small number of barons who owned it, as Humphrey McQueen described in Australia's Media Monopolies^ Undoubtedly the general party-political line of media oudets is influenced by owners, who are justifiably courted for favours by politicians. Since the Vietnam War, investigative journalism has been

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added to the media dimension by reporters often unable to distinguish the reporting of facts from their own opinions. Combined with the Freedom of Information legislation, this ensures that little which occurs in Australian public life does not appear sooner or later in the public record. It also coincides with media owners' ambitions to reduce politicians' power to its lowest proportions. But probably the more serious consequence was Australian reporting of Asia. The second consequence was the consolidation of Australia's popular view of Asia as a region of corrupt and oppressive political regimes morally inferior to Australia's, but requiring the same criteria of scrutiny. The exposes of the considerable deficiencies of the Saigon regime, for which much blood had been spilt, was followed by similar studies of the pro-Western regimes of the Asia-Pacific region in popular, official and scholarly outlets in the United States and Australia. Cold War strategists were taken at their word and their client regimes analysed according to them. They were all found guilty to some degree or another. Ruling families were found to have ready access to substantial economic resources; democratic procedures were often deficient; human rights were extensively transgressed by repressive regimes; the power of large oligopolistic corporations was considerable; trade unions were suppressed; women were not accorded equality; and a little later it was found that the East Asian environment was being despoiled in pursuit of economic gain. Many of these charges were fairly made, but they ignored the economic dimension of American strategy in East Asia. It also laid the basis for what the Indonesian Foreign Minister later called the 'Vasco da Gama syndrome'. In some instances, particularly among the Western Left, there was also a tendency to ignore the deficiencies of the regimes which were installed by successful revolutionary communist movements. It is of course true that some of the economic failures of the major Asian communist states can be attributed to their exclusion from the world market and the American trade blockade, but much of their failure was self-inflicted. In China from about 1960 there emerged a leadership contest against the ruling Maoists who sought with periodic success to turn the country to chaos. In North Korea the personal dictatorship of Kim Il-sung was the source of stagnation and terror as it sought to develop a hereditary succession. This, it should be noted, was similar to the experience of communist Romania. Vietnam engaged in severe repression of the southern part of the country as the corruption of its northern cadres contributed to the destruction of economic growth. The extreme attitudes of the Khmer Rouge regime and their killing over a million people is sufficiently well documented to not require documentation again. This argument is made not solely to berate Marxist regimes but to point out


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that in Asia during the process of development there is no soft option. The transition to modernity necessarily involves social disruption and often political repression. Alongside the strategy of military containment and political anticommunist solidarity, the United States also pursued economic development in East Asia. It believed that American containment of communism would be necessary only until the countries of East Asia had developed enough economic and political power to defend themselves. Communists were 'predators on the modernisation process', whose appeal in developed countries was minimal. During the initial upheavals of industrial revolution and rapid change, however, they could acquire leverage, particularly when this coincided with decolonisation, the collapse of legitimised state power and the proximity of supportive revolutionary regimes. In this perspective American strategy was to encourage the integration of East Asia into a free-trade world economy and to support effective procapitalist state regimes while the resulting process of economic growth took place. American strategic planners were always more realistic and pessimistic about the immediate political character of these regimes than American or Australian public opinion.9 On the other hand they were also probably more optimistic about their longer-term economic and political potential. Washington believed, broadly, that economic development would be followed by political liberalism and representative government. This proved to be correct in the main. Australian policy towards Asia during the first phase of the Cold War was not solely strategic. In fact trade relations started to assume considerable importance during the 1960s, centred on two countries, China and Japan. Australia did not enforce the strategic trade embargo on China which the United States had adopted after it was branded an aggressor by the United Nations over its behaviour in the Korean War. Indeed, despite Canberra's political depiction of the regime, China emerged as a major export market for Australia, particularly for wheat, which it purchased during annual Wheat Board visits to the People's Republic. It became Australia's fourth largest export market. But at that stage its export trade was chiefly with the Australian marketing boards, although imports of, for example, consumer goods were already developing through private retail companies. The emergence of the Japanese market was even more important. By the 1960s Japan was emerging as a major importer of raw materials, foodstuffs and energy to supply its rapidly growing and export-oriented industrial economy. Its strategic trade policy was to diversify its sources in order to make their supply less vulnerable to disruption. During the later 1960s Japan began accessing raw materials and energy in Australia. This was to create the first minerals boom during which industrial resources were

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prospected, discovered, developed and exported, particularly from Queensland and Western Australia, often in close association with Japanese capital. The Japanese market opened and developed at almost the same time that the British market effectively closed with its early 1970s entry into the European Community. The coincidence was symbolic. The much-favoured democratic Europeans were closing their market to Australia, forcing structural adjustment on those industries and regions in Australia that had previously supplied them. In their stead the open economies of East Asia were undertaking an industrial revolution which would soon change the distribution of world economic power and open new opportunities for the Australian economy if it could seize them. The first phase of the Cold War ended for Australia with the defeat in Vietnam. Australia withdrew its forces in tandem with the Americans after the 1969 Nixon Doctrine. After the December 1972 election of the Whitlam government, however, policy diverged and Canberra withdrew all its remaining forces, recognised Hanoi and maintained decent relations with it thereafter. In fact the Whitlam government for the first time began in earnest the pursuit of closer Australian relations with Asian countries. It recognised China shordy after its election in 1972; it pursued closer relations with Australia's best market, Japan; and it held meetings with the Indonesian regime at the highest level, including one shortly before the Indonesian invasion of East Timor, leading to charges of complicity. Indeed the Whitlam government represented the first serious effort to align Australia with the region, but an effort made, as in so many other fields, in an ill-prepared and uncoordinated manner. The government lacked discipline. During the Whitlam government a serious revision of the basic tenets of twenty-five years of policy towards Asia was undertaken. The Chinese government was no longer treated as the aggressive centre of the Asian communist revolutionary movement. To some degree this corresponded to US geostrategic thinking under Kissinger.10 It also matched the new aspirations of Beijing after the Sino-Soviet split of the early 1960s and Soviet threats of military intervention in China in 1968-70. Correspondingly, defence in depth was abandoned and Australia's military planners quickly declared in 1973 that they could perceive no imminent military threat to Australian security. Good relations were pursued with all the countries of the Asia-Pacific region from military-ruled Indonesia to the communist dictatorship of North Korea. In line with the stated objectives of one-time Deputy Prime Minister Jim Cairns, 'living with Asia' was to be pursued in economic as in diplomatic relations. 11 Tariffs were unilaterally reduced by 25 per cent in 1973, and the sale of minerals and energy to Asian economies was actively pursued by government. Remaining restrictions on Asian migration to Australia were formally ended, although this


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only had a limited immediate impact since the government also curtailed the mass immigration program of the 1960s. There was some not very well co-ordinated pursuit of a role for Australia as a highly skilled, richly endowed economy hosting multinational corporations pursuing their strategies into Asia. Some of this was before its time as the government succumbed to the international recession of 1974-75 and the political bickering and electoral defeat which followed. But the mid-level managers of that government were to return to office in 1983 and brought some of its ideas back with them. This process was coupled with a determination to create a disciplined political environment and keep a Labor government in office long enough to see its strategic plans implemented. Containing the Soviets

The Fraser government of November 1975 to March 1983 is commonly accused of being a period of lost opportunities. This chiefly refers to its domestic economic policy record. Its critics, particularly from the successor Labor government, claim that it had no wages policy, increased protection for Australian industry, did not deregulate the economy, and had no micro-economic reform program. Much of this criticism is well placed, although it is of course easier to have 20-20 vision in hindsight. The period 1974-75 had produced two considerable shocks for the Australian economy: the OPEC disruption of the world trading relations and the reform program of the Whitlam government. It was understandable that a philosophically conservative government achieving office in late 1975 would believe that after these disruptions had been absorbed and policy adjusted to deal with and reverse their impact, the economy could return to its previous performance; it was wholly understandable that a government led by agrarian conservatives should adopt this view. Since it won another record majority in 1977, when the Labor Party still led by Gough Whidam was again rejected for its previous record in office, there was little political reason for the Coalition to change its views. During the late 1970s the Australian economy did resume its slow growth pattern. The international economy recovered from the crisis of 1975, energy prices declined, the OECD countries, especially Japan, successfully adjusted to new international financial recycling structures, and Australian exporters faced more buoyant conditions. The full impact of the changes to and extensions of the international economy for Australia's industry structure had yet to be fully appreciated. The government concentrated on getting the rate of inflation down by implementing tighter financial policies and trying to restore the factor share of wages, profits and public sector that existed before the Whitlam

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government. Broadly this failed. It was unable to reduce the wages share during the 1970s. It got some reduction with a wages freeze in 1981, but saw a consequent huge wages breakout in 1982 which, by squeezing corporate profits, contributed to the depth of the 1982-83 recession. Conversely, it had some limited success in reducing the size of the government share relative to GDP in the late 1970s and paid some attention to monetarist strictures about the need for smaller government. To this end the 'razor gang' cut expenditure programs, but only modestly. This work was wholly undone when the whiff of recession coinciding with the onset of an election in the early 1980s turned Fraser into an electoralcycle Keynesian. The government left office with the public sector share of GDP actually higher than when it came in. Similarly, levels of barrier protection had risen and, if anything, economic regulatory activities of government had increased. In the area of foreign relations, however, the Fraser government did introduce significant changes to the posture of its Coalition predecessor. These changes concerned the United States, Soviet Union, China and Asia. Australia's relations with America underwent a series of changes during the Fraser period, chiefly because of changes in the American administration. 12 In 1976 Australia was dealing with a lame duck American Republican administration led by the unelected President Ford, who was seeing out the term of disgraced Richard Nixon who resigned in 1974. But they shared many perspectives on the world and quickly re-established a warm alliance relationship after the disruption and criticisms of US policy made by the Whitlam government. This changed in January 1977 when Democrat Jimmy Carter became president. Carter's perspective was that of an American liberal which was at that time similar to that of the ALP. His administration's initial policy was to withdraw American power, conciliate with the Soviet Union and pursue a policy of moral purpose emphasising human rights. This was essentially the Western liberal agenda in the late Cold War. The Fraser government regarded this as fundamentally erroneous. In his first major foreign policy speech of June 1976, Prime Minister Fraser made it clear that he regarded the Soviet Union as a continuing menace to world security. This was later to become an increasingly popular view in US political circles, particularly Republican ones, but during the late 1970s it meant that Australia was out of step with Washington. This changed in late 1979 when Soviet forces invaded Afghanistan in support of an embattled pro-Soviet regime crumbling to guerrilla forces. The Carter administration changed course quickly to a more classic and belligerent Cold War posture. Fraser's position on the Soviet Union was apparently vindicated and, having been proved 'prematurely correct', he was able to assume a high posture on Great Power relations. 13 As a result


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Australian relations with the incoming Reagan administration in 1981 were immediately cordial. They were to remain so throughout the twelve years of Republican government. As the Australian economy deteriorated into the trough of the national and world recession in 1982, the Liberal government paid greater attention to its foreign policy agenda. This was pardy for domestic political considerations, pardy because all Australian prime ministers eventually acquire a taste for a larger stage for their talents than their own nation provides. But foreign policy rarely provides votes in Australia and Fraser's well thought out positions on South Africa, the Middle East and the Third World proved no exception here. Yet the government's policy towards Asia was prescient. China was not restored to its pre-1972 status as chief and abhorred instigator of revolutionary violence in the region. Indeed in an early visit to Beijing in 1976 Fraser made clear his own sympathies for China in its conflict with the Soviet Union. To some degree this sprang from his own conservative analysis of Soviet expansionism and his resulting geopolitical view, which coincided with that of Nixon and Kissinger five years earlier, that China should be recruited to the larger purpose ofjointly containing Soviet expansionism. This position ensured that as the Chinese regime moved to dismantle the controls on its economic participation in the world market Australia was in a position to take advantage of that process. At that time this was compromised by the fact that trade with Taiwan was of equal value and grew quicker. This was managed after 1980 by having an unofficial commercial office in Taipei. Japan was also cultivated. During the upheavals that followed the OPEC cartel's oil price increase of over 300 per cent in 1973-74, the Japanese economy had been severely disrupted. It was heavily dependent on imported energy, particularly oil, and experienced a rapid increase in inflation and a reduction in economic output to recessionary levels. Its extremely flexible economy allowed quick adjustment to these circumstances and its price and output record stabilised in the late 1970s, from which time it resumed its rapid economic growth. By that time Japan was clearly Australia's largest export market and variously its first- or secondranked (to the US) source of imports. During the Whitlam government this relationship had been the subject of two nationalist aspirations. The first involved the resources diplomacy of Minister Rex Connor trying to increase the Japanese purchase price of Australian exports by government intervention to take advantage of the OPEC-inspired energy crisis. The Fraser government moved to offset this stance by concluding a Basic Treaty with Japan, which came into force in August 1977, to establish a stable administrative framework to deal with the vital trade between the two countries. By the late 1970s Fraser was also talking presciently about the need for a Pacific Community to widen the bilateral relationship and

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provide a framework for regional economic co-operation. The second area was controls on foreign investment which the Whitlam government had used to prevent foreign takeovers and control of sectors of the Australian economy. In this sphere the Fraser government acted in a very similar way and sought to control foreign investment. Despite this, by the early 1980s Japan had become Australia's third largest and quickestgrowing source of foreign investment after Great Britain and the United States. By the later years of the Fraser government the emergence of a broadly based industrialisation process throughout Asia was only just becoming apparent. At that stage it was limited to South Korea and Taiwan, which were widely viewed not only as exceptions but also as offshore, cheaplabour export platforms for Japanese industry; their well-publicised export-processing zones seemed to confirm this impression. The government responded to their imports by maintaining a high level of general protection with some modest preference for developing countries. Interestingly, the Fraser government viewed Australia's relationship with the rest of Asia as a function of its relationship with the Third World in general. At that time the Third World grouping at the United Nations, encouraged by the apparent success of OPEC, the rise of the Soviet Union and the retreat of American power, was developing its proposals for a New International Economic Order: increased aid, commodity price stabilisation funds, and targets for planned Third World industrialisation programs. 14 The Fraser government expressed some sympathy for these proposals, which were a variant of planned economic development and were contrary to US/World Bank proposals. In this, Canberra was greatly influenced by the need to oppose Soviet influence from expanding in poor, disaffected Third World states. The Coalition government was also conscious of Australia's status as a commodity-based economy unable, thus far, to break out of that status, and expressed some limited support for the Third World's collective aspiration to improve its status relative to the developed economies by commodity price stabilisation schemes. It was an international variant of National Party policy. During the 1980s opinion on this matter shifted significantly. On the one hand the successes of the resource-poor East Asian Tigers in achieving rapid economic growth and industrialisation were being more widely recognised. Further, the economic problems of the collectivist economies of the Soviet bloc and its radical allies, who had been instrumental in pursuing the New International Economic Order agenda within the Third World, were gready diminishing their status. They downgraded their aspirations as the Soviet crisis set in after 1982 and its support for global posturing declined. And finally, the United States


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under President Reagan flatly rejected these proposals and unilaterally vetoed them at the concluding Cancun Summit in Mexico. These processes were part of the shift away from Cold War arguments about the structure of international economic relations, towards a climate in which international economic co-operation within a free-trade framework, that is, globalisation, would come to dominate discussion on policy. The Fraser government had been influenced by the intellectual climate of its time and the history of Coalition regulatory policy. It had begun to embrace an Asian dimension to Australian diplomacy, but one dominated on the one hand by the need to contain and defeat Soviet expansionism and on the other by Australia's unwillingness to become an integral and open part of the Asia-Pacific economic structure. This was prevented by the government policy of controlling Australian economic interchange with the region. Fraser in the end was a classic Coalition politician: geostrategically anti-Soviet and economically regulationist. Any Victorian Western District grazier would have been comfortable in this political milieu. But Canberra's international economic policy was an inadequate response to the changing world system, and from 1979 the Coalition attempted to rescue it by drumming up a minerals boom on the back of the second, short-lived oil and energy crisis. It claimed this would bring development projects worth up to $80 billion in investment to Australia and transform its economy and trading status. This was to be achieved in classic Coalition fashion by both Commonwealth and State governments borrowing internationally to provide the infrastructure of roads, rail, power and ports to enable a new resources boom to be fuelled by private, mostly foreign, investment. In 1981 the minerals boom also evaporated into falling energy prices in the teeth of the deepening international recession. By 1982 it had disappeared altogether and been replaced by heroic domestic spending programs which could not drive the economy forward fast enough to stave off electoral defeat in March 1983. The Coalition lost with the slogan, 'We're not waiting for the world'. The Labor Government

The new Labor government led by Bob Hawke always had ministers from the Right or Centre Left factions in control of economic and foreign relations portfolios. Their hostility to the Soviet Union, amicability towards the United States and receptiveness to international free trade were, from the outset, equal to or greater than that of their Coalition predecessors. The two Foreign ministers, Bill Hayden (1983-88) and Gareth Evans (1988- ), were both committed to a greater regional presence and made it clear that their priorities were in the Asia-Pacific region, Hayden often

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calling Australia an 'Asian country'. Of the three Defence ministers, Gordon Scholes was relatively non-innovatory, but his successor Kim Beazley inaugurated a doctrine close to continental defence designed to make Australia a significant military power in its own environs but with otherwise limited outreach capacity. Senator Robert Ray was later to extend this capacity into a regional co-operative defence policy. A series of Centre Left Trade ministers - Peter Walsh, John Dawkins, Neil Blewett and Peter Cook - were all dedicated free-traders and pursued this doctrine in global forums like the GATT, but also more intensively within the region. The long-term Industry minister, John Button (1983-93), accepted and pursued the need to reduce barrier protection for the Australian economy and expose it to the world market. Treasurer Paul Keating's contribution to the deregulation of the Australian economy has been widely canvassed. Why was the incoming Labor leadership of 1983 able to undertake the opening of the Australian economy and a new approach to regional affairs, a decision which had been beyond its Coalition predecessors? To some extent the reason concerned personnel. The incoming Hawke ministry comprised an exceptionally large number of well-educated, wellqualified professional people who had studied the external situation facing Australia in some detail and at some length. Asian development, economic theories and Australia's economic problems were not great mysteries to them. They also had a wealth of market-oriented policy recommendations available to them that had been generated during the preceding seven years but which the Coalition had not been willing to act on. And, finally, they came from a party having no special-interest relations with industrial capital. This enabled them to enforce tariff cuts on business without incurring retaliation within their party or by the withdrawal of financial support. They also came from factions and regions of the ALP not generally beholden to protected industry or public sector unions: the New South Wales-led Right and the non-union Centre Left. This was a unique combination of intellectual foresight and political muscle, achieving power in an upswinging business cycle. Many of them had entered politics as a result of their opposition to the Vietnam War and in consequence had a particular interest in improving and deepening Australia's economic and political relations with its Asian neighbours. It should be emphasised here that by 1983-84 there was a near consensus in the economics profession and a widespread view in Australian business that Asia would and must become increasingly important to the future of the economy. It was also widely held that this could only be fully achieved by the reduction of protection and regulation. At the Australian Institute of International Affairs Conference in Adelaide in 1984, these themes were forcefully stated by a number of intellectuals and corporate


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executives. Perhaps most interestingly, the two economists who spoke at that conference gave almost identical views on these issues. One, Professor Cliff Walsh, had been adviser to the former prime minister, Malcolm Fraser; the other, Dr Peter McCauley, had been economic adviser to Bill Hayden. Their sentiments were broadly shared by Liberal and ALP politicians present and by corporate leaders from the mining giant CRA, Woolworths retailing company and the National Australia Bank.15 In short, the new ALP government was expressing a view commonly held by Australian elites. The extreme difficulty of implementing this new strategic direction was probably recognised by no one at that time. Before the regional dimensions of Australia's diplomacy could be developed, however, its relations to the Great Powers had to be reestablished. Because of the difficulties between the Whitlam government and Washington, Hawke moved quickly to visit the United States and reassure the Reagan administration, which set the tone for a general improvement of US-Australian relations under Labor during the next decade.16 This requires some explanation, since in the mid-1970s the ALP and its voting constituency had been generally hostile towards the American alliance. The Reagan administration had reactivated this hostility by adopting a risky confrontationist posture towards the Soviet bloc and by developing supposed war-fighting doctrines for nuclear weapons.17 The ALP government, however, generally supported the strategic position of the Reagan administration although periodic disputes erupted over detail. In the main, Canberra came to share Washington's view of the Soviets, though few government officials would publicly support America's policy of 'defeating' the Soviet Union. Similarly, Canberra was not prepared to countenance the blockade of Vietnam, unqualified support for Israel, or the invasion of Grenada, to name a few issues. But Canberra did permit US nuclear vessels to visit Australian ports and made no effort to expel the strategic communications facilities on Australian soil which were so vital to US global intelligence-gathering and military strategy. Indeed, as Australia moved under Kim Beazley's direction to a more self-reliant defence posture after 1985, these installations paradoxically became more important to Australia itself, by providing an early-warning intelligence-gathering system.18 Economic doctrine was as important as the military component in buttressing this unexpected but deepening Australian Labor-US Republican alliance. Australia had become for the first time a free-trade devotee, so it was relatively politically painless for a Labor government to tell manufacturing capital in Australia that it would face generally free trade within two decades. The larger corporations in the farming and mining sectors had always supported such a position and pursued it with

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enthusiasm, though they remained political opponents of the Labor government for other reasons. Canberra now found that its chief foreign ally was the United States, which had been pursuing this free-trade outcome for forty years. As Australia's principal source of imports and a major investor in the Australian economy, America welcomed this new position. Certainly, difficulties did emerge, as when the access of Australian beef exporters to the US market was restricted by quotas. But with respect to the long-held and determined protectionist position of the EC, the Soviet bloc of planned, closed economies, and the protected Japanese food market, Canberra and Washington generally saw eye to eye. As a result, when Australia mobilised the agricultural product-exporting nations together into the Cairns Group in 1985, it was supported by the United States,19 and when that group pressed for these products to be included in the next GATT Round it received American support. With some justification the United States maintained that its subsidies and protection for its agriculture were aimed chiefly at the EC and that Australia suffered unintended collateral damage. America's strategic objective was free trade. The American-sponsored free-trade regime in East Asia had been a major foundation for the economic revolution sweeping the region by the 1980s. Australia supported US policy, opened its own markets and urged similar opening on its regional partners. During this period the regional system only came under military threat on one occasion, when Iraq invaded Kuwait in August 1990; the Soviet move into Afghanistan and the Vietnamese invasion of Cambodia had been local initiatives of little larger import. The Iraqi move placed over 50 per cent of known world oil reserves at the mercy of a regime with acknowledged expansionist ambitions. The East Asian economies, including Japan, were heavily dependent on the flow of oil through the Straits of Hormuz. In defence of this economic structure, and other strategic considerations, the United States constructed a coalition of diplomatic and military force to evict the Iraqi army of occupation and reclaim the oil fields. Australia was one of the first and most vocal supporters of that process in 1991. By that stage domestic Australian popular support for the American alliance had risen to nearly 75 per cent from just over 40 per cent in the early 1980s. The government husbanded this support base by sending only three naval vessels to the Gulf and risking little by way of casualties. Initially, in 1983-85, the relationship of the Labor government with the Soviet Union presented problems because of Left sympathy for the Soviet's embattled position. This led to a few conflicts within government over unilateral Western disarmament and military collaboration with the United States.20 As elsewhere of course the Soviets called on their supporters to organise protests against Western strategy, and demonstrations


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in Australia were comparatively as large as those in Europe. By the accession to office of Mikhail Gorbachev in 1986, however, this problem receded as the Soviet leadership itself undertook a program of selfcriticism - Glasnost - that made some of Reagan's earlier accusations appear mild by comparison. By the time of the dissolution of the Soviet Union in December 1991 it had ceased to be a substantial consideration in Australian ideological, economic or political debates other than its successor states being seen as worthy recipients of Australian economic aid. It was, finally, necessary to re-evaluate the relationship with the United Kingdom. Economically, Britain had declined in importance for Australia, reflecting its new role in the international system as a major but second-rank European power. It remained an important source of capital, new and existing, but was rapidly diminishing in significance as a trading partner, taking less than 4 per cent of exports by 1992. It had effectively imposed this status on Australia by joining the European Community. Nonetheless Great Britain retained its cultural importance for reasons of historic links in constitution, law, military organisation, education, sport and entertainment. The most important symbol of this link was the hereditary monarchy. To take this off the domestic political agenda, Hawke, a confessed republican, maintained that his government would not pursue that agenda, believing he had enough reforming to do as it was. The decks were cleared for regional diplomacy. Living with Asia

The decade after 1983 marked an extraordinary change in Australian diplomacy towards becoming an Asia-Pacific country. Certainly many in Australia resisted this transformation, some believing it marked the acceptance of an undesirable change in Australia's basic racial and cultural composition. In fact it signified a reorientation of Australian external relations in all dimensions, acknowledging the fact that it was located permanently in the south-west Pacific and could not be an offshore and rather dry distant county off southern England. The pro-monarchist agitation of the 1990s led by the conservative wing of the Coalition reflected a cultural reluctance to accept this fact. Yet it deeply penetrated most facets of Australia's external affairs: the British Empire no longer existed. In the field of trade, Australia's products were progressively excluded from its traditional markets in Europe and particularly Great Britain. This was a combined result of European barrier protection and EC agricultural subsidies. It was not a choice made by Australia and it had a severe impact on sectors of the Australian economy including Tasmanian fruits and south-east Australian lamb production. Great Britain had recognised

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its own geographic reality and become a European country. Australia set out to do the same and become an 'Asian country'. This is not to say that it had to change its ethnic composition, since Asia is hardly homogeneous in this respect. But Australia had to develop new products and markets to compensate for its exclusion from Europe, and the economic change of the 1980s was in large measure the structural adjustment designed to produce this result. At first the Hawke government believed that China might provide the same rapidly growing export market function for Australia in the 1990s as Japan had in the late 1960s and early 1970s, and in its first few years it courted China for that purpose. By the late 1980s it was clear that China would not yet provide a market growth of quite that dimension as it hesitantly opened to the world market. Instead, Australia found that growth throughout Asia was wider and deeper elsewhere. Its concentration on single markets ceased as it pursued a broader free-trade system for the region as a whole and a more diversified export portfolio for itself. In 1965, 35 per cent of Australian exports went to Western Europe, with over half of them going to the United Kingdom. By 1989 only 15 per cent of Australian exports went to Western Europe and less than half of those went to the United Kingdom. During the same time East Asia took 29 per cent of exports in 1965, Japan 16.6 per cent, Hong Kong 2 per cent, Korea and Taiwan nearly zero; but in 1989 East Asia took 50 per cent of exports including Japan 26 per cent, Hong Kong nearly 4 per cent, Korea 5.3 per cent and Taiwan 3.5 per cent. Interestingly, and despite the early aspirations of the Hawke government to integrate Australia with the Chinese economy, China took 5.5 per cent of Australian exports in 1965, 3.7 per cent in 1980 and 2.9 per cent in 1989. While these exports to China were to increase rapidly in the 1990s, they provide some indication of the broad-based nature of Australia's exports to Asia. Correspondingly, imports to Australia came from Asia to an increasing extent. The export-oriented industrialisation strategies first pursued by Japan, and then spreading through the Four Tigers to the rest of East Asia, were initially tailored to the US market but were easily adapted to countries of similar consumption patterns. As Australian trade restrictions were reduced, imports from East Asia increased. Japan vied with the United States as the principal supplier for much of the post-1970 period, but East Asia as a whole became the dominant source region for imports. In 1965 11.6 per cent of imports came from North-east Asia and 4.1 per cent from ASEAN for a total of 15.7 per cent; in the same year 27.3 per cent came from North America and 42.7 per cent from Western Europe. In 1989 the figures were 31.6 per cent from North-east Asia, 6.3 per cent from ASEAN, giving a total of 37.9 per cent; 23.6 per cent from North America and 26.8 per cent from Western Europe. 21


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Movements in capitalflowsshow the same general change in direction. East Asia went from providing about 10 per cent of world savings in 1960 to accounting for nearly a third in the late 1980s. During the same period the United States went from about 40 per cent down to 20 per cent. The Western European share stayed stable at just under a third. In consequence it is not surprising that there was a large increase in East Asian investment entering Australia during the 1980s, a fairly static share from Western Europe, most of it from the United Kingdom, and a decline in America's share of new investment. Much of the Japanese component was in loans, but some was in direct investment. In that sphere it often provided new technologies, production techniques and organisational philosophy useful for the restructuring of Australian industry. For example, in the automobile industry Mitsubishi, Toyota and Nissan entered production, effectively replacing previous European producers and the weakest of the American big three, Chrysler. Nissan failed and closed its Victorian plant in 1992. The two other Japanese companies invested extensively and introduced new lean production practices ('just in time') and quality-control systems invented in Japan with great success. These techniques spread throughout the industry and enabled their component suppliers to bid for contracts to factories in Japan. In a quite dissimilar sector Japanese capital was active in the creation of the tourism industry infrastructure, particularly in Queensland and Sydney. Again, this pioneered techniques in service delivery and transport that were later to set the standard elsewhere in Australia. Australian investment overseas had been very limited under the regulated regime and the licensing laws required to permit it. Generally it was thought that as a capital-deficient country Australia should control its export and use it at home. After financial deregulation capital flowed in both directions and in the form of both loans and, more commonly, outwardly direct investment. At first not much of this went to Asia as Australian business kept to the regions it knew best, Europe and North America. As the growth in Asian markets became more apparent, and at government prompting, Australian investment in East Asia began to grow into the 1990s. As these economic connections between Australia and the Asia-Pacific region grew, so the political relationships grew with them. In 1987, in recognition of the importance of economics for foreign policy, the Department of Foreign Affairs was amalgamated with the Department of Trade under one senior minister with another Cabinet Trade minister assisting. In 1993 both Cabinet ministers were given equal rank. At the same time posts were moved from the European area where Australian diplomacy had been traditionally most active and into the Asia-Pacific region. Australia's four biggest missions became London, Washington, Tokyo and Jakarta, the first shrinking and the last two growing rapidly.

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In addition, other Commonwealth government departments began stationing officers in East Asian embassies such as the Austrade offices and the Science and Technology personnel from Industry. The State governments began to follow a similar practice from the 1980s and placed economic officers in regional capitals. As this public representation grew, officials encouraged Australian companies to form local consortia and Australian chambers of commerce, and to have company and peak body representatives in different Asian commercial centres. By the 1990s this comprised a considerable network of Australian economic institutional representatives throughout East Asia and one of impressive size for a medium economy newly active in the field. The official aid program was used to supplement the activities of Australian economic institutions. The Labor government established the Australian International Development Assistance Bureau (AIDAB), later Ausaid, as the agency for dispensing official assistance. It was originally intended to fulfil three functions: to concentrate its activities in the AsiaPacific region; to give priority to long-term development^ programs to assist economic growth; and to dispense 0.7 per cent of GNP in aid as the UN-agreed and ALP-endorsed target figure. AIDAB did concentrate on development-oriented rather than short-term, needs-generated projects, to the concern of some of its critics. In the long term this was intended to produce a more profitable outcome for Australian producers as markets expanded and they were familiar with them. In April 1994, for example, Prime Minister Keating opened the first bridge across the Mekong River linking Laos to Thailand, and Singapore to Beijing, by road. The bridge, built by the Australian company John Holland, was paid for by Australian aid. Aid disbursement was concentrated even more into the region as a vanguard for Australian economic activity, and so it proved as Transfield, for example, built 2500 bridges linking communities in Indonesia. But the aid program never reached even the 0.4 per cent later targeted, as each Cabinet Expenditure Review Committee found it a tempting mark and pared it back to 0.35 per cent by 1994. The central feature of these linkages was that Australia was ceasing to be a white colonial outpost on the edge of Asia and becoming a part of the Asia-Pacific region. This took time and would only be fully recognised by the Australian general public after a further lag. In the education system the section of the curriculum devoted to the region was gradually expanded during the 1980s. The Commonwealth urged this onto the tertiary education system by more direct control over the distribution of funding and the designation of Asian Studies as a national priority - a further $4 million was earmarked in the May 1994 budget - progressively transforming the universities from the pale imitations of redbrick English or Scottish universities some had been since 1945. The media


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stationed more correspondents throughout the region and, though they remained woefully too few and too full of patronising attitudes about the quaint Asian cultures, the public's awareness of Asian affairs grew somewhat to offset the regular diet of US sitcoms and English satire. Under the encouragement of State and Commonwealth governments more schoolchildren were studying Asian languages and cultures by the 1990s than ever before and there were more children of Asian backgrounds. It was not unknown to visit a primary school class of twenty-seven children from twenty-three different national backgrounds. For the first time in the mid-1980s the majority of migrants to Australia were coming from Asia-Pacific countries, a proportion unlikely to change again. Whitlam had abolished the vestiges of White Australia migrant selection, but he also abolished mass immigration. Fraser increased immigration in the late 1970s in anticipation of a resources boom, but most of these immigrants came from Europe. Nonetheless, a trickle came from Asia and a large number of refugees from Indochina - about 40 000. When Labor renewed the substantial immigration program in 1985 it found that a majority were already coming from Asia, particularly as a result of family reunions. In addition it began recruiting business migrants who were increasingly ethnic Chinese, particularly from Hong Kong after Mrs Thatcher gave the Crown Colony to communist China. In view of the growth of the three Chinas and the domination of South-east Asian commerce by ethnic Chinese, this would only aid economic integration with the region. The result of these processes was that by the 1990s a large number of Australians in a variety of social classes were from Asian backgrounds. They were well placed to help Australian economic penetration of the region and to help change its anachronistic White Australia into a more appropriate 'multicultural configuration' - a term invented by the Fraser government. From the mid-1980s opponents emerged against both multiculturalism and Asian immigration. They came from diverse sources. Professor Geoffrey Blainey, an Australian historian from Melbourne University, sparked the most prolonged dispute in 1984 and was later joined by less strident academics opposing the dilution of traditional Australian culture.22 John Howard as Opposition leader tried to mobilise this sentiment into a popular issue in 1988 and might have succeeded had he not been bullied into backing off by the more liberal media and the rest of the ruling elite. A group of conservationists had always argued that Australia was overpopulated already and that immigration should stop. And during the early 1990s recession a poorly organised Australians Against Further Immigration was attracting around 10 per cent of the primary vote in federal by-elections. The immigration issue is a complex one. During the closed economy

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period Australia had sought to develop its domestic market and economy by adding numbers to its market and labour force. The strength of this argument is somewhat diminished in a situation of open free trade when national economic specialisation is the objective and when longer production runs can be provided by exports. It is the skill and flexibility of the national work force and economy that becomes important, not necessarily its aggregate size. In addition, since labour-shedding had been the norm in the large public and private corporations since the mid1980s, aggregate, undifferentiated additions to the work force would add to unemployment and to demand, including demand for imports. Nonetheless if immigration were to continue it would have to be on a non-discriminatory basis which very likely meant a large Asian component. As a country aspiring to strong links with the Asia-Pacific region, a substantial Asia-Pacific component in the population would seem beneficial, although its dimensions may be reasonably debated. There has been, however, no demonstration that the population-carrying capacity of Australia has been physically reached at 18 million people. The balance of these considerations is difficult to arrive at. During the early 1990s recession Canberra cut the gross immigration intake from 0.8 per cent of population, about 150000 persons, to 0.4 per cent of population, or 75000. After departures the figure was lower again. Although many of these people came from the Asia-Pacific region, at that rate it would be centuries before the physical carrying capacity of Australia was reached, particularly since the natural increase had slowed considerably for a generation and stood then at below long-term replacement. Such modest increments maintained the multicultural character of the Australian population at a level almost below recognition for most of the Anglo-Celts, but enough to facilitate community settlement and take the edge off the old White Australia. A setdement with the Aboriginal people proved more difficult to achieve. It would not be possible for Australia to integrate into the AsiaPacific region without such a settlement. True, many other peoples of the region have a level of racial prejudice and discrimination, and sometimes overtly discriminatory policies that would be illegal in Australia. Nonetheless, such behaviour is intolerable in Australia and, more importantly, will not produce a culture of diversity and tolerance capable of making its way in the region profitably. In any case, as appreciation of the unique nature of Australia's environment and its indigenous culture becomes more widespread these will be major selling points for Australia's cultural tourism and art export industries. Finally, white Australia cannot maintain its status as a conquering race in occupation of a continent without a political setdement acceptable to all parties. The Mabo decision of the High Court in 1992, effectively declaring


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that Aborigines had rights to land in 1788 that may have survived white conquest, dictated that a new legal regime be created. Government determined that if indigenous Australians can show a continuing relationship to the land they may make claims on it to tribunals established for the purpose; in particular, they may have royalty rights against miners. Opposition to this system from conservative political movements denies both the legal and political necessity for some settlement of these claims. Such opposition is often directed by the largest existing landowners and richest mining companies and is an untenable position since the 1992 High Court decision. In any case this new system is more likely to produce reliable and enforceable decisions than the grab-bag of land claims for sacred sites which, given 50 000 years of occupation, could encompass the entire continent. Without such a settlement Australia would be inviting foreign powers and indigenous movements to demand, in the name of UN resolutions on human rights, some rectification of policies that presently produce numerous deaths in police custody, scandalous infant mortality rates, and diseases unmatched outside sub-Saharan Africa among Australia's distant native peoples. The Australian human rights campaign in Asia has been for these reasons an anachronistic and two-edged sword. The idea of making human rights a central element of foreign policy derives from the Democrat administration of American President Jimmy Carter, which sought to erase the disgrace of the Vietnam defeat and the realpolitik of Kissinger by putting a moral dimension back into US diplomacy. It failed. It failed to promote human rights effectively; it weakened US allied regimes in Iran and Nicaragua by withdrawing support from them; and it made the United States less effectual in its pursuit of other policy objectives like free trade or development. Even for the most powerful country in the world it was a difficult strategy to pursue. Australia by the early 1980s had 8 per cent of US GDP, an even smaller proportion of the US population, and an acute economic crisis including low growth, an external deficit and mounting foreign debt. Many of its neighbours were already much larger and more powerful, were growing quickly and offered lucrative markets. In order to assuage the moral indignation of much of the ALP membership, some in the Australian government proposed to lecture Asian governments on the evil of their ways. Very few of the countries of the Asia-Pacific region could withstand the scrutiny of a thoroughgoing human rights inquiry - including Australia for reasons mentioned above. During the last decade most of the countries of the region have produced stories for the Australian media that have excited calls, often in Parliament, that Australia should act to stop whatever was going on. After the 1987 military coup in Fiji it was seriously proposed that Australia intervene militarily. The suppression of

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protesters in Beijing in 1989 led to much breast-beating, prime ministerial tears and the suspension of some economic relations. Regular protests about human rights abuses in Vietnam have generated demands that parliamentary delegations investigate these claims. At frequent intervals the Jakarta government is attacked for suppressing human rights or invading East Timor. Papua New Guinea is targeted for using its military forces in its own territory of Bougainville. The list could be augmented to include almost every country of the region. But it should be offset against the huge gains being made in the region in terms of per capita income, reduction in poverty, and rising life expectancy. During the 1980s it became apparent that Australia could not spend its diplomatic currency pressuring regional and developing countries to improve their human rights records. This was particularly offensive when regional states knew that during its process of development White Australia had repressed an entire civilisation and in some ways continued this practice. Instead, Australia progressively adopted the policy of quietly raising these matters in private discussions, although Hawke's public statements about the Beijing massacre and Malaysia's execution of two Australian drug traffickers stood in stark contrast to this policy. The fact is that Australia has little leverage in this respect other than quiet persuasion. For the most part even quiet diplomacy is an act of selfindulgence. In the case of an Australian citizen held in Vietnam when the Prime Minister is about to announce a further $100 million in aid, some private mention may be made of the case. If a minister is leading a group of Australian construction engineers seeking contracts in Indonesia, then a lecture on good government is hardly appropriate. This is not to say that Australia should abandon the pursuit of human rights, but that it should be pursued with sensitivity and an absence of self-righteousness. In the early years of the Labor government the American Republicans often counselled caution to Canberra on human rights issues, particularly with respect to Indonesia. They knew the ALP platform had a long list of complaints about East Timor; they also had the unfortunate and unsuccessful experience of the Carter administration in mind. The inauguration of the Clinton administration in Washington in January 1993 and the passage of time in Canberra reversed these roles. After twelve years out of office the US Democrats were keen once more to develop a clear moral purpose to American foreign policy and began to berate the Asia-Pacific nations on human rights. In 1993 a US congressional committee threatened to withdraw favoured trade access to the US market for Indonesian goods if that country's human rights record did not withstand scrutiny. In 1994 trade envoy Warren Christopher threatened to withdraw the most favoured nation status from China if its record did not improve. In both cases the Australian government counselled caution, Keating over Indonesia and Evans over China.


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In 1993 a senior Australian economic minister was visiting Jakarta. The political environment was good and relations had recovered from the years of vocal Australian media complaints about Timor. They had also survived the mid-1980s rupture over Australia media exposes of the business dealings of the President and his family. Indonesia generally supported Australia's pursuit of some status in the region, joined the AsiaPacific Parliamentarians Forum and attended the inaugural APEC meeting in 1989. The reception for the minister and his business delegation had been good. The Americans were threatening economic sanctions against Indonesia's human rights record. At consecutive meetings Indonesian economic ministers presented their development difficulties and nation-building problems in an honest, critical but generally optimistic way. Overnight CNN reported from America that Prime Minister Keating had counselled the United States to take a broader perspective on Indonesia's development record. The following day President Suharto suggested all ministers treat the Australian delegation with the highest priority. Many more doors opened for business relations. APEC and Globalisation

The most important institutional representation of this new Australian orientation was known as Asia-Pacific Economic Co-operation (APEC). This was in fact an Australian initiative proposed by the then prime minister, Bob Hawke, during a visit to South Korea in January 1989. Subsequently a ministerial meeting was held in Canberra chaired by Gareth Evans involving representatives from fifteen Asia-Pacific countries, and observers from other regional bodies including the ASEAN secretariat, the Pacific Economic Co-operation Council and the South Pacific Forum. During the next five years annual meetings were held in Singapore, Seoul, Bangkok, Seattle and Indonesia. The purpose of APEC has been to reduce barriers to trade and investment between the member countries, but not in a way inconsistent with the GATT nor with a view to forming a new trade bloc. As a result it is deliberately designed as a government-level forum for facilitating private sector-led economic integration. APEC is the institutional representation of Australia's economic aspirations in the 1990s and a successful one at that. By the mid-1990s, then, Australia was still a lightly populated and smallish country of 18 million people off the coast of Asia. But Asia was developing, and much of it was already richer and more powerful than Australia. Australia was also no longer attached by military or economic lines of survival to any great and powerful friends, other than to a symbolic and ill-disciplined European monarchy of little material significance. It was on its own in the region and would have to continue to learn how to make its own way. In this context APEC has concentrated on trade

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liberalisation, common investment codes, technical co-operation and the like. As stated by Gareth Evans, 'The APEC model is one of community configured as an open economic association: open to the rest of the world, economic in its primary policy focus, and an association built on voluntary understandings, not supranational objectives'. APEC has initiated a number of working groups to develop co-operative policy in energy, fisheries, human resource development, investment in science and technology, marine conservation, tourism, telecommunications trade and transportation. In 1994 in Indonesia its members committed themselves to free trade for developed countries by 2010 and developing countries by 2020. APEC is not the equivalent of the European Union or of the North American Free Trade Association. It has an annual ministerial meeting, slated for Japan (1995), Philippines (1996), and Canada (1997), its senior officials meeting more regularly. It also has a Secretariat which is based in Singapore. Its working groups report to the ministerial meetings. APEC's objective is to sustain regional growth and development, to strengthen multilateral trade, and to focus on economic rather than political or security issues. It is consistent with Australia's interests in the creation of a liberal global trading environment. In 1993, following Prime Minister Keating's initiative, the Seattle APEC meeting was turned into the first of periodic Heads of APEC Economies meetings. It is indicative of the orientation of the Australian media, rather than of the success of that meeting in continuing the liberalisation of regional trade, that the media gave predominant attention to Keating's offhand and tired description of the non-attending Malaysian leader as 'recalcitrant'. APEC perhaps more than any other single matter symbolised Australia's new approach to the region. Britain is not a member of APEC. It was initiated by Australia. It is inclusive only of regional economies. It does not discriminate on the basis of ideology and thereby includes all three Chinas - the People's Republic, Taiwan (Chinese Taipei) and Hong Kong. It is economic in orientation and reflected Australia's newfound enthusiasm for free trade. In 1992 Australia's exports to the APEC economies were worth $42.6 billion or 73 per cent of its total, including $8.3 billion or 14 per cent to ASEAN. At the same time Australia imported $27.1 billion or 66.8 per cent of the total from APEC, of which $4.4 billion or 8.1 per cent came from ASEAN. This is a firm measure of Australia's having joined the Asia-Pacific region in the economic sphere. Strategically, however, the issue has not yet been so clearly resolved. The rapid growth of East Asian economies has produced an acceleration in arms expenditure in almost all the states of the region. As a result it is one of the few areas hosting an increase in armament spending in the post-Cold War world. As these states consolidate their power, disputes


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between them over territory, boundaries and resources are emerging, with stronger local and diminishing global components. These disputes may be exacerbated as the region experiences the realignment of Great Power relations, as the United States and Russia continue their strategic withdrawals and China and Japan emerge as the dominant and perhaps contending states. Australia's involvement in that process has yet to be determined.

CHAPTER 10

All in a Day's Work

During the last thirty years the economic system which was constructed by Australians at the time of federation became untenable. That model had two essential ingredients and has therefore been described as a dual economy. On the external account, and at first within the British imperial system, Australia exported primary products and imported manufactured goods and capital equipment. It borrowed external funds to develop an appropriate infrastructure. It was able to do this because world demand for its primary products was buoyant during the late nineteenth and much of the first three-quarters of the twentieth century. In addition, changes in technology allowed it to add progressively to the catalogue of primary products - at first wool and gold - which it sold on the world market as refrigeration added meat, canning added fruit, and steamships cheapened the cost of transporting much more. After 1945 new mineral products and then energy sources were added to these categories. The other side of this dual economy was the domestic market. The internal distribution of the economic surplus generated externally was determined by protection of domestic industry, state determination of wage rates, and the regulation of economic activity. The resulting high standard of living was achieved from the external surplus and despite domestic regulation. The regulation of the internal economy may well have achieved a more egalitarian society, a more widely settled population and other nation-building objectives, and an economy which was more broadly based and self-sufficient. But it did so at the cost of a lower level of national efficiency and economic growth. In other words, even when Australian living standards were perhaps the world's highest, at the time of federation, they were kept lower than they otherwise would have been by the regulatory system. The victory of the protectionist States, 208

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Victoria and South Australia, in the 1901 resolution of the federation debates ensured that this system was maintained. This economic model appeared to be very successful for nearly a century, largely because of the external surpluses. These were, in turn, made possible by the favourable labour: resources ratio, which conquest of a resource-rich continent had assured. These resources were mobilised by the availability of British development capital during London's systemic hegemonic period and the undoubted entrepreneurial initiative of Australians in creating the great world-competitive industries of that period, especially wool, beef, mining and construction. But the model was vulnerable to three major external threats which combined to make it untenable by the 1970s: extreme fluctuations in the price of exported basic commodities; long-term decline in the price of many commodities relative to value-added, processed and manufactured products; and technological changes which rendered protection of the Australian domestic market more and more difficult. Although Australia had one of the world's highest living standards during the century which followed the discovery of gold in 1851, it was always vulnerable to fluctuations in commodity prices. As a result, the economic development of Australia has been characterised elsewhere as revolving around the two Long Booms, 1850-90 and 1945-73. During these two periods economic growth in the world economy was rapid, commodity prices were correspondingly firm, Australia was able to access the then principal sources of development capital - British, then American - and it could export into their growth markets. The end of the first period witnessed a collapse in commodity prices, a domestic slump and a wave of industrial conflict as workers resisted wage cuts to accommodate economic recession. Across the six colonies debate raged about the appropriate political response. The formation of the Australian continent-wide, national market and state resulted. The manner in which it was formed was to produce the dual economy. During the next thirty years economic growth in Australia was not so strong and it progressively lowered its ranking in the world per capita income table. This was a reflection of the declining economic performance of the British Empire, of which the nearly sovereign Australian state remained a part. It also reflected the outdated nature of imported British capital, labour organisation and techniques. The British economic system was under challenge from a number of other economies, notably Germany and the United States, and never regained its hegemonic status of 1815-90 or its leading industrial position. In 1930 this situation was worsened for Australia when the stock exchange slump on Wall Street in the United States, the world's leading economic and financial power at the time, spread rapidly through diminishedfinancialflowsinto Europe,

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to produce a world depression. The resulting and intense political struggles in Australia were eventually resolved in the direction of even more regulation, particularly its extension to the depressed rural sector in the form of marketing boards and price maintenance schemes. But despite some recovery in the late 1930s, the depression was only resolved for Australia by the outbreak of war in 1939 and its later extension. The war served both to stimulate economic activity in general and to broaden the economic base into secondary industry in order, for strategic reasons, to provide an independent armaments base in the event of supply lines being cut. The successful prosecution of the war returned Australia to the status of one of the world's richest nations because it had done so much to destroy the economies of other leading societies. Europe from the North Sea to the Urals and East Asia from Japan to Malaysia were in ruins. During the resulting period of post-war boom, well under way by 1950, Australia faced buoyant markets for its commodity exports as the economies of previously rich countries were reconstructed. With growth in East Asia, especially Japan, opening new markets, the relatively slow aggregate growth in the Australian economy and even slower growth in productivity and per capita incomes did not excite intense national interest or debate in a period of general prosperity. This should have come to an end in the mid-1970s when the international economy again went into a recession and commentators spoke of the end of the post-war boom. It didn't for two reasons. On the one hand the OPEC-induced and short-term increase in the price of energy drove up the value of the pardy floated Australian dollar in the late 1970s. The Fraser government wrongly thought this would produce a long-term resources boom into the 1980s and the foreseeable future. In addition, because of its political incompetence the Whitlam government was too readily blamed for the mid-1970s recession. Instead of an intense national debate about economic policy and structure occurring in the mid-1970s - as had happened in the 1890s and 1930s - it was delayed until the mid-1980s. The Crisis of the Dual Economy By the mid-1980s it was also clear that the heavy reliance on commodity exports not only exposed Australia to periodic and dramatic export price fluctuations which created boom and bust cycles, but also that there was a long-term cost to excessive dependence on commodities. In the nineteenth century most of world trade was in raw commodities. During the twentieth century manufactured commodities and capital goods had become an ever-rising proportion of trade, overtaking raw material in the 1950s. By that time a third component of trade, that in services, had

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begun to emerge such that by 1990 it matched manufacturing and by 2000 would probably comprise 50 per cent of all trade. By regulating its economy in such a way that its exports remained tied to two slow-growth sectors, agriculture and mining, Australia was locked into these two declining parts of world trade. In addition, by building in high domestic costs, which resulted from socially or politically determined economic decisions, Australian manufacturing and service industries found it difficult to compete internationally. The externally generated economic surplus on which Australian prosperity had depended since the creation of the sheep runs in the 1830s and 1840s and the discovery of gold in the 1850s could no longer be depended on to sustain a relatively high standard of living. Finally, protected and regulated domestic industry could no longer be sustained. It is true that it had provided some stability to the Australian economy as a whole during periods like the international recession of the 1930s and resulting depressed commodity price income. This is partly why rural producers supported protected urban industries. It should hardly be surprising that during such slumps Australia had responded by increasing protection and regulation, as occurred in the 1890s and 1930s, and to some extent during the 1970s Fraser government. This policy response, however appropriate it might have been to short-term commodity price fluctuations, did nothing to deal with the problem of commodity price decline. In other words, it did not encourage, indeed it obstructed the growth of alternative industries and products more in keeping with the fact that world trade was increasingly moving into manufactured goods and services. Indeed not only did protection and regulation make these industries more inefficient and unable to generate export revenue, they also increased the production costs for agriculture and mining. What brought this problem to crisis management rating was the end of the ability to protect the domestic market. The Australian cities had generated the political momentum for protection in the late nineteenth century. This was particularly true of Melbourne, then the largest Australian city with great wealth created by gold and other rural production but little industry to create work for its immigrant population. It became and remained the stronghold of protection for a hundred years. In the post-1945 period when a large immigration program was renewed for strategic reasons, protection again seemed a good way to encourage industrial development and employ the growing population. This policy was sustained nationally by a Liberal leadership based in Victoria and led by Victorians - Menzies, Holt, Gorton, Fraser - and a Labor Opposition dominated by representatives sponsored by public sector and manufacturing unions. At first, of course, much of Australian industry's protection had been

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sustained by distance. Protection meant tariffs on imported British goods which had to be carried 12000 miles in clippers. After 1945 protection was also not hard to sustain in a world of post-war reconstruction when manufactured goods were in short enough supply in Europe and Japan anyway. The Australian model came under acute threat in the late 1970s when export-oriented industries in Europe and East Asia combined their surplus domestic production with greatly cheapened transport, distribution and marketing costs to effectively dismantle Australian barrier protection. The difference in price in the 1920s between a British product plus 12000 miles transport, and an Australian product minus a tariff was a small proportion of unit cost and one that could be supported by the need to generate and nurture infant clothing, construction and transport industries. By the time of the Whitlam government this gap was larger and not so persuasive. The Whitlam government was in any case faced with a stagnant manufacturing industry and it lurched towards reduced tariffs and deregulation. The Fraser government then misread this experience and reverted to higher protection, but because of technological change this had to be at ever-increasing levels. This explains the rising protection level during 1975-83, and the move towards quotas, which are tariffs at the level of infinity. A protected domestic industry base was no longer sustainable at a rate which was economically or politically acceptable. By the late 1970s the development of a market in quotas was making the system a laughing stock. As a result of the 1982-83 recession, economic policy changes went at first in two directions. On the one hand, the incoming government determined to deregulate the financial sector and eventually took this direction in ever-widening areas of the Australian economy. This was in response to the increasing awareness within the country's governing elite of the need to create a more broadly based and more competitive international sector of the economy. On the other hand, the government also determined to regulate one sector - wages - more than had previously been the case. This was largely because it believed that a regulated wage system would enable it to reduce real wages and the wages share of GDP quicker under the Accord than would a deregulated labour market. Dismantling the Dual Economy This decision by the new Labor government to dismande the dual economy in recognition of the fact that the widening world market was irresistible, was the watershed change for late twentieth-century Australia. In effect it meant abandoning the hybrid system of economic regulation developed in a distant and peripheral setder-democracy with a strong resource base, one that combined capitalist rhetoric with strong state

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intervention and imperial commitments. At first it was not entirely clear what was to replace this old dirigiste model of half capitalism, half state socialism. During the next decade, in the face of successive economic problems, the answer became clearer: Australia would have to construct a truly competitive capitalist economy. In one of the great ironies of Australian history the task had fallen to the Labor Party of globalising Australian capitalism, destroying its hybrid nature and making it internationally competitive, internally market-driven, externally in balance with the world economy and institutionally oriented to efficiency. The logic and necessity of this process was not, of course, immediately apparent and acceptable to all sectors of the Australian population. The most important opposition initially came from within the governing party, which had to be persuaded of the need to reduce tariffs, deregulate the economy and make public sector institutions more efficient or/and sell them. At each stage in this process there was resistance, but while no alternative strategy was available it could only be at the tactical level. The formulation of such an alternative strategy was periodically attempted around the idea of state intervention.1 But this could provide no general substitute for national efficiency. It is true that in the early stages of industrial revolution in East Asia, powerful state apparatuses intervened to assist the accumulation of private capital, the formation of identified and designated industries, and the creation of strategic trade policies.2 The East Asian states also used the state apparatus to control organised labour. But the industrial revolutions in Asia were also formed on the basis of a diligent work force, dedicated managers, world-best practice, world market orientation, and efficient distribution of national resources. In almost all those countries state intervention became less important as economic development proceeded: economic management was devolved to the corporate management strata and the state was democratised. State intervention in a developed economy could not be a substitute for national aspirations towards the achievement of efficiency. Although political support could be generated in Australia around the need for interventionist industry policy, this did not produce an alternative economic strategy. The primary role for the management of the state in a free-trade era is for it to play its role in the formation of a national economy capable of competing successfully with other national economies. The benchmarks for this are the external account balances and national income growth figures, both of which have been deteriorating for Australia for some time. Although in the early 1990s the external tradefigureswere in broad balance and per capita income growth was competitive, those results may be largely due to the phases of the business cycle. Australia cannot, it seems, run high growth and external balance simultaneously. The

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Australian experience of the last two decades suggests that five broad guidelines to policy need to be continually pursued if the longer-term problem is to be resolved and Australia is to enter the world market successfully. Globalising Australian Capitalism The first guideline is recognising that the Australian economy is not yet structurally reformed and that the nation cannot afford to become exhausted with reform. Part of the reason for the current account improvement in the early 1990s was the slow growth in imports, which occurred because the domestic growth of demand was slow and often negative. At the same time the lagged effect of the devalued currency, in the form of the J-curve, has seen exports growing steadily during the same period. As the national economy entered its growth phase after 1992 this relationship was more difficult to sustain. By 1994 the usual characteristics of a strong recovery phase were in evidence: economic growth of over 5 per cent, rising employment levels and increased company profits. The missing component was company investment. In the prevailing low inflation and interest rate environment, this changed during 1995. Company surveys by mid-1994 were already showing intentions to increase investment. A high proportion of capital invested in Australia is usually imported. In other words as the economy recovers and companies again begin to invest their profits, there will probably be an increase in imports and a rise in the external deficit. In both 1994-95 and 1995-96 the current account deficit will be about $27 billion or 6 per cent of GDP, the figure which sparked the Banana Republic crisis ten years earlier and the interest rate crisis of 1989. This contains the danger of a renewal of the same boom-bust cycle which dominated the 1980s. It would, of course, be quite tempting for the federal government to see the signs of economic recovery, implement some of the recession-driven expansionary fiscal policies still on the books from 1991-92, and take advantage of the uncertain Opposition to rest on its laurels. No doubt a reform-weary electorate would not be totally unhappy with this development. But it will not resolve the longterm structural deficiencies. It is impossible to quantify how far Australia has travelled from its dirigiste status to that of a modern, developed, flexible and competitive economy, but it may be surmised that if its reform program moves during the next decade at the same pace as during the last one, it may still be close to that status by 2001. It would then have a level of external debt at about 40 per cent of GDP, having risen then fallen, offset to some degree by its own increased foreign investments. The second guideline for successful globalisation is the continuing

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recognition by the national political elite that the transformation of Australia into an efficient capitalist economy is a central national goal. By 1995 there were signs that the national Cabinet had become weary of reform in wage fixation. Despite the relaxation of discipline that accompanied the onset of the 1993 election and the expansion of government spending promises as it approached its seemingly unwinnable challenge, the Labor leadership did move at first to rectify its budgetary problem. The 1993 budget quite properly increased taxes on consumer goods, notably wine and petrol, to set in train a cyclical process which would bring the deficit to about 1 per cent of GDP by 1996-97. This decision was taken at the right time in the electoral cycle for the government to ride out the unpopularity of the adjustment. Yet the Working Nation statement of April 1994, together with the soft budgets of 1994-95 and 1995-96, marked a return to fiscal laxity, expanded aggregate demand and a renewed trade deficit blow-out, with the accompanying expansion of external debt. It seemed possible that the electoral coalition required to deliver Labor victory would not countenance a resolution of the external imbalance. Labor had begun its globalisation program against a discredited Coalition, pursued it through a boom, survived an election during a recession because of the GST, but now baulked at pressing it home.3 It is not surprising that the Opposition leadership, having lost the unlosable 1993 election, should do its best to take advantage of this situation by promising to vote against the 1993-94 budget, thereby giving the minority party senators the opportunity to block it entirely. Having burnt its fingers with the Fightback! disaster of sound economic policy ruined by bad politics, the Liberal Party reverted to populist politics by blocking a necessary structural budgetary adjustment. It clearly needed a leadership more capable of handling the difficult job of combining political skills with the long-term economic reform program so essential for Australia's future performance. This was a decision that most Liberal federal MPs had also clearly made. Hewson was leader courtesy of the Liberal wets and supporters of other younger potential leaders who could not in mid1993 muster a majority to depose him. If the Liberals did not replace Hewson with a leadership team capable of matching Labor's skill in pursuing a reform program at an electorally acceptable pace, it would lose the next two elections which were almost certain to be fought during the growth phase of the cycle. In May 1994 the Liberals acted on this logic and installed the Downer-Costello leadership team. Alexander Downer proved not up to the task. In a democratic state politics is a specialised profession and political conflicts often determine the direction of national life. After a spectacular period of honeymoon popularity, Downer mismanaged a series of issues in a manner which destroyed his credibility as alternative prime minister. This was

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compounded, ironically, by his demeanour and accent, that of the landed Anglo gentry. In March 1995 he was replaced by the recycled John Howard whose experience gave him the ability to avoid both policies and gaffes, which at first resulted in a substantial and sustained popularity lead over the government. Nonetheless Howard had long been a committed globaliser, although he was periodically compromised by his attempts to marry this to a 1950s-style social conservatism that had been underpinned by a dirigiste state. Also encouraging was the emergence of the Democrats under the new leadership of Senator Kernot as a party of responsible economic management. During the Janine Haines period the Democrats cobbled together whatever coalition of promises to sufficient interest groups seemed likely to achieve the relevant Senate quota. This had produced a substantial minority party status enhanced by Labor's campaign tactics in 1990. Under Senators Janet Powell and John Coulter they had become a misplaced, principled environmentalist party during a recession, and seen their vote almost halved. After the 1993 budget war they presented to government a classic Labor Left position of increased taxes on the better-off to pay for job-creating and welfare programs for the 1994 budget. The Democrats had achieved the status of economic responsibility. They would assume the role of a traditional Left party in Australia's Senate elections, except probably in Western Australia where organisation problems had left them vulnerable to the Greens. In this vein it was by then accepted across the political spectrum that national policy planning would need to take strict account of the distribution of factor shares within the Australian economy. One of the reasons for the severity of the mid-1970s recession had been the dislocation of factor shares, with profits losing about five points to wages and the state share. The Fraser government had recognised this problem as the 'real wage overhang'. It had been unable to resolve it by either reductions in the state sector or cuts in real wages. It had left the state sector taking a slightly larger part of the GDP than it had inherited, and it proved unable to achieve any cuts in the wages share until it announced a wage freeze and an imminent boom in 1981-82. The result was a huge wages explosion and a recession with high inflation in 1982-83. The Labor government spent much of its time in office cutting government expenditure from the peak level it inherited from Fraser. Periodically it claimed that this task had gone as far as possible, for example in 1989 when it resorted to interest rate increases as an alternative to expenditure cuts. In fact there is never a public expenditure program that cannot be reduced, and it should be axiomatic that any increase in public expenditure must be matched by a reduction elsewhere. Such balance (which can be accomplished within a portfolio or

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within Cabinet) would result in no increase in the public sector as a proportion of GDP as a whole. The overall argument for this policy must be the demonstrated effect of large increases in public expenditure either paid for by taxes or funded by deficits when they have occurred in the past: they have severely disrupted national economic activity and accelerated recession. It would then be left to politicians to construct a fiscal framework within which the public sector would be in broad balance through the cycle. This is the limit to modern Keynesian intervention. Similarly, any tax reductions or increases should only be made with a corresponding adjustment elsewhere, such that the redistributive and efficiency impact of such changes can be publicly viewed and debated. The central problem in globalising Australian capitalism towards the end of the second millennium is the construction of a political combination capable of winning elections, enforcing efficiency and maintaining an external balance. Labor won five elections and pursued macro- and micro-economic reform programs with some success. But when confronted with a severe recession in 1991 it jettisoned an incumbent prime minister and fiscal restraint. The result was a burgeoning national debt and another blow-out in the balance of payments deficit in the mid-1990s. Given the electoral base of the Labor government, it seemed unable to resolve these contradictions. The Liberals after Fraser pursued globalisation even more enthusiastically but were unable to get elected on a policy of its more single-minded pursuit, such as Fightbackl, because of electoral resistance. Five Liberal leaders have failed to resolve that dilemma: John Howard Mark II might do better. The third condition for successful globalisation follows from such budgetary stabilisation. Reform to the public sector may then actually improve its delivery of services by quality or efficiency rather than merely by the provision of additional resources. The political power of the public sector work force to generate pressures for increased resources for its personnel in the guise of reform programs should not be underestimated. Much of the public sector is heavily unionised as a result of employer (state) compliance in compulsory unionism or other favourable recruitment conditions, the cost of which can be too readily passed on to the consumer in the form of increased taxation. Public sector unions have been extremely powerful as a result. Further, because the responsible minister is not only responsible for the sector but is also its chief or even sole employer, the minister is subjected to unusually strong and vocal pressure to maintain or increase resource allocation, a pressure too readily accompanied by threatened or actual internal leaks about procedures. The primary recourse against this tendency for a state sector to grow against efficient national resource allocation4 is the application of budgetary stringency. But two secondary processes must also be set in

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train. In the areas of transfer payments and welfare service delivery the maximum use should be made of existing community organisations, and wherever they are absent new ones should be encouraged. Education, aged care, child care and health delivery, to name the most obvious, should be subsidised and accredited by the public sector but, where possible, delivered by community, religious, charitable, voluntary and profit-seeking organisations. This is more likely to provide services efficiendy and flexibly than the recruiting of ever greater resources to the public payroll with the corresponding political claim on the public purse and national output. Second, those industries which were brought within the public domain, either because of a market failure or because of political pressure, will need to be subject to efficiency audits. This is most easily achieved in the form of direct competition. There is no case for public monopolies in a national economy subject to open international competition. If they are efficient deliverers of services they need not be publicly owned. In this light the Commonwealth and State governments should corporatise much of their industrial holdings and sell them under a public charter. The funds generated should be used to retire debt. The fourth policy guideline concerns wage determination. Australia's unique wage-setting system was appropriate for a highly regulated economy, where it was rational to distribute economic returns to many factor inputs of production, partly by social and political means. The basic wage was set in 1907 at a level allowing a male worker to support a wife and two children. As the economy is now more open to competition, then labour must be mobile geographically, occupationally and between firms. The basic way to achieve this is differential wage rates, otherwise there will be little labour mobility between and within sectors. But the achievement of this is complicated by the fact that the last time the national wage fixation procedure broke down, in 1981-82, there was a huge increase in wage rates because of industrial activity led by the unions. Indeed the reduction in the wages share and the corresponding restoration of the share of company profits was only gained by reinstating a centralised wagedetermining system under the Accord. In future the wages share of GDP should not rise above its historical proportionate level as it moves with the cycle, higher in the trough and lower in the peak. The proof for this is not moral but historical: when wages share has substantially increased, as in 1974 and 1982, the result has been a collapse in profits, investment and growth, leading subsequently to higher unemployment. Its share was restored by central determination in the mid-1980s, but by a mechanism which cannot be sustained. The old factor share system operated in a regulated economy; the new one must work in a market economy. Government must now move from a centralised system which produces a good aggregate factor

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share result but an inflexible labour market towards one which achieves its factor share outcome, but with greater flexibility in remuneration between occupations, firms and regions. The Liberals approached this problem by seeking to abandon award rates in 1993 and substitute employment contracts, which excited a successful union campaign in opposition. The policy could only be achieved by the Coalition winning a federal election and having a majority in both chambers, an unlikely outcome at present. A more productive policy would be to trade awards for minimum wage rates and enterprise and zonal bargaining. This will not be easy. Workers still employed in depressed sectors, firms and regions will not readily accept reduced wages relative to workers in buoyant sectors, firms and regions. Yet labour must have incentives in the market to retrain, move and relocate. The Liberal option was too radical and probably too upfront. The reforms proposed by Labor Industrial Relations Minister Laurie Brereton in 1993 were defeated by the ACTU within the Accord negotiations despite their open espousal by Prime Minister Keating, but their direction was nonetheless correct. The desirable outcome is that the Industrial Commission would set minimum wage rates and ratify enterprise bargains only above that rate, a process which cannot be achieved overnight. It clearly implies that if the wages fund as a proportion of national output is to remain static, but that otherwise wages will vary with productivity and profitability in different sectors and firms, then some wages will rise and others will fall. The fifth continuing reform must relate to the sector of private industry in Australia. Most international trade takes place between private individuals and firms. This has not always been true of Australia in the past because its rural exports have been organised by commodity corporations established by government. This was part of the problem of export growth, in that there was no direct relationship between original producer and final consumer. In the mining sector this was not the case, but the small labour force and capital-intensive nature of this very efficient industry enabled its work force, mostly operating in remote areas, to earn high wages without the results spilling on inexorably throughout the work force. In a reformed and open Australian economy, however, companies throughout all sectors will be competing on the world market whether within Australia or by exporting. They require a correspondingly efficient culture. The development of successful private corporations in Australia is an essential component of its open economy strategy. This has been the subject of considerable policy controversy. The initial dispute over appropriate levels of protection has now been resolved, at least for the time being, at minimal levels ranging from zero to 25 per cent by 2000. The next

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threshold argument concerned public sector industries where the policy thrust is towards privatisation and competition. During the early 1990s there was a continuing discussion within government about sectoral policies. These already existed, but only in industries which were nurtured under protection and required specific sectoral plans to assist adjustment to free trade. Government was determined not to extend this principle. Apart from the difficulty of defining a sectoral industry and putting a barrier around those firms within it, sectoral policies prejudge potentially successful firms by political or bureaucratic processes. The successful car industry plan, for example, is still subsidised by consumers. Other sectors thereby subsidise the favoured sectors and have their own cost structure correspondingly increased. This is as difficult to justify as tariff protection, although vestiges of both may remain. Instead the federal government has correcdy decided to concentrate on the development of successful firms. This involves examining the life cycle of a firm and facilitating each stage. The first step is product acquisition, which may derive from a number of sources. The government already provides extensive tax subsidies for any firm engaging in research and development of new product or production facilities. It has also taken steps to encourage major sources of innovation in Australia, particularly the CSIRO and the universities, to commercialise the results of their research output. Accompanying this, it has set in train policies designed to encourage multinational companies to establish their regional research and development facilities in Australia. These policies deserve more attention and encouragement. In particular, a technology and technique dissemination of about a dozen research bodies along the lines of the South Australian Centre for Manufacturing should be established across the country to assist new product development. The One Stop Shop network of about 400 oudets could readily be used to support such a program on a wider basis. The production of goods and services requires that potential new firms have access to advice and information about product, production, distribution and marketing. The One Stop Shop system can initiate this process. The federal government already provides the NIES scheme in co-ordination with the States to enable new firms to write achievable business plans and develop in accordance with them. Part of this process involves information about access to capital, markets and labour. The shortage of capital is usually a problem for start-up firms, made worse in a period of high interest rates like 1988-91 when bankruptcies reached record levels. Greater action needs to be taken about linking the growing body of national savings to the aspiring corpus of new commercial initiatives. Legislative compulsion to push investors into higher-risk new firms will not work in the face of opposition from superannuation

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policy-holders and bank shareholders who want safe outlets for their savings. Rather, loan account managers have to be better aware of the possibilities of new Australian companies, whose owners and managers in turn need greater skills in marketing their own worth to financiers. And, finally,firmsmust be able to find information about export markets. In an era of touch screen technology and huge databases, it is possible for One Stop Shops to provide aggregate and narrow-band information on market growth, penetration and trading opportunities in foreign, particularly Asian, markets. These emerging Australianfirmswill be heavily dependent on the quality of their management. This should be of no great surprise to anyone since the same can be said of the political parties and sporting teams, which receive much more public attention and interest in Australian national life. Successive reports on firms, exporters and regions all emphasise that it is the quality of leadership or management which often determines the difference between success and failure. During Australia's regulatory period managers were protected by tariffs and subsidies or at worst had to compete only with one another; after 1983 Australian managers have increasingly been faced with open competition from the best in the world. Assuming factor shares are properly preserved and a satisfactory average rate of profit is available, and that a stable currency and an appropriate cost structure result from micro-economic reform, Australian firms will be heavily dependent on the quality of management. There is probably no area of public policy capable of yielding a quicker or more lasting return than management training. It is wholly appropriate, therefore, that Business Studies has been designated an area of national priority in the development of the national curriculum in the post-secondary education system. This policy requires further and extensive development. It is Australia's managers who will direct its products into the world market and it is their success or failure which will produce the national future. Many of these policy directions will be seen, and some have already been described, as contrary to the Australian tradition and, more particularly, as betraying ALP principles. The traditional structure of Australian life was developed during a period of British systemic hegemony when as a rich settler-democracy it faced problems of unstable commodity prices within national development. For most of that period its external surplus was fairly easily generated and distributed internally by a complex combination of state and market. During the Cold War much of this system was sustained. As the world entered the post-Cold War period of international free trade and economic rather than strategic competition between nations, Australia was badly organised to meet the new challenge.

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The problem was all in a day's work. It should not be supposed that Australians did not work hard or long enough. The problem was that too many worked in the wrong jobs, in the wrong sectors, with the wrong equipment and responded to the wrong messages and economic incentives. The government which was elected in March 1983 had only a limited idea of the task it had inherited. For the next decade it wresded with successive problems and their resolution in a seemingly unending series of difficulties: one was addressed only to produce another. At first it seemed they could be resolved by some basic structural changes, but as time ground on it became clearer that a new national process of change had to be established, a process in which the structure of production was more sensitive to international economic signals. This might be a system nearer to textbook capitalism but with income-supporting and welfareprovisioning elements closer to the Australian tradition. Australian politicians had become change facilitators and not obs true tors. For them as for other Australians, change in response to world market conditions had to become all in a day's work. This process of structural change had been and would continue to be disruptive and even painful for sections of the Australian work force. During its first decade it had probably increased inequalities in Australian society as wages and wealth were distributed more in accord with market considerations than political or social formulations. Workers in industries owned, protected or regulated by the state had been exposed to competition and labour-shedding to a degree that many resented, and people living in regions disadvantaged by change often found the new system difficult to comprehend. But these were penalties that had to be paid if other industries and regions were to grow and if the rapid employment and economic growth record of fhe 1980s were to be permanendy re-established. If this were not achieved Australia would continue its steady decline in relative wealth and become, to use Lee Kuan Yew's picturesque term, the 'poor white trash of Asia'. In any case the inexorable expansion of the world market ensured that Australia could not isolate itself from the technological, economic and institutional changes which it would impose. Only a banana republic would even try. The globalising of Australian capitalism described in this book has become unavoidable, necessary and desirable. It is unavoidable because the extension of the world market and the rapid technological change which has accompanied it has made the survival of rich, small, idiosyncratic, semi-capitalist societies untenable. Changes to communications, transportation and data transmission ensure that wider sectors of Australian economic and social life become part of the world market and that the processes which may be sheltered are reduced. Australian

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markets are more transparent to other economies and their corporations pursuing global-oriented growth trajectories. Continuing reductions in the unit costs of internationally transporting commodities, capital and people have opened these markets to those overseas producers and populations. And the creation of an international instant real-time market in finance in the 1980s destroyed Australia's capacity to regulate its finance sector and protect its managers. This restructuring, then, has become necessary if Australia is to arrest the long-term decline in its relative living standards - a process which has been occurring since federation, but one which was on two occasions masked by victory in global military conflicts. Australia has never been a core or metropolitan or fully developed capitalist state and its performance should not properly be compared with them. During the Menzies period it certainly appeared that it had achieved this status. But in fact the backwardness and uncompetitive nature of its secondary industry sector in particular ensured that this was not so. It was a semi-peripheral state, to use Wallerstein's terminology. It was quite appropriate that secondary industry be nurtured by state protection and direction - a policy commonly pursued by nations undertaking industrial revolutions in Europe, North America and later, East Asia - but it is inappropriate that such policies be pursued forever. The state regulation which had created the infant industries later served to impede them. The restructuring of the economy has also become desirable. In an international system which - world order theorists notwithstanding - remains fiercely competitive, it is still the case that national sovereignty rests on the capacity of the state to maintain it. Into the twenty-first century this relates to a state's ability to access and sustain the military and civilian technology on which its maintenance depends. And for the individuals within the state, their welfare rests on the nation's capacity to successfully compete on the world market. It is extremely desirable that Australia undertakes that task successfully.

Notes

Introduction 1 Peter Dicken, Global Shift, London: The Guilford Press, 1992, 2nd edn, p. 460. 2 For example, Robert H. Fagan and Michael Webber, Global Restructuring: The Australian Experience, Melbourne: Oxford University Press, 1994. 3 As was then anticipated, see Robert Catley and Bruce McFarlane, From Tweedledum to TweedUdee, Sydney: ANZ Books, 1974, pp. 1-7. Chapter 1 1 Paul Kennedy, The Rise and Fall of Great Powers: Economic Change and Military Conflict from 1500 to 2000, new edn, London: Fontana Press, 1989. 2 Immanuel Wallerstein, The Modern World System, 3 vols, New York: Academic Press, 1974, and Geopolitics and Geoculture: Essays on the Changing World-System, Cambridge: Cambridge University Press, 1991. See also the journal of the Fernand Braudel Centre, Review. 3 Immanuel Hsu, The Rise of Modern China, new edn, Oxford: Oxford University Press, 1995; S. A. M. Adshead, China in World History, 2nd edn, London: Macmillan, 1995. 4 Perry Anderson, Passages from Antiquity to Feudalism, London: New Left Books, 1974. 5 Robin Gollan, Revolutionaries and Reformists: Communism and the Australian Labour Movement, 1920-1955, Canberra: Australian National University Press, 1975. 6 E. H. Carr, Socialism in One Country, 1924-1926, 2 vols, London: Macmillan, 1958. 7 Paul Krugman, T h e myth of Asia's miracle', Foreign Affairs, December, 1994. 8 Moshe Lewin, Political Undercurrents in Soviet Economic Debates, new edn, London: Pluto Press, 1975 [1974]. 9 Robert Conquest, 77**? Great Terror: Stalin's Purge of the Thirties, London: Macmillan, 1968; Harvest of Sorrow: Soviet Collectivisation and the Terror Famine, New York: Oxford University Press, 1986. 10 Francois Fejto, A History of the People's Democracies: Eastern Europe since Stalin, new edn, London: Penguin, 1977.

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NOTES (PAGES 11-31)

225

11 Gabriel Kolko, The Politics of War: The World and United States Foreign Policy, 1943-1945, New York: Random House, 1968. 12 V. I. Lenin, Imperialism, the Highest Stage of Capitalism, Moscow: Foreign Languages Publishing House, 1950. 13 Edward Luttwak, The Grand Strategy of the Soviet Union, London: Weidenfeld 8c Nicolson, 1983. 14 J. L. Gaddis, The United States and the End of the Cold War: Implications, Reconsiderations, Provocations, New York: Oxford University Press, 1992; Henry Kissinger, Diplomacy, New York: Simon & Schuster, 1994. 15 Samir Amin, Class and Nation: Historically and in the Current Crisis, New York: Monthly Review Press, 1980; L. S. Stavrianos, Global Rift The Third World Comes of Age, New York: William Morrow 8c Co., 1981. 16 US Department of Defense, Soviet Military Power, Washington: US Government Printing Office, 1983, 1989, 1990. 17 Barry R. Posen and Stephen W. Van Evera, 'Reagan administration defense policy: departure from containment', in Kenneth Oye, Robert Hieber and Donald Rothchild (eds), Eagle Defiant: United States Foreign Policy in the 1980s, Boston: Litde, Brown 8c Co., 1983. 18 William R. Bode, 'The Reagan Doctrine', Strategic Review, 1986; Fred Halliday, The Making of the Second Cold War, 2nd edn, London: Verso, 1984. 19 Edward Shevardnadze, 'The 19th all-Union CPSU conference: foreign policy and diplomacy', International Affairs, (Moscow) October, 1988. 20 Kissinger, Diplomacy, p. 799. 21 Harry Gelber, Australia, Britain and the EEC, 1961-1963, Melbourne: Oxford University Press, 1966. 22 Lester Thurow, Head to Head: The Coming Economic Battle among Japan, Europe and America, New York: William Morrow & Co., 1992.

1 2 3 4 5 6 7

8

Chapter 2 World Bank, The East Asian Miracle: Economic Growth and Public Policy, Oxford: Oxford University Press, 1993. William Keylor, The Twentieth Century World: An International History, Oxford: Oxford University Press, 1984 pp. 46-7. V. I. Lenin, The Development of Capitalism in Russia, Moscow: Foreign Languages Publishing House, 1956. Barrington Moore, Social Origins ofDictatorship and Democracy: Lord and Peasant in the Making of the Modern World, Boston: Beacon Press, 1969. Jon Halliday, A Political History of Japanese Capitalism, New York: Monthly Review Press, 1975. Purnendra C. Jain, 'A new political era in Japan: the 1993 election', Asian Survey, 33(2), November, 1993. Helen Hughes (ed.), Achieving Industrialisation in East Asia, Melbourne: Cambridge University Press, 1988; Pacific-Asia Resources Centre, Free Trade Zones and Industrialization of Asia, AMPO: Japan-Asia Quarterly Review, 1977; Edward Chen, Hypergrowth in Asian Economies: A Comparative Study of Hong Kong, Japan, Korea, Singapore and Taiwan, London: Macmillan, 1979; Frederic Deyo (ed.), The Political Economy of the New Asian Industrialism, Ithaca: Cornell University Press, 1987. Axel Hadenius, Democracy and Development, Cambridge: Cambridge University Press, 1992, ch. 5; Dietrich Rueschemeyer, Evelyne Huber Stephens and John

226

9

10

11 12 13 14

15

16 17 18

NOTES (PAGES 32-44)

D. Stephens, Capitalist Development and Democracy, Chicago: University of Chicago Press, 1992. George Cho, The Malaysian Economy: Spatial Perspectives, London: Routledge, 1990; R. J. Muscat, The Fifth Tiger: A Study of Thai Development Policy, New York: United Nations University Press, 1994; John Bresnan, From Dominoes to Dynamos: The Transformation of Southeast Asia, New York: Council of Foreign Relations Press, 1994; Hal Hill, Southeast Asian Economic Development: An Analytical Survey, Canberra, National Centre for Development Studies, 1993. Adam Schwarz, A Nation in Waiting: Indonesia in the 1990s, Sydney: Allen & Unwin, 1994; Dick Howard, James Fox and Jamie Mackie (eds), Balanced Development: East Java in the New Order, Singapore: Oxford University Press, 1993; and Hal Hill (ed.), Indonesia's New Order: The Dynamics of Socio-economic Transformation, Sydney: Allen & Unwin, 1993. World Bank, The East Asian Miracle, pp. 33-4. Rob Goodfellow, 'Ignorant and hostile: Australian perceptions of Indonesia', Inside Indonesia, September, 1993. Gareth Evans, 'Australia/Indonesia ties: Timor Gap zone of cooperation', Australian Foreign Affairs and Trade, 62(2), February, 1991. Economist Intelligence Unit, Country Report: Vietnam, London: 1995; Hoang Anh Tuan Mya Than and Joseph Tan, 'The Vietnamese economy in transition: introductory overview', in Mya Than and Joseph Tan (eds), Vietnam's Dilemmas and Options: The Challenge of Economic Transition in the 1990s, Singapore: ASEAN Economic Research Unit, 1993; Hoang Anh Tua, 'Vietnam's membership in ASEAN: economic, political and security implications', Contemporary Southeast Asia, 16(3), December, 1994. Trevor Matthews and John Ravenhill, Strategic Trade Policy: The East Asian Experience, Working paper No. 2, Australian National University Dept of International Relations, 1993; Robert Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization, Princeton: Princeton University Press, 1990; Alice Amsden, Asia's Next Giant: South Korea and Late Industrialization, New York: Oxford University Press, 1990. Zbigniew Brzezinski, The Grand Failure: The Birth and Death of Communism in the Twentieth Century, London: Macdonald, 1990. Francis Fukuyama, The End of History and the Last Man, London: Penguin, 1992. Ross Garnaut, Australia and the Northeast Asian Ascendancy, Canberra: AGPS, 1989; Dept of Foreign Affairs (East Asia Analytical Unit), Australia and Northeast Asia in the 1990s: Accelerating Change, Canberra: AGPS, 1992; Pappas Carter Evans and Koop/Telesis study, The Global Challenge: Australian Manufacturing in the 1990s, Melbourne: Australian Manufacturing Council, 1990; Department of Prime Minister and Cabinet, Building a Competitive Australia, Canberra: AGPS, 1991.

Chapter 3 1 A. G. L. Shaw, The Economic Development of Australia, 5th edn, Melbourne: Longmans, 1966; Robert Catley and Bruce McFarlane, Australian Capitalism in Boom and Depression: Options for the 1980's, Sydney: Alternative Publishing Cooperative Limited, 1981, p. 14. 2 Geoffrey Blainey, The Rush that Never Ended: A History of Australian Mining Melbourne: Melbourne University Press, 1963.

NOTES (PAGES 45-61)

227

3 W. A. Sinclair, The Process of Economic Development in Australia, Melbourne: Cheshire, 1976, p. 147. 4 Frank Crowley, '1901-1914', in Frank Crowley (ed.), A New History ofAustralia, Melbourne: William Heinemann, 1984; Clement Macintyre, Political Australia: A Handbook of Facts, Melbourne: Oxford University Press, 1991. 5 Geoffrey Sawer, The Australian Constitution, Canberra: AGPS, 1988. 6 T. B. Miller, Australia in Peace and War: External Relations, 1788-1977, Canberra: Australian National University Press, 1978. 7 Ann Capling and Brian Galligan, Beyond the Protective State: The Political Economy of Australia's Manufacturing Industry Policy, Melbourne: Cambridge University Press, 1992, pp. 72-3. 8 Peter Cochrane, Industrialisation and Dependence: Australia's Road to Economic Development, Brisbane: University of Queensland Press, 1980. 9 N. G. Butlin, A. Barnard a n d j . J. Pincus, Government and Capitalism: Public and Private Choice in Twentieth Century Australia, Sydney: Allen & Unwin, 1982, p. 154. Although the decision was made in 1907, the 'basic wage' was only taken up gradually before the First World War and it was not until the mid1920s that it was universally accepted. Ibid., p. 72. 10 W. Pember Reeves, State Experiments in Australia and New Zealand, vol. 2, Melbourne: Macmillan, 1969 [1902]. 11 Shaw, The Economic Development of Australia. 12 C. B. Schedvin, Australia and the Great Depression: A Study of Economic Development and Policy in the 1920s and 1930s, Sydney: Sydney University Press, 1970; Charles P. Kindleburger, The World in Depression 1929-1939, London: Allen Lane, 1973. 13 Don Aitkin, The Country Party in New South Wales: A Study of Organisation and Survival, Canberra: Australian National University Press, 1972. 14 David Lee, Search for Security: The Political Economy of Australia's Post-war Foreign and Defence Policy, Sydney: Allen & Unwin, 1995. 15 Scott Prasser, J. R. Nethercote and John Warhurst (eds), The Menzies Era: A Re-appraisal of Government, Politics and Policy, Sydney: Hale & Iremonger, 1995. 16 See Lee, Search for Security, M. Beresford and P. Kerr, 'A turning point for Australian capitalism 1942-52', in E. L. Wheelwright and Ken Buckley (eds), Essays in the Political Economy ofAustralian Capitalism, vol. 4, Sydney: Australia & New Zealand Book Co. 17 Bruce McFarlane, 'Australia's role in world capitalism', in John Playford and Douglas Kirsner (eds), Australian Capitalism: Towards a Socialist Critique, Melbourne: Penguin, 1972. 18 Catley and McFarlane, Australian Capitalism, p. 78. 19 Donald Brash, American Investment in Australian Industry, Canberra: Australian National University Press, 1966. 20 Jackson Committee, Policies for the Development of Manufacturing Industry: A Green Paper, vol. 1, Canberra, AGPS, 1975. 21 Hugh Stretton, 'The quality of leading Australians', Daedalus, Winter, 1985. 22 Tom Fitzgerald, Contribution of the Mineral Industry to Australian Welfare, Canberra: AGPS, 1974. 23 Robert Murray, The Split: Australian Labor in the Fifties, Melbourne: Cheshire, 1970. 24 Robert Catley, 'Socialism and reform in contemporary Australia', in Wheelwright and Buckley, Essays in the Political Economy ofAustralian Capitalism, vol. 2.

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25 Bruce McFarlane, Economic Policy in Australia: The Case for Reform, Melbourne: Cheshire, 1968. 26 Anne Summers, Gamble for Power: How Bob Hawke beat Malcolm Eraser: The 1983 Federal Election, Melbourne: T. Nelson Australia, 1983.

Chapter 4 1 Paul Kelly, The End of Certainty: The Story of the 1980s, Sydney: Allen & Unwin, 1992. 2 For the former see Albert Me tin, Socialism without Doctrine, Sydney: Alternative Publishing Company, 1977 [1901], for the latter, V. Gordon Childe, How Labour Governs: A Study of Workers' Representation in Australia, Melbourne: Melbourne University Press, 1964 [1923]. 3 Paul Kelly, The Unmaking of Gough, Sydney: Angus 8c Robertson, 1976. 4 Andrew Parkin, 'The Dunstan Governments: a political synopsis', in Andrew Parkin and Allan Patience (eds), The Dunstan Decade, Melbourne: Longman Cheshire, 1981. 5 H. B. Turner, 'New South Wales', in John Rorke (ed.), Politics at State LevelAustralia, Department of Adult Education, University of Sydney, 1970. 6 Edna Carew, Paul Keating, Prime Minister, Sydney: Allen & Unwin, 1992; Fia Cumming, Mates: Five Champions of the Labor Right, Sydney: Allen & Unwin, 1991. 7 Richard Farmer et al., 'Act II of the Bob and Paul show: the slashers go to work', Bulletin, 22 July 1986. 8 Richard De Angelis, 'France: Mitterrand's socialist experiment', Current Affairs Bulletin, 60(3), August, 1983. 9 Peter Beilharz, Transforming Labor: Labour Tradition and the Labor Decade in Australia, Melbourne: Cambridge University Press, 1994. 10 Peter Pierce, Jeff Doyle and Jeffrey Grey (eds), Vietnam Days: Australia and the Impact of Vietnam, Melbourne: Penguin, 1991. 11 Graham Richardson, Whatever it Takes, Sydney: Bantam, 1994; Peter Walsh, Confessions of a Failed Finance Minister, Sydney: Random House, 1995. 12 Gerard Henderson, Menzies' Child: The Liberal Party of Australia, 1944-1994, Sydney, Allen 8c Unwin, 1994; Dean Jaensch, The Liberals, Sydney: Allen 8c Unwin, 1994. 13 Don Aitkin, The Country Party in New South Wales: A Study of Organisation and Survival, Canberra: Australian National University Press, 1972. 14 Mike Steketee, 'The day of the dream team', The Australian Magazine, 23-24 July 1994. 15 Dean Jaensch, The Hawke-Keating Hijack: The ALP in Transition, Sydney: Allen 8c Unwin, 1989, Ch. 3. 16 See the analysis of the Gerritsen Report in David Shires, 'For Labor, the corporates spend is nigh', Australian Financial Review, 7 July 1995, pp. 1, 8-9. 17 Jaensch, The Liberals, pp. 195-210. 18 Shires, 'For Labor, the corporates spend is nigh'. 19 Paul Keating, One Nation, Canberra: AGPS, 1992. 20 See the analysis of Howard's second 'headland' speech in the Australian Financial Review, 19 July 1995, pp. 1, 4-5. 21 Jamie Walker and Dennis Shanahan, 'Kernot's new order', The Australian, 28-29 August 1994.

NOTES (PAGES 87-101)

229

Chapter 5 1 Doug McEachern, Business Mates: The Power and Politics of the Hawke Era, Sydney: Prentice Hall, 1991; Brian Galligan and Gwynneth Singleton (eds), Business and Government under Labor, Melbourne: Longman Cheshire, 1991. 2 Alf Rattigan, Industry Assistance: The Inside Story, Melbourne: Melbourne University Press, 1986; Gary Banks, 'The Industry Commission's role in a crowded policy arena', Canberra Bulletin of Public Administration, No. 75, December, 1993. 3 John Carroll and Robert Manne (eds), Shutdown: The Failure of Economic Rationalism and How to Rescue Australia, Melbourne: Text, 1992; Michael Pusey, Economic Rationalism in Canberra: A Nation Building State Changes its Mind, Cambridge: Cambridge University Press, 1991. 4 Bob Jessop, State Theory: Putting the Capitalist State in its Place, Cambridge: Polity Press, 1990; Peter Beilharz, Transforming Labor. 5 Peter Ewer, Winton Higgins and Annette Stevens, Unions and the Future of Australian Manufacturing, Sydney: Allen & Unwin, 1987. 6 ACTU/TDC, Australia Reconstructed, Canberra: AGPS, 1987. 7 M. A. Jones, Transforming Australian Local Government: Making it Work, Sydney: Allen & Unwin, 1993. 8 C. A. Parvey, Australian Regional Developments: A Regionalisation of Australia for Comparative Economic Analysis, Canberra: AGPS, 1988. 9 Brian Head (ed.), The Politics of Development in Australia, Sydney: Allen & Unwin 1986; Allan Peachment (ed.), The Business of Government, Western Australia, 1983-1990, Sydney: Federation Press, 1991. 10 Bruce Davis, Tasmania: the political economy of a peripheral state', in Head, The Politics of Development in Australia. 11 Stewart Cockburn, Play ford: Benevolent Despot, Adelaide: Axiom, 1991; Peter Blazey, Bolte: A Political Biography, Melbourne: Mandarin, 1990. 12 Humphrey McQueen, Australia's Media Monopolies, Melbourne: Widescope, 1977; Keith Windschuttle, The Media: A New Analysis of the Press, Television, Radio and Advertising in Australia, Melbourne: Penguin, 1988; William Shawcross, Murdoch, London: Pan Books, 1993. 13 Mike Steketee and Milton Cockburn, Wran: An Unauthorised Biography, Sydney: Allen & Unwin, 1986. 14 Andrew Parkin and Allan Patience (eds), The Dunstan Decade: Social Democracy at the State Level, Melbourne: Longman Cheshire, 1981. 15 See the accounts in Kelly, The End of Certainty. 16 AMWSU, Australia Up-rooted, Sydney, 1977; Australia Ripped-off, Sydney, 1979. 17 Hugh Hudson, The Case against Reduced Protection for Australian Manufacturing Industry, Melbourne: Metal Trades Industry Association of Australia, 1982. 18 Pappas Carter Evans & Koop/Telesis, The Global Challenge: Australian Manufacturing in the 1990s, Melbourne: Australian Manufacturing Council, 1990. 19 MTIA, Ledger Report on TariffReduction and Microeconomic Reform, mimeo, 3 vols, 30 September 1991, 24 January 1992, 1 July 1994. In 1995 the Coalition spokesperson on industry, John Moore, also talked extensively about linking tariff reduction to micro-economic reform. See David Shires, 'Howard's new stance protects his policy', Australian Financial Review, 7 July 1995, p. 25. 20 See the various papers in 'The National Tax Summit: Success or Failure?' Economic Papers, 4(3), September, 1985.

230

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21 Peter Sekuless, Lobbying Canberra in the Nineties, Sydney: Allen & Unwin, 1991. 22 House of Representatives, Standing Committee on Industry, Science and Technology (Beddall Report), Small Business in Australia: Challenges, Problems and Opportunities, Canberra: AGPS, 1990.

Chapter 6 1 M. Beresford and P. Kerr, 'A turning point in Australian capitalism 1942-52', in E. L. Wheelwright and Ken Buckley (eds), Essays in the Political Economy of Australian Capitalism, vol. 4, Sydney: Australia & New Zealand Book Co., 1980. 2 OECD, OECD Economic Outlook, Paris, June 1995. 3 See for example Matthew Smith and Greg Mahony, 'Macroeconomic stabilisation policy', in Greg Mahony (ed.), The Australian Economy under Labor, Sydney: Allen 8c Unwin, 1993, p. 48. 4 Laura Tingle, Chasing the Future: Recession, Recovery, and the New Politics in Australia, Melbourne: William Heinemann Australia, 1994. 5 Deborah Brennan, The Politics of Australian Child Care: From Philanthropy to Feminism, Cambridge: Cambridge University Press, 1994; Australian Labor Party, Child Care Policy Statement, February, 1993. 6 Coopers and Lybrand, Cost of Nursing Home and Hostel Care Services, Canberra: AGPS, 1985. 7 South Australian Health Commission, Distribution of Aged Persons and Nursing Home Beds in South Australia, April 1985; Department of Community Services, Private Hostels for the Aged and Disabled, Canberra: AGPS, 1985. 8 Michael Hogan, Public versus Private Schools: Funding and Directions in Australia, Melbourne: Penguin, 1984. 9 John Deeble, Medical Services through Medicare, Melbourne: National Health Strategy Unit, 1991. 10 Bureau of Transport and Communications Economics, Adequacy of Transport Infrastructure, Canberra: AGPS, 1995. 11 David Corbett, 'Off we go into the wide blue yonder: airline deregulation in Australia', in Brian Head and Elaine McCoy (eds), Deregulation or Better Regulation?, Brisbane: Centre for Australian Public Sector Management, 1991. 12 Howard Dick, 'Progress and frustration: restructuring of coastal shipping and ports', in Peter Forsyth (ed.), Microeconomic Reform in Australia, Sydney: Allen 8c Unwin, 1992. 13 Paul Keating, One Nation, Canberra: AGPS, 1992, pp. 66-7. 14 Frederick Hilmer et al, National Competition Policy, Canberra: AGPS, 1993. 15 Rodney Maddock, 'Microeconomic reform of telecommunications: the long march from duopoly to duopoly', in Forsyth, Microeconomic Reform. 16 Ian Sabey, Challenge in the Skies: The Founding of TAA, Melbourne: Hyland House, 1979. 17 Robin Gollan, The Commonwealth Bank of Australia: Origins and Early History, Canberra: Australian National University Press, 1968. 18 Greg McCarthy, 'Private culture, public loss', in Roy Green and Rodin Genoff (eds), Making the Future Work: Crisis and Change in the South Australian Economy, Sydney: Allen 8c Unwin, 1993. 19 Conrad Black, A Life in Progress, Sydney: Random House Australia, 1993; Shawcross, Murdoch.

N O T E S (PAGES 1 2 5 - 5 3 )

231

20 Simon Marginson, Education and Public Policy in Australia, Melbourne: Cambridge University Press, 1993; Fred Hilmer, 'Higher education under scrutiny- another view', Australian Quarterly, 60(1), 1988. 21 Phil Raskall, 'Widening income disparities in Australia', in Stuart Rees, Gordon Rodley and Frank Stilwell (eds), Beyond the Market: Alternatives to Economic Rationalism, Sydney: Pluto Press, 1993. 22 Ross Clare and Kaye Johnston (EPAC), Profitability and Productivity of Government Business Enterprises, Research Paper No. 2, Canberra: AGPS, 1992. Chapter 7 1 Donald Home (ed.), The Trouble with Economic Rationalism, Melbourne: Scribe Publications, 1992; Chris James, Chris Jones and Andrew Norton, A Defence of Economic Rationalism, Sydney: Allen & Unwin, 1993. 2 OECD, Economic Surveys: Australia 1994, Paris, 1994, pp. 34-6. 3 INDECS, State of Play 5, Sydney: Allen & Unwin, 1988, pp. 129-40. 4 Laura Tingle, 'Seven years on PM admits Button was right on J-curve', The Australian, 16 August 1993, p. 2. 5 Yoichi Funabashi, Managing the Dollar:fromthe Plaza to the Louvre, Washington: Institute for International Economics, 1989. 6 Commonwealth of Australia, Parliamentary Debates: House of Representatives 1992, Canberra: The Commonwealth Government Printer, 1992, p. 17. 7 See Colm Kearney and M. Monadjemi, 'Fiscal policy and current account performance: international evidence on the twin deficits', Journal of Macroeconomics, vol. 12, 1990. 8 Trevor Sykes, The Bold Riders: Behind Australia's Corporate Collapses, Sydney: Allen & Unwin, 1994. 9 Hugo Armstrong and Dick Gross, Tricontinental: The Rise and Fall of a Merchant Bank, Melbourne: Melbourne University Press, 1995. 10 Michael Stutchbury, Gain from the Pain: Australia Recoversfromits Economic Boom-bust, Melbourne: The Financial Review Library, 1992. 11 S. J. Jacobs, Royal Commission into the State Bank of South Australia, 2 Reports, Adelaide Government Printer, 1992, 1993; J. R. Mansfield, Royal Commission into the State Bank of South Australia, Final Report, Adelaide, Government Printer, 1993. 12 Ann Capling and Brian Galligan, Beyond the Protective State: The Political Economy of Australia's Manufacturing Industry Policy, Melbourne: Cambridge University Press, 1992. 13 Ibid. 14 McKinsey & Co., Emerging Exporters: Australia's High Value-added Manufacturing Exporters, Australian Manufacturing Council, 1993. 15 Peter Caroll (ed.), Tourism in Australia, Sydney: Harcourt Brace Jovanovich, 1991; Department of Tourism, Tourism, Australia's Passport to Growth: A National Tourism Strategy, Canberra: AGPS, 1992. 16 See 'Top 500 exporters survey', Australian Business Monthly, August, 1994, and John Arbouw and Bruce Jacques, 'It's official - we're part of Asia', ibid. 17 Paul Keating, Working Nation, Canberra: AGPS, 1994. 18 Committee on Employment Opportunities, Restoring Full Employment, Canberra: AGPS, 1993, p. 31. 19 Federal Coalition, Jobsback: The Federal Coalition's Industrial Relations Policy, October, 1992.

232


20 Peter Saunders, Welfare and Inequality: National and International Perspectives on the Australian Welfare State, Melbourne: Cambridge University Press, 1994. But see also: Ross Clare and Kaye Johnston (EPAC), IncomeDistribution in Australia: Recent Trends and Research, Canberra: AGPS, 1995. 21 Raskall, 'Widening Income Disparities in Australia'.

1 2 3 4 5 6 7

8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

Chapter 8 Philip McMichael, Settlers and the Agrarian Question: Foundations of Capitalism in Colonial Australia, Cambridge: Cambridge University Press, 1984. Geoffrey Blainey, The Rush that Never Ended: A History of Australian Mining, Melbourne: Melbourne University Press, 1963. Leslie McLeay and Nancy Cato, River's End: The Story ofGoolwa and the Murray Mouth, Adelaide, 1985. Ross Fitzgerald, From the Dreaming to 1915: A History of Queensland, Brisbane: University of Queensland Press, 1982. F. K. Crowley, Australia's Western Third: A History of Western Australia from the First Settlements, Melbourne: Heinemann, 1970. L. L. Robson, A Short History of Tasmania, Melbourne: Oxford University Press, 1985. N. D. Kondratieff, 'The long waves of economic life', Review of Economic Statistics, November, 1935; Robert Catley, 'Economic cycles and Labor policy: political determination and economic determinism', in Jill Eastwood, John Reeves and John Ryan (eds), Labor Essays 1984, Melbourne: Drummond, 1984. OECD, Towards Full Employment and Price Stability (McCracken Report), Paris: OECD, 1977. R. G. Gregory, 'How much are Australia's economy and economic policy influenced by the world economy', in F. G. Castles (ed.), Australia Compared: People, Policies and Politics, Sydney: Allen 8c Unwin, 1991. Keating, Working Nation. McMichael, Settlers and the Agrarian Question. Blainey, The Rush that Never Ended. Access Economics, Economics Monitor, July 1992. Michael Stutchbury, Gain from the Pain, Melbourne: The Financial Review Library, 1992. Bill Kelty et al. Developing Australia: A Regional Perspective, Commonwealth of Australia, 1993. Peter Crossman, Migration, Population Growth and Regional Development in Queensland, Canberra: AGPS, 1993. John Cain, John Cain's Years: Power, Parties and Politics, Melbourne: Melbourne University Press, 1995. Kevin Davis and Ian McLean, 'Economic policy', in Andrew Parkin and Allan Patience (eds), The Dunstan Decade: Social Democracy at the State Level, Melbourne: Longman Cheshire, 1981. Keltyr, Developing Australia. Industry Commission, Impediments to Regional Industry Adjustment, Canberra: AGPS, 1993. Kelty', Developing Australia. McKinsey 8c Co., Lead Local, Compete Global: Unlocking the Growth Potential of Australia's Regions, Sydney, 1994. Arthur D. Little, New Directions for South Australia's Economy, August 1992.


233

Chapter 9 1 Henry Albinski, The Australian-American Security Relationship, Brisbane: University of Queensland Press, 1982. 2 Robert Catley, 'Australia and the great powers', Australian Outlook, 1983. 3 Robert McNamara has excited considerable interest by detailing the process by which he arrived at this conclusion in his In Retrospect: The Tragedy and Lessons of Vietnam (New York: Times Books, 1995). Interestingly, in reaction at first, the then Army minister and later prime minister, Malcolm Fraser, continued to support the Australian commitment to Vietnam but then said he would have opposed it had he known the Americans instigated the coup against Diem in 1963. He must have been the only politician of the era who was ignorant of that fact. 4 Graeme Cheeseman, The Search for Self Reliance: Australian Defence since Vietnam, Melbourne: Longman Cheshire 1993. 5 'Action for South Vietnam', Assistant Secretary for Defence McNaughton, 6 November 1964, Pentagon Papers, Bantam, 1971, pp. 265ff. 6 Michael Sexton, War for the Asking: Australia's Vietnam Secrets, Melbourne: Penguin, 1981. 7 Edward Luttwak, 'Where are the great powers?', Foreign Affairs, July-August 1994. 8 McQueen, Australia's Media Monopolies. 9 Pentagon Papers. 10 See Henry Kissinger, Diplomacy, New York: Simon 8c Schuster, 1994, Ch. 28. 11 Jim Cairns, Living with Asia, Melbourne: Lansdowne Press, 1965. 12 Coral Bell, 'Australia in a world of powers', in P. J. Boyce andj. R. Angel (eds), Independence and Alliance: Australia in World Affairs, 1976-80, Sydney: Allen & Unwin, 1983. 13 Ibid., pp. 35-7. 14 See: Independent Commission on International Development Issues, North-South: A Program for Survival, London: Pan, 1980, and Common Crisis, Cooperation for World Recovery, London: Pan, 1983, for a summary of these developments. 15 Robert Catley (ed.), Australia and Asia towards New Horizons, Canberra: Australian Institute for International Affairs, 1984. 16 Henry Albinski, The Australian American Alliance: Prospects for the 1990's, Canberra: Australia Defence Force Academy, 1990. 17 For an interesting account of the origins of this strategy see: Richard Pipes, 'Misinterpreting the Cold War', Foreign Affairs, January-February 1995. 18 Department of Defence, The Defence of Australia, White Paper, Canberra: AGPS, 1987. This represented the peak of 'continental defence' thinking. Subsequent strategy has become more interventionist. See: Department of Defence, Defending Australia, White Paper, Canberra: AGPS, 1994; and Gareth Evans, Co-operating for Peace: 1990s and Beyond, Sydney: Allen 8c Unwin, 1993. 19 Stuart Harris, 'Australia in the global economy in the 1980s', in P. J. Boyce a n d j . Angel (eds), Australia in World Affairs, 1981-90, Melbourne: Longman Cheshire, 1992; and Gareth Evans and Bruce Grant, Australia's Foreign Relations, Melbourne: Melbourne University Press, 1991, Ch. 8. 20 G. Pemberton, 'Australia and the United States'; Boyce and Angel, Australia in World Affairs, 1981-90. 21 OECD, Economic Surveys, Australia, 1994, Paris, 1994; Department of Foreign Affairs and Trade (East Asia Analytical Unit), Australia and Northeast Asia in the 1990s: Accelerating Change, Canberra: AGPS, 1992.

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22 Geoffrey Blainey, All for Australia, Sydney: Methuen Haynes, 1984. Chapter 10 1 ACTU/TDC, Australia Reconstructed, Canberra: AGPS, 1987. 2 Trevor Matthews and John Ravenhill, Strategic Trade Policy: The East Asian Experience, Working Paper No. 2, Australian National University Department of International Relations, 1993. 3 Ian Henderson, 'Ex-Hawke aide calls for GST', The Australian, 8 August 1995. 4 Doug McEachern, The Expanding State: Class and Economy in Europe, New York: St Martin's Press, 1990.

Index

Aborigines, 44, 102, 155, 157, 159 policy concerning 84, 98, 170, 181, 202-3 ABC, 124-5 Abeles, Sir Peter, 104 Access Economics, 81 Accord, the, 100, 114, 133, 135 ACTU, 64, 67-8, 99, 100-1, 108, 112, 114-15, 136 Adelaide, federal member for, 46 Adelaide, 157, 164, 172-4 Afghanistan, 15, 17, 190 Africa, 17, 29, 38 aged care, 106, 116-18 AIDAB, 5^Ausaid air transport, see Ansett Airlines; Compass Airlines; Qantas Albury-Wodonga, 176, 180 Alice Springs-Darwin railway, 124 Alcoa of Australia Ltd, 151 Ansett Airlines, 104, 120, 123 Anthony, Doug, 75 Amalgamated Metal Workers Union, 99 Anderson, Warren, 105 ANZUS Treaty, 55, 105, 182 APEC, 23, 41, 151,205-7 Arthur D. Little Report, 178 Arbitration Commission, 49, 52, 136 Argentine, 8 Arnold, Lyn, 173 ASEAN, 22, 140, 144 Asia and Australian trade, 61, 131, 140, 144-5, 197ff. attitudes to, 186-7, 197, 201 economic development in, 8, 10, 18, 22-3, 25ff., 89, 103, 129 education in, 200-1

emigration to Australia from, 78-9, 201 governments in, 213 industrial revolutions in, 28—9 and World War II, 13,210 Audit Commission of South Australia, 179 Ausaid, 200 Australians Against Further Immigration, 201 Australian Capital Territory, 94 Australian Chamber of Commerce and Industry, 103-4 Australian Constitution, 47 Australian government Budgets, 109, 134-5 Cabinet Expenditure Review Committee, 113, 200 Ministers, 95 Departments Industry and Regional Development, 177 Foreign Affairs and Trade, 199 Governor-General, 47 Labor governments, 46, 49ff., 61ff., 76, 97-8, 188-9, 210, 212; see also Whitlam, Gough; Hawke, Bob; Keating, Paul Liberal governments, 58-9, 61, 88, 120, 130, 135, 153, 170, 189ff., 211-12; see also Menzies, Sir Robert; Fraser, Malcolm Parliament, 47, 62, 82 Question Time, 83 Australian Labor Party conference Hobart 1986, 135, 143 election campaigns, 77 factions, 68-9, 82, 113 history of, 66

235

236

INDEX

Australian Labor Party (cont.) leadership, 81-2 organisation, 67-8 policy defence, 55, 196 economic, 56, 62, 65, 67, 70, 98ff., 108ff., 213 education, 118, 200-1 health, 118-19 immigration, 57, 201 trade, 61 welfare, 106, 108, 115-16, 127 see also Aborigines seen as betrayed, 221 socialist objective, 97 splits, 66 State governments, 50, 93, 96-7, 176-7 see also Australian government Australian Manufacturing Council, 99, 148 Australian Mining Federation, 103 Australian Wheat Board, 151 Australian Medical Association, 118 Australia Post, 122 AustralisTV, 179 Australian Institute of International Affairs, 194 automobile industry, 37, 53, 58, 61, 146-7 Camry, 147 Chrysler, 199 Commodore, 147 Corolla, 147 Falcon, 147 Ford Motor Co., 51, 102, 104 General Motors, 51, 58, 102 Magna, 147 Mitsubishi, 33, 102, 151, 199 Nissan, 102, 147, 199 Toyota, 102, 147, 199

Beddall Report, 103 Bendigo (Vic.) 156 Bishop, Bronwyn, 79, 85 Bjelke-Petersen, Sir Joh, 74, 94, 97 Black, Conrad, 125 Blainey, Geoffrey, 201 Blewett, Dr Neil, 118, 194 Bolte, Sir Henry, 94, 96 Bond, Alan, 104, 141 Bowen Basin (Q.), 157 Boxer Rebellion, 47 Boyne Island (Q.), 167 Brereton, Laurie, 84, 219 Brezhnev, Leonid, 15, 18 Brisbane, 91, 167 British Petroleum, 51 Britain, 13, 16, 53, 58, 99, 125 emigration to Australia, 45, 66 and empire, 5-6, 8, 21, 25, 43, 47-8, 53, 157, 181, 183, 209 and EC, 21 and industrialisation, 27-8, 36, 39, 40-1, 162 and investment in Australia, 50-1, 60, 197 Bretton Woods, 13, 19-20, 130 BHP, 42, 51, 102, 125, 141, 151, 157 Brown, Dean, 96, 173 Brown, John, 166 Broken Hill, 175 Bryant & May, 51 Bunbury (WA), 169 Burke, Brian, 169 Burma, see Myanmar Button, John, 68, 133, 194 Bush, George, 22 business, 87-8, 219-20; see also company names Business Council of Australia, 101

Badgery's Creek (NSW), 174 Ballarat (Vic), 156 Balmain, 66 banana republic, 70, 214 banks ANZ Bank, 142 Bank of Adelaide, 124 Bank of New South Wales, see Westpac Commonwealth Bank, 50, 112, 123-4, 142, 144 National Australia Bank, 124, 141 State Bank of South Australia, 71, 124, 142, 173-4, 177 State Bank of Victoria, 68, 70, 79, 124, 141, 171-2, 177 Westpac, 123, 142 banking industry, 123—4 Bannonjohn, 96, 172 Beazley, Kim, 122, 169, 194-5

Cadbury, 51 Cain, John, 96, 171-2 Cairns (Q.), 157, 166-7 Cairns Group, 196 Cairns, Jim, 188 Calwell, Arthur, 57 Canada, 23 Canberra, 89, 101-2, 175 Cancun Summit, 193 Carter, Jimmy, 15-16, 19, 190, 203 Catholic community, 118 Central Business Districts, 90-1 Centre Left, see ALP, factions Chardonnay Set, see ALP, factions Chartists, 40 Chifley, Ben, 54, 56 Christopher, Warren, 204 CIA, 34 childcare, 106, 116

Australian Business Monthly, 150

INDEX China Australian trade with, 59, 191, 198, 206 Beijing massacre, 204 containment, 30, 155, 185 history, 6-7, 23, 29, 183 economic development, 22, 34-5, 40—1, 56 Manchuria, 30 Mao Tse-tung, 35 Maoists, 186 relations with Soviet Union, 188 Shanghai, 35 see also Hong Kong, Taiwan Chipp, Don, 72 Clarke, Tim Marcus, 173 Cleary, Phil, 82 Clinton, Bill, 22-3, 119 Cold War, The, 14ff., 30, 55, 66-7, 182-3 Collie (Q.), 157 Comalco, 167 Communismj, 9, 17-18 Communist Party of Australia, 10, 54, 66-7 Compass Airlines, 120 comrades, 68-9, see also ALP, factions Confucian ethic, 27 Connell, Laurie, 141 Connor, Rex, 191 Consolidated Press, 85 convicts, 43—4, 56 Cook, Peter, 169, 194 Coronation Hill (NT), 102 Costello, Peter, 85 Coulter, John, 83, 86, 216 coup, 1975, 67 Court, Richard, 94, 170 Court, Sir Charles, 94, 169, 170 Country Party, see National Party CSIRO, 125, 127, 220 Cuba, 18 Curtin,John, 53 Dawkins,John, 101, 113, 126, 169, 194 'Dawkins Universities', 126 Deakin, Alfred, 46 democracy, 40-1 Democrats, Australian, 71-2, 83, 86, 113, 174 DLP, 66-7, 77, 115 dependency theory, 35 detente, 19, 67

Dorman Long, 51 dirigiste, 2, 213

Downer, Alexander, 75, 80, 84-5, 215-16 Dunstan, Don, 67, 92, 117 Dutch colonies, 33-4, 183 'East Asian Miracle', 26 East Timor, 188, 204

237

EC, 14, 21-2, 96, 143 economy cyclical growth, 160—1 dual economy, 208—9 economic depression, 1930, 51-2 economy, Australian booms 19th century, 44-5, 159 post-war, 53-4, 159-60, 209 late 1980s, 136-7, 142 factor shares, 132-3, 190-1, 218-19 foreign debt, 108-9 Hilmer Report, 121 inflation, 133-4 J-curve, 111, 131-2, 144,214 micro-economic reform, 107-8 privatisation, 112 recession 1974-75, 62-3 1981-82, 63-4 1990-91, 137-8 regional development policy, 176-7 restraint with equity, 136 semi-periphery, 51-2, 223 trade, 198-9,210-11 transfer payments, 108-9 twin-deficit theory, 111 see also industry policy; taxation economic rationalisation, 65-6 education, 118, 125-6, 149 ETMs, 151 elections, federal, 76-7, 177 Elizabeth (SA), 57 Elliott, John, 141 Esperance (WA), 169 Ethiopia, 15 Europe, 29 and Australia, 47, 57, 62 economy, 23, 27, 36, 51 and international system, 4, 9 and USA, 12, 16-17, 20 EFTA, 21 European imperialism, 29-30 European settlement of Australia, 4—5, 43-4 European Union, see EC Evans, Gareth, 182, 193, 205-6 Evatt, Dr Herbert Vere, 55 Fairfax media empire, 125 Fairfax, Warwick, 141 Federated Automobile Chamber of Commerce, 103 Fightback!, 78-9, 82ff., 153, 170, 215, 217 Fiji coup, 203-4 financial deregulation, 129-30 fiscal stabilisation, 217 Fitzgerald Commission, 74 Ford, Gerald, 19, 190

238

INDEX

'fortress' Australia, 146 Four Tigers, 22, 30, 32, 37-8, 192 France, 5-6, 8, 21, 23, 28, 40, 143 Franklin River (Tas.), 106 Fraser, Malcolm and Liberal Party, 65, 73, 75, 85 as Prime Minister, 62-3, 84, 88, 153, 170, 176, 190, 195 see also Australian government free trade, 11-12 free-trade zones, 30 Fusion Party, 46 GATT, 14, 23, 41, 56, 143, 147 GATT Round, 196 General Electric, 51 Germany, 5, 11, 16, 21-2, 28-9, 31, 36, 47-8, 99, 147, 156, 209 Gladstone (Q.), 167 globalisation, 1-3, 99-100, 165-6, 205-6, 213ff., 222-3 gold, 44, 163 gold rush, Victorian, 156-7, 163-4 Gold Coast (Q.), 167 Goss, Wayne, 168 Gorbachev, Mikhail, 15-16, 18-19, 197 Gorton, John, 55, 73 Grand Prix, 93, 178 Greece, 57 green issues, 71-2, 79-80, 83-4, 86, 95, 106, 113, 159,216 Grenada, 195 Gulf War, 18, 20-1, 70, 80, 125, 196 Habsburgs, 5, 6 Haines, Janine, 72, 83, 216 Hall, Steele, 79 Harradine, Brian, 113 Harvester Judgment, 49 Hawke, Bob and ALP, 68-9, 80-1, 97, 114 contacts in business, 104 policies, 136 as Prime Minister, 65, 76, 98, 102, 179, 205 see also Australian government Hayden, Bill, 62, 67, 68, 69, 80, 193, 195 Heath, Edward, 21-2 Hewson, John, 75, 79-80, 84-5, 170 Higgins, Henry, 49 HMV, 51 Hobart, 164 Hochu Australia Ltd, 151 Holt, Harold, 55, 73 Hong Kong, 30-1, 35, 41, 201 Hood, Robin, desire to be, 113 Housing Industry Association, 78, 104 Howard, John, 75, 78-9, 80-1, 84-5, 201, 216-17

Howe, Brian, 69, 82 human rights diplomacy, 203—4 Hungary, 18 Hunter Valley (NSW), 175 IBM, 38 ICI, 51 Illawarra (NSW), 57, 175 imperial stagnation, 7 India, 143 Indonesia, 33-4, 38, 41, 182, 184 Industrial Revolution, 26-7, 145 industry policy, Australian Factor (f) program, 150 government business enterprises (GBEs), 127-8 Industry Commission, 88, 101 Jackson Report (1975), 58 One Stop Shops, 220-1 regional disparities, 162-3 sectoral industry plans, 149-50 social costs of restructuring, 151-2 structural change, 139-40 see also tariffs inequality, increase in, 154 International Economic Order, New, 15, 192-3 International Monetary Fund, 13, 56, 136, 143 Investing in the Nation, 109

Iron Triangle (SA), 180 Ireland, 56 Irian Jaya, 34 Israel, 195 Italy, 21, 31, 57 Jakarta, 199 Japan and Australia, 47, 53, 55, 60, 62, 109, 130, 140-1, 144-5, 187-8, 191, 198 democratisation, 41 economic growth, 18, 22, 27, 37, 43, 48, 60, 89, 129-30, 145-6, 187, 189, 210 farmers oppose GATT, 143 in international politics, 7, 15, 196 and USA, 20, 23, 183, 198 and EC, 21, 188 recession in, 137-8, 142 Jobsback!, 153

John Holland, 200 Kalgoorlie (WA), 158, 168 Kampuchea, 15 Khmer Rouge, 35, 186 Keating, Paul and ALP, 68-9, 84, 86 business interests, 104 challenges Hawke, 81-2, 102

INDEX Keating, Paul (cont.) and foreign policy, 26, 200, 205 as Prime Minister, 83-4, 113-14, 153, 219 as Treasurer, 70-1, 78, 86, 100, 122, 137-8, 194 Kelloggs, 51 Kelly, Ned, 176 Kelly, Ros, 153 Kelty, Bill, 177 Kemp, David, 79 Kennedy, Paul, 6 Kennett, Jeff, 85, 96, 171-2 Kerin,John, 82 Kernot, Cheryl, 86, 216 Kerr, Sir John, 62, 67 Keynes, J. M., 53, 63, 89, 161, 190, 217 Kim Il-sung, 186; see also Korea King George Sound (WA), 158 Kingston, Charles, 46 Kirribilli House, 81-2 Kissinger, Henry, 188, 191, 203 Kirner,Joan, 171 Kodak, 150, 172 Kondratieff, N., 160 Korea and Australia, 55, 140, 188, 198, 205 democratisation, 18, 30-1, 41 economic interests, 32, 37, 143-4 industrialisation, 192 relations with other states, 7, 15, 18, 183 stagnation, 35 war in, 187; see also Kim Il-sung Lavarch, Michael, 84 League of Nations, 12 Lee Kuan Yew, 27, 31,222 Lee, Michael, 84 Left collapsed, 71 non-Labor, 71-2 strategy discredited, 70-1 see also ALP, factions Lenin, V. L, 13, 15, 18, 29 'level playing field', 149-50 Liberal Party (Australian), 46, 54, 73-4, 77-8, 115; see also Australian government; Menzies, Sir Robert lobbying, 101-2 Local government, 90-1 London, 32, 50-1, 199 Luddites, 40 Lynch, Phillip, 75 McCauley, Peter, 195 McEwen, John, 59 McClelland, Jim, 65 McKinsey 8c Co., 148, 178

239

McLachlan, Ian, 79 McMahon, William, 55, 61 McMullan, Bob, 77 Macphee, Ian, 79 McQueen, Humphrey, 185 Mackay (Q.), 167 Malaysia, 31-2, 35, 38, 41, 56 Marcos, Ferdinand, 33, 184 Marshall Plan, 12 Marubeni Australia Ltd, 151 Marx, Karl, 8-9, 17, 28, 89, 161 management, 221 Mates, see ALP, factions Medibank, 118 Medicare, 106, 118, 119 media industry, 97-8, 125 Melanesians, 57 Melbourne, 44, 45, 57, 75 91, 156, 164, 171-2,211 Menzies, Sir Robert governments, 60-1, 88, 164, 170, 223 and Liberal Party, 46, 54, 73 policies, 53ff., 73-4, 116, 118, 120 see also Australian government Metal Trades Industry Association, 99 Mexico, 23 Mill, John Stuart, 88 MIM Holdings, 151 mining boom, 168-9, 187-8 Mitsui & Co., 151 Monarto (SA), 176 Monash University (Vic), 149 Motorola, 179 Mtlsa (Q.), 157 Multi-Function Polis (SA), 150, 173 Mandurah (WA), 169 Murdoch, 104, 125 Murray-Darling River system, 44, 156, 163 Myanmar, 35 MX missile, 105 Napoleon, 5, 42, 43, 162 National Party, 52, 55, 59, 74-5, 79, 117-18 nationalism, Australian, 46-7 Nationalist Party (Australian), 46 NATO, 15 Nestle, 51 Newcastle (NSW), 57, 163, 167 NewsCorp, 125 Newman (WA), 169 New South Wales electricity production, 121 economic development, 43-4, 57, 156-7, 163 and globalisation, 166, 174-5 politics, 67-8, 78, 82, 94, 97 population, 94, 157, 167 New York, 32

240

INDEX

New Zealand, 2, 105, 142 Maori Wars, 47, 53 Nicaragua, 15 Nixon, Richard, 19, 185, 190 nomenklatura, 15, 18

NAFTA, 23 Northern Territory, 94, 124, 176 Norway, 41 'Not In My Backyard' (NIMBY), 93 OPEC, 191, 210 OECD, 36, 39, 58, 111, 152 One Nation, 83-4, 109, 113, 121 OPEC, 15, 36, 62, 152 Optus, 122 opinion polls, 80-1 oriental despotism, 35 Ottoman Empire, 7 Olympic Games, 174 Pacific Islanders, 48 Packer, Kerry, 104 Papua New Guinea, 204 Paraburdoo (WA), 169 Peacock, Andrew defeated by Howard, 78, 80 defeats Howard, 75, 79 opposes Hewson, 85 supports Hewson, 84 Opposition Leader, 76 Pentagon Papers, 184 Perth, 158, 168-9 Philips, 51 Philippines, 32-3 Pilbara (WA), 169 Pipeline Authority, privatisation of, 112 Playford, Sir Thomas, 94, 96, 170 Playford, John, ix Plaza Agreement, 20, 37, 111 'poor white trash of Asia', 222 post-Cold War world, 19-20 Poland, 18, 39 population, Australia, 158-9 post-war immigration, 56-7 Port Augusta (SA), 172 Port Phillip Bay (Vic), 156 PortPirie (SA), 172 Powell, Janet, 83, 216 Press Gallery, 81-2 public sector, 107-8 Puplick, Chris, 79 Qantas, 112, 120, 123, 151 Queensland, 44, 66 aged-care services in, 116-17 economic development, 60, 157, 166-7, 180 government, 46, 50, 74, 77-8, 88, 94, 97

labour issues in, 48, 57 political parties, 46, 50, 74, 84, 168 Ray, Senator Robert, 68, 194 Reagan, Ronald, 16-17, 20, 105, 192, 195, 197 realpolitik, 12

Richardson, Senator Graham, 68, 72, 106 role of the state, 39-40, 213-14 Romania, 186 Rome, 6, 7, 23, 155 Roxby Downs (SA), 172 Ryan, Senator Susan, 118 Salvation Army, 115 Scholes, Gordon, 194 Scotland, 156 Shell, 51 Sinclair, Ian, 75 Sinatra Doctrine, the, 18 Singapore, 30-1, 41, 48, 99, 131 Skase, Christopher, 141 Smith, Adam, 88 Snowy Mountains scheme, 54, 109 South Africa, 8, 47 South America, 48 South Australia, 44-5 aged-care services, 116-17 economy, 56, 96, 157, 165, 170, 172-3 industry stimulated, 57, 148 politics, 50, 93-4, 77-8, 84, 97 population, 163 State Bank losses, 142 sovereign states, origins of, 4ff. Soviet Union, 5-6, 9ff. and Australian foreign policy, 190, 193ff. economy, 39-40, 99-100 influence in Australia, 66, 89-90, 105 invades Afghanistan, 190 post-Cold War, 20-1, 89-90 relations with China, 34-5, 188 relations with USA, 190, 195ff. Spain, 7, 41 Spalvins,John, 141 Spirit of Bula, 102 Stalin, J., 10 Staley, Tony, 85 State government, 90-1, 114-15 Strategic Defence Initiative (Star Wars), 16 Sudan, 47 Suez War, 55 Suharto, President, 34 Sunshine Coast (Q.), 167 Swan River (WA), 44, 158 Sweden, 7 Switzerland, 41 Sydney, 43, 57, 75, 91, 158, 174-5 Sydney Opera House, 116

INDEX tariffs, 48-9, 62, 99, 102, 188, 212 Taiwan Australian trade, 191, 198 in APEC, 206 democratisation, 31, 41 economy, 30, 35, 37-8, 144, 192 US relations with, 15, 183-4 Tasmania, 44, 113 economy of, 95-6, 124, 158-9, 164, 177 taxation consumption tax, 100-1 fringe benefits tax, 116 income tax, 109 technological innovation, 24-5 telecommunications, 121ff. Telecom, see Telstra Telstra, 87; see also telecommunications TCF industry, 148 Thailand, 32, 33 Thatcher, Margaret, 22, 201 Third World, 15-16, 191-2 East Timor, 34, 188 Tokyo, 199 Tom Price (WA), 169 Tonkin, David, 173 tourism, 149, 166-7 trade unions, 45, 49, 60 Transfield, build bridges, 200 transport, 119-20, 123 Treaty of Rome, 21 Tricontinental, 70, 141 Trotskyites, 113 Tubemakers, lay off workers, 102 Turkey, 47 unemployment, 102, 152-3 White Paper on Full Employment, 1945, 53-4 United Australia Party, 46, 53 United Nations, 13, 15, 41, 55 United States of America, 5, 7, 45 defeat in Vietnam, 15, 19, 184-5, 203 dollar, 130 economy, 19ff., 28, 33, 35-6, 48, 99, 209 foreign policy, 6, 11-12, 15, 48, 55, 183-4 relations with Australia, 183-4, 190-1, 195 Uren, Tom, 68, 176 'Vasco da Gama syndrome', 186 Victor Harbor (SA), 157 Victoria aged-care services, 116-17 economy, 44-5, 56, 94, 96, 141, 165-6, 170-1

241

politics, 50, 57, 66, 70-1, 73, 77, 93 population, 156-7, 163 Vietnam economy of, 18, 33, 35 Australian relations with, 42, 185, 204 Hanoi, 188 political repression in, 184-5 War, 55,61,71,89 Tet offensive, 185 wage determination, 218—19 Walkerville (SA), 92 Wakefield system, 44 Wallerstein, Immanuel, 6, 223 Wall Street Crash, 51,209 Walsh, Cliff, 195 Walsh, Peter, 169 Warsaw Pack, 15 Washington, 199 waterfront, 120-1 Western Australia, 44 economic development, 60, 140, 158, 163, 168-9 politics, 78, 88, 97 West Irian, see Irian Jaya Wheat Board, 59, 187 White Australia Policy, 48 Whitlam, Gough, 67, 84, 92, 98, 118 as Prime Minister 61-2, 176, 188-9, 210, 212 see also Australian government Whyalla (SA), 57, 172 Wilson, Woodrow, 12 Willis, Ralph, 64 Wittfogel, K., 155 wool production, 44, 156, 162-3 World Bank, 14, 26, 56 Working Nation, 109,215 world market, 23-4 World Trade Organisation, 14 Wollongong (NSW), 163 World War I, 66 political effects, 5, 12, 47-8 economic effects, 31, 50 World War II, 67, 119-20 political effects, 5, 12 economic effects, 23-4, 33, 53, 160-1 sinking of British ships, 181 Wooldridge, Michael, 84 Wran, Neville, 97 Yeltsin, Boris, 19 Yemen, 15 Yorkshire, 156 Yugoslavia, 57 Young, Mick, 68

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