Editorial — THE HAMER SUMMIT · capital-intensive labour-saving devices is being accelerated by the disinclina- ... counteract its structural disadvantages. Thanks to political

I PA REVIEW OCTOBER/DECEMBER 1978 Vol.32 No. 4

Institute of Public Affairs 289 Flinders Lane Melbourne 3000 Tel. 63 6558

Editorial — THE HAMER SUMMIT

In recent years, "Summits" stagedoverseas have been a popular means ofego-building amongst political leaders. Ata time of uncertainty, statesmen enhancetheir prospects of political survival whenthey show concern over major problemsat an international forum.

Notwithstanding the politician's questfor kudos, some Summits, such as thatheld not long ago at Camp David inU.S.A., do stimulate positive thinkingand action on international and nationalproblems. Such events are rare indeed anddeserve public support. At least theHamer-inspired Summit on unemploy-ment holds out to Australians thepossibility of useful action to follow thetalks.

The Hamer Summit, assuming it takesplace with all parties involved, shouldprovide a suitable forum at which the par-ticular problems of various groups ofunemployed can be properly ventilated.One area which deserves the utmost atten-tion from participants is unemployment

IPA Review — October—December, 1978

amongst juniors. The current unemploy-ment rate for young Australians agedfrom 15 to 19 years is 16.8 per cent.Unemployed juniors presently comprisemore than a third of the totalunemployed. Unless creative and practicalsolutions are uncovered either at the Con-ference or soon thereafter, the number ofjobless young Australians will rise inex-orably, together with youth's share oftotal unemployment. Particularly in thisrespect it is essential that the followingitems have high priority on the agenda:* The minimum wage

The high minimum wage contributessignificantly to our current levels ofunemployment. There can be no doubtthat the trend towards the use ofcapital-intensive labour-saving devicesis being accelerated by the disinclina-tion of employers to hire overpricedand relatively unproductive youngsters.Reduction or abolition of the minimumwage would also open up many op-portunities for employment on the

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land. Enforcement of the minimumwage for aborigines, though arisingfrom the highest motives, has alreadyresulted in many aborigines previouslyemployed on the land being relegated tothe dole queue.

* A flexible approach to permanentpart-time employmentWe have heard much in recent times ofnew technologies reducing the demandfor clerical, administrative and processworkers. Whilst job sharing may affordonly a limited prospect of a solution tounemployment in these areas, perma-nent part-time employment offers oneway of reducing working hours and br-inging more people into the workforce.If the worst .predictions concerning theeffects of technology should prove tobe ill-founded, permanent part-timeemployment need not affect the returnto full-time employment when theeconomy picks up.Those union spokesmen who professsympathy for the unemployed and pro-pose as a-remedy shorter hours for thesame pay for their members, shouldrealise that this is economic idiocy.Sharing the work available must, as amatter of economic common sense, in-volve income sharing if the inflationaryeffects are to be avoided.

* Overhauling the penalty rate systemOne example of an industry being crip-pled by the application of penalty ratesis the tourist accommodation industry.The services provided by the industryare not good enough. Sensible revisionof penalty rates would not only help theindustry to attract much-needed foreigncurrencies and investment into thecountry but would also provide manyopportunities for young unskilledlabour in a growing service industry.The penalty rate structure retards theexpansion of all industries which do notfit easily into the normal five-day week.

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Adoption of policies along these lineswould not require any active interferenceby governments, rather it involves aloosening of regulatory controls andrestrictive practices. For too longAustralians have looked to governmentsto provide them with the answers to socialproblems. And for too long governmentshave responded in the only way they knowhow — by increasing regulatory controland by spending more public money ir-respective of the effects of such policieson the economy. The Hamer Summit pro-vides the opportunity for employers,unions and community groups to worktogether at the Conference, to offer con-cessions, to advance practical schemes,and to establish working groups onspecial aspects of unemployment, so thata national problem can be tackled as itshould be — in an atmosphere of consen-sus, not conflict.

Whilst much can be done at the Statelevel to ease the unemployment situation,it is, nevertheless, appropriate for theFederal Government to be involved in theConference. The emerging pressures onall sides for immediate "demand stimula-tion" have to be resisted by the FederalGovernment if unemployment in thelong-term is to decline to an acceptablelevel. Nothing will impair employmentopportunities in the long run more than afurther bout of inflation.

As IPA Review goes to press, doubtsare being expressed about who will takepart in the Conference. Whatever the out-come, it would be unfortunate if theHamer Summit proved to be no morethan a political exercise. Full employmentas we knew it in the fifties and sixties isunlikely to be restored for some time andit is to be hoped that prospects of actionresulting from Mr. Hamer's initiative arekept alive and fostered following the closeof discussions on December 13th.


Annual Meeting Address

Free Enterprise, Unions and Government in Switzerland

by

Dr. Louis von PlantaChairman CIBA—GEIGY Limited

Dr. Louis von Planta -is a Director of several Swiss Industrial Companies and waselected to the Board of J.R. Geigy S.A., Basle, in March, 1965, becoming Chairman onJanuary 1, 1968.

In the merged company, CIBA— GEIGY Limited, Dr. von Planta was Deputy Chair-man from its formation in October, 1970, until May, 1972 when he became Chairman ofthe Board.

Dr. von Planta is a well known industrial leader in Switzerland and in Western Europe.He is also Chairman of the Swiss Federation of Commerce and Industry (a similar institu-tion to The Confederation of Australian Industry), and a Member of the Committee ofthe Board of the Federal Swiss National Bank.

In taking this oportunity of speaking toyou on the subject of Free Enterprise,Unions and Government in Switzerland, Iam very well aware that the situation inSwitzerland is not a matter that is likely tobe of any special interest to you. My pur-pose is to use Switzerland as an exampleof how economic problems can besatisfactorily solved in a country facedwith difficult external conditions.

Most of you, I am sure, knowSwitzerland by name only. Perhaps you


have heard the country mentioned in con-nexion with tourism, watches and bank-ing. In actual fact, however, Switzerland— a small country situated in the centre ofEurope, with some 6 million inhabitants— is primarily industrial, and 44% of ourworking population work in industry. Asfar as external conditions go, the precon-ditions for Switzerland as an in-dustrialized country are unfavourable.Switzerland has no native raw materials.Agricultural production does not suffice

75

to feed the population. All industrial rawmaterials and intermediates, and a goodproportion of agricultural products, haveto be imported from abroad. Industrialoutput exceeds the capacity of the homemarket to absorb it by far, so that Swissindustry depends largely on export trade.Switzerland is, along with Belgium, theEuropean country with the highest exportfigures in proportion to its gross nationalproduct. But we are confronted withseveral handicaps. First of all, our pro-ducts are burdened with two waytransport costs. That means that we haveto concentrate our efforts on productswith a high added value. Secondly, we arevery much troubled for several years bythe instability in the field of currenciesand by the exaggerated value of the SwissFranc, not due to economic reasons but tointernational speculation.

Yet despite these unfavourable precon-ditions, Switzerland has achieved a highstandard of living — in fact one of thehighest in the world. The question thatimmediately springs to mind is, how has itbeen possible to achieve this result in theface of such unfavourable conditions?The answer is simple: the Swiss economyhas from the beginning been under a com-pulsion to create better products with ahigh innovative content and at the sametime to maintain a reputation for reliabili-ty of delivery; for the only native rawmaterials are hands and brains. Only bythis means has Switzerland been able tocounteract its structural disadvantages.Thanks to political and economic stabilityat home, and to a consistent and long-term conservative financial policy,Switzerland has also established itself as acentre for services, especially banking andinsurance. Switzerland as a banking cen-tre, about which so much has beenwritten, often critically, is thus the pro-duct merely of political and economicstability, a stability expressed also in the

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value of the Swiss Franc.The economic and social problems that

remain to be solved in Switzerland are inevery way comparable to those in othercountries, and they are certainly noteasier. In Switzerland, too, the areas oftension are the same as exist in all in-dustrialized countries. The reason forSwiss success thus lies purely in the way inwhich social and economic problems havebeen tackled. The solutions achieved arebased largely on the pattern of relationsbetween the economy and the Govern-ment on the one hand and what I shall callthe social partners — namely employersand employees with their respectiveorganizations — on the other.

The basis for the development of thisrelationship is the economic system. Bothgovernment and business in Switzerlandare committed to the principles of a freemarket economy because they are con-vinced that a liberal economic order is thebest guarantee for promotion of thegeneral welfare and permits the greatestpossible measure of individual humanfreedom. In the light of the structure ofthe Swiss economy, a free marketeconomy is not only the economic op-timum but also a fundamental pre-requisite for our survival in freedom andindependence. As I have alreadyremarked, the Swiss economy is depen-dent on our continued capability to ex-port. In all our markets outsideSwitzerland, whether governed by freemarket economy or State economy prin-ciples, our products are subject to theworkings of the market-economic prin-ciples of competition. In other words, inwhichever country of the world we marketour Swiss products, we can win sales onlyif we can surpass other countries inrespect of product quality, innovation,price and reliability of delivery. Oureconomic system must therefore be onethat permits us to offer both market-


economic advantages and also, in par-ticular, a flexible and adaptable approachin times of hectic economic change. Butthis is possible only if the individual en-trepreneur is granted both the respon-sibility for his entrepreneurial activitiesand the freedom to carry them out. Thealternative — namely a planned economy,with its associated bureaucracy and rigidi-ty — simply cannot be contemplated forSwitzerland.

This having been said, we must beaware that a free market economy rests onthe concept of profit. This forms the basisof every entrepreneurial decision, fromresearch, via capital spending tomarketing, and it is the yardstick of en-trepreneurial activity. To make a profit isthus the prime duty of the entrepreneur;for without profit he cannot fulfil hisobligations to the State, to his employeesor to his investors.

In the international context the aim ofSwiss economic policy is to create thepreconditions for the freest possible ex-change of money and goods. A countrythat is dependent on exports is committedto the principle of large and free markets.But this also implies that we cannottolerate any industrial protectionism athome.

These basic prerequisites may seem veryelementary. However, they can berealized in practice only when they findthe support not only of the governmentbut also of the business community in thewidest sense, in other words employersand employees. That is why it is so impor-tant to have a continuing dialogue ingovernment/business relations. But sucha dialogue necessarily implies partners.The partner on the political side is evi-dent: the government. On the businessside, the partners recognized as represen-ting the employees are the trade unionswhich are organized in the Swiss Federa-tion of Labour. But employers, too, must


be represented by institutions competentto put their point of view in a dialogue.The necessity for a dialogue is anchored inthe Swiss Federal Constitution, where it islaid down that interested economicorganizations shall be consulted prior tothe enactment of legislation in theeconomic and social fields. This means inpractice that an exposure draft of everyimportant proposed government measureis circulated by an institutionalized pro-cedure to the business associations fortheir comment. The organization ofbusiness is simple. Industry and _com-merce are united in the Swiss Federationof Commerce and Industry and the SwissEmployers' Association; the craft tradesin the Swiss Association of Arts andCrafts, and the farmers in the SwissFarmers' Association. However, co-operation between the government andthe business associations is not confinedto the circulation procedure I havealready mentioned. The associations arein addition represented in various expertcommittees, where they deal with the fun-damental problems of economic andsocial policy together with the politicalrepresentatives. I have already said thatfruitful co-operation between the variouspartners is possible only when all con-cerned are fundamentally dedicated to thesame economic system. True co-operation, especially in the expert com-mittees is, however, possible only when allthe partners place the national interestfirst in their considerations and are readyto subordinate selfish sectional intereststo the common good.

Solutions arrived at in this way areoften a compromise. Thinking in terms ofcompromises may seem unheroic, but itcorresponds to long-standing Swiss tradi-tion. The very existence of Switzerlandowes its origin to a compromise betweenhuman beings of different language anddifferent faiths. It rests on the concept of

77

tolerance, but also on solidarity betweenthe stronger and the weaker. This policyof compromise has permitted a stepwiseand organic development of the Swissbusiness economy.

However, the system of close co-operation between the State and thebusiness community, in which the latter isrepresented by employers and employees,is possible only where orderly relationsprevail between the two last-named part-ners. Fundamentally these relations arebased on the principles of good faith, anda policy of co-operation rather than oneof confrontation is the objective. Negotia-tions on overall problems take place bet-ween the federations of employers andemployees. They serve for the one part toremove misunderstandings and create abasis of trust, and for the other part toformulate joint recommendations on suchstructural matters as for instance the at-titude to be taken to plant closures or per-sonnel cuts. The actual agreementnegotiations between the social partnerstake place either for whole branches of in-dustry at a time between the industryunions concerned and the correspondingemployers' associations, leading to collec-tive labour agreements, or for individualcompanies, leading to plant agreements.These agreements govern such matters aspay, hours of work and the like. In ourmost important and biggest industry,however, namely the machine andmetalworking industry, a pact signed for-ty years ago has set its stamp on the wholeeconomy. The importance of this agree-ment is so great that I must devote a littletime to explaining it.

The pact between employers and unionsin the machine and metalworking industrywas first signed in 1937; it has just beenrenewed in 1978 for a further five-yearterm. It binds both agreement parties ab-solutely to industrial peace. This meansthat the parties have agreed to solve pro-

78

blems arising from differences of opinionand conflicts by means of a set procedurebased on the principles of good faith.Both strikes and lockouts are explicitlybarred. The pact regulates overall condi-tions such as hours of work, holiday en-titlement and the like. Pay negotiationsare the concern of the various industrybranch associations for whose negotia-tions, however, the pact remains fully ap-plicable. The fact that the largest branchof Swiss industry has renounced industrialaction as a bargaining counter has haddecisive effects on the whole field of in-dustrial relations in Switzerland. Here,too, we see the working of the principle ofdialogue and compromise in the overallinterests of the Swiss economy and henceof the country itself.

An important feature of industrial rela-tions in Switzerland is also the fact thatvery few of its problems are covered bylegislation. Most of the regulation is in-corporated in the individual collectivelabour or plant agreements, of whichthere are a great number. This solution isa component of our federalistic thinking,in which the employee, too, is of the opi-nion that better solutions for both partiescan be found in a small and easily-reviewed setting than on the basis oflegislation. It is only natural that thisphilosophy, too, should be constantlybrought up for discussion, and that movesshould be undertaken to bring aboutlegislated solutions covering the whole ofSwitzerland. Interestingly enough,however, proposals of this kind have beenrepeatedly rejected by the electorate whensubjected to a referendum. A typical ex-ample of this kind of rejection is providedby the fate of the move by the unions in1971 to secure employee and unionpower-sharing at corporate level. In itsdetails the move was largely modelled onthe co-determination legislation of WestGermany. It would have resulted, if put


into practice, in a fundamental alterationof the structure of the Swiss economy. Itwould certainly have weakened businessmanagement, but the idea of social part-nership, too, would have been under-mined. Taking the idea of social partner-ship as their starting-point, theemployers, for their part, while rejectingthe idea of participation at corporatelevel, expressed themselves wholly infavour of participation at the workplace;for the ideal of solidarity betweenemployers and employees to a commonend, namely the prosperity of oureconomy and hence the maintenance ofour living-standards, is also deeply rootedamong our employers. Placed before theelectorate in a referendum in 1976, themove was rejected by a resounding 2-to-1majority. This result shows that thegreater proportion of Swiss employees isfirmly of the opinion that the presentsystem of co-operation is worth preserv-ing and indeed expanding still further inthe interests of the partners.

I said at the beginning that Swissbusiness can survive only if it can createbetter products with higher innovativecontent than its foreign competition. Theprerequisite for this is the commondedication to an economic system that ex-tends initiative and responsibility to alarge number of the people. A furtherprerequisite is, moreover, that we are ableto maintain our reputation for reliability.


But reliability is possible only in an at-mosphere of social harmony. Thanks toour system of co-operation between thegovernment and the business community,and to harmonious industrial relations,we have been able to preserve our strongbase under difficult world economic con-ditions.

As I said at the outset, I am presentingthe case of Switzerland purely as an exam-ple of possible solutions for the cited pro-blems. I am aware that preconditions varyfrom one country to another. For my partI am always interested to see how othercountries solve their problems — one canthereby gain positive impulses, and can.also learn from mistakes. So for instancethe pharmaceutical benefits scheme inAustralia is regrettably an illustration ofthe inequitable handling by the FederalGovernment of this free enterprise in-dustry. Due to the monopsonistic natureof this ethical pharmaceutical market, theindustry is completely at the mercy of theGovernment. Despite conclusive evidencethat the pharmaceutical industry is losingmoney and winding down, no decisive ac-tion has been taken and the Governmentis content to accumulate a plethora ofdata generated by a succession of en-quiries.

In this sense it is up to you to draw theconclusions of importance to your coun-try.

79

INTERNATIONAL TOURISM:AUSTRALIA'S POTENTIAL

The tourist industry is presently one of the fastest growing industriesin the world. Excluding payments for fares, the amount spent in a yearby hundreds of millions of international travellers on tourist-relatedindustries is estimated to be $US 50,000 million, or more than half theannual value of Australia's Gross Domestic Product. Australia currentlyextracts less than one per cent of all international tourist expenditures —a tiny proportion of the total "tourist dollar".

Australia's tourist industry, which caters for both domestic andinternational tourists, comprises several industries in the public andprivate sectors that provide goods and services in demand from tourists.These industries include accommodation, transport and travel, bankingand finance, petroleum, retailing food and drink, entertainment,amusements and recreation. Because tourism is a composite of so manyrelated industries, particularly within the service sector, it contributessignificantly to our national income. Tourism adds to Australia'snational product, raises public revenues through the various taxes andduties derived from tourist activities, provides extensive employmentopportunities and stimulates regional development.

International TourismWhilst the people who are responsible for promoting tourism should

endeavour to sell Australia to Australians, they should also try toincrease our share of overseas tourism. International tourism could wellhave a positive impact on Australia's overseas balance of payments. Thiswould be a highly desirable development. In the last financial yearAustralia's overall balance of payments deteriorated to the extent thatour official international reserves fell by $540 million — the fifthsuccessive annual. deficit.

In 1977-78 the difference between our earnings from internationaltourism and our expenditure on overseas tourism was $200 million indeficit. On the debit side of the balance of payments (trade account),tourism was the largest invisible cost transaction after categoriesincluding transportation costs and property income paid overseas. Onthe credit side, earnings from international tourism ranked only tenth invalue out of all the major categories of Australia's exports of goods andservices. A boost to the international element of Australian tourismwould help to create a more favourable balance of overseas payments inthe years to come.

In the Pacific area alone the volume of tourists in recent years hasgrown at a much faster rate than that of world tourism overall. Statistics

80 IPA Review — October—December, 1978

on the number of overseas tourists visiting Australia intimate that wehave failed to capitalize on the rapid growth in tourism within our ownregion. The following table shows the extent to which Australia has beenrunning a deficit on international travel transactions over the last fewyears.

Overseas visitors Australians departing overseasNumber Income received Number Income spent

`000 $A million '000 $A million1974 533 197 770 3841975 516 219 912 4701976 532 248 974 5141977 563 312 971 516

The message contained in these figures is clear. Australia needs toattract far more international tourists if the gap between travel receiptsand travel payments is to be closed and a net gain achieved.

From 1969 to 1977 the average annual increase in the number ofAustralians departing overseas for a period of less than 12 months was16.4 per cent. The corresponding increase in the number of overseasvisitors was 5.7 per cent. Hopefully, policies directed at promotingAustralia's tourist potential will reverse these growth rates in the future.

In addition to generating greater foreign exchange earnings, theimpact on Australia's economy of more overseas tourists would be feltwhere new employment opportunities were created in service industries,where higher incomes and profits were earned in tourist-orientedenterprises and where increased government revenues were collectedfrom taxes and duties raised on tourist expenditures. Few industries offersuch potential for long term economic growth as tourism. Theimportance of developing tourist and related service industries so thatnew employment opportunities may be found, cannot be overemphasized, particularly as recent unemployment statistics show thatpeople who last worked in industries such as entertainment, restaurants,hotels, personal services, food and beverages have one of the highestrates of unemployment in Australia.

Obstacles to International TourismNotwithstanding the need for attracting the overseas tourist, the

difficulties involved in realizing our tourist potential are immense. Thehigh cost of travelling to Australia and then of travelling throughout thecountry are major obstacles to be overcome. Lower international airfares will be a step in the right direction if they are accompanied by lowerinternal air fares and if the Federal Government promotes the de-regulation of Australia's airline industry. But in the opinion of ProfessorCox, an expert in the travel industry who was a recent visitor fromU.S.A., "Because you are all so far away, any package tour to Australiacan't be sold at a price that looks sensible." Unfortunately we are unable

IPA Review — October—December, 1.978 81

to change our geographic location and we cannot do much to alter thefact that at present Europe and the Americas receive 72 and 20 per centof international tourist flows respectively. (This leaves only 8 per cent ofthe total tourist trade for all other countries to fight over). But unlessAustralia can offset the discouragement to tourists of distance andtravelling costs, we shall miss out on possibly a major stimulus toemployment opportunities coming in the future from an increasingnumber of "travel-conscious internationals", and especially fromtravellers within our own region.

The high cost of travelling to and within Australia is not the onlyfactor which inhibits more rapid growth in the tourist industry. Touristaccommodation is a perfect example of a labour- intensive industrywhich is having extreme difficulty in operating efficiently and offeringreasonable prices to the consumer because of the crippling level of labourcosts that it must bear.

In 1977 a report by the Industries Assistance Commission (IAC) onthe Tourist Accommodation Industry in Australia highlighted the recentsignificant increases in labour costs that had occurred in the industry.From 1973 to 1976 labour costs in motels rose from an average of about45 per cent of total operating costs to an average of over 50 per cent. Forthe 16 hotels that gave financial information to the IAC, thecorresponding increase in the share of wages in total operating costs wasfrom 35 per cent to over 45 per cent. The enormous rise (on average byabout 50 per cent) in the total operating costs of hotels and motels from1973 to 1976 "was largely a result of increases in basic and penalty awardwages and the move to equal pay for female employees". (IAC quote)

The rapid increase in labour costs of tourist accommodationestablishments has precipitated steep rises in a whole range of hotelcharges. According to the Australian Accommodation Council, theaverage overnight charge for standard rooms increased from $12.50 in1970-71 to $20.00 in 1974-75. This increase of 50 per cent was well inexcess of the rise in consumer prices that took place over the sameperiod. Today the daily rate for accommodation (daily room only —single) in an international hotel ranges from $45 to $55, and for astandard hotel the corresponding price range is from $30 to $46. Thelevel of operating costs, mainly labour costs, in Australia's touristaccommodation industry is pricing us out of the international touristmarket.

Some remedies neededThe Federal Government seems to be aware of the immense task of

encouraging many more overseas tourists to travel to Australia. In theBudget for 1978-79 the Government has increased the annual grant to theAustralian Tourist Commission from $3.1 million to $4.4 million, anincrease of 37 per cent which will be directed exclusively towardsattracting greater numbers of visitors to Australia. But althoughpromotion is an important stimulant to our tourist industry, and


especially to the international element, it does not alter the fact that atpresent Australia is a high cost destination to the great majority ofoverseas tourists.

Professor R.L. Mathews of the Australian National Universityrecently drew attention to the negative effects that high labour costs inservice industries were having on the economy. He said, "At a time whenfalling labour needs in rural and manufacturing industries make itimperative for employment to expand in the tertiary sector, tourist,restaurant, cultural, recreation and other industries dependent on casual,part-time, evening or week-end work, have been increasingly priced outof the labour market to the disadvantage of those whom they wouldotherwise employ."

Already a Government Task Force has studied the detrimentaleffects of the high incidence of penalty payments in awards in tourist-related industries. As the Minister for Industry and Commerce, the Rt.Hon. Phillip Lynch, said recently in an address to the Travel and TouristIndustry Advisory Council, "The time is long overdue for a fundamentaloverhaul of the wage rate structure within the tourist andaccommodation industry by the parties involved within the frameworkof the Conciliation and Arbitration Commission. Unless the wagestructure is geared to the industry's "round the clock" operations,incentive for expansion within the industry, particularly in investment,will not be generated."

The penalty payment system, which is built into the award structureof many service (and other) industries, is an additional labour cost thatmust be borne by employers when they call upon their employees to workbeyond so-called "normal" working hours and outside "standard"conditions. For instance, in the tourist accommodation industry,employees are paid excessive hourly rates for work carried out onweek-ends,public holidays and on shifts outside 7 am to 7 pm, Mondayto Friday. Moreover, penalty payments are not only a significantoperating cost burden in service industries, but are also thoroughlyirrelevant in present times when hundreds of thousands are unemployed,when the demand for shift work is increasing and when manyAustralians (1 in every 7 employed) are preferring permanentemployment on a part-time basis.

Australia's hotel accommodation industry should be runningservices on a 7 days a week, 24 hours a day basis, if it is to effectivelymeet the needs and demands of international consumers. Yet, inoperating around the clock, it is penalized by an award- payment systemthat is based upon the 5 day week, 8 hour day. The effect of penalty rateson the provision of services should concern everyone in tourist-relatedindustries. Today it is not uncommon for many hotels and motelsthroughout Australia, and in some cases even those in resort areas, toclose their dining and bar facilities on Sundays. This occurs primarilybecause of excessive hourly rates paid to staff on week-ends. One of ourmajor international Hotels — the Sheraton in Perth — closes its dining

IPA Review — October—December, 1978 83

rooms on Sunday evenings. Consequently, it has to rely on a small coffeeshop to service its guests!

According to the IAC, penalty payments normally make up 20 percent of rates during a normal trading week for hotels and motels and amuch higher percentage in weeks which contain public holidays. Perhapsit is time for all the parties involved in the industry to question therelevance of the penalty rate system. Alternatives such as theintroduction of a more generous flat wage rate for a 40 hour week,irrespective of week-ends, holidays or after hours should be considered.

There will always be "less desirable" work shifts and it is notsuggested that we ought to completely abolish penalty and shift ratepayments without considering suitable schemes which could replace the"old" payment system. It must be remembered that penalty rates wereintroduced within the Australian Conciliation and ArbitrationCommission with the consent of both unions and employers. InAustralia's system of industrial relations, once a concession is made toemployees it is difficult for employers to take it away. Nevertheless,changes in work patterns are occuring all the time, and it will be illogicaland unfair in the future to pay some employees more than others for thesame tasks performed over different periods of time.

Consultation and negotiation between unions and employers in thehotel accommodation industry and in other tourist-related industriescould be the first step towards implementing changes to the existingaward-payment system. But concessions would have to be made by bothemployers and unions on a give and take basis. The current minimumweekly award rate for people working in the industry group whichincludes hotels is one of the lowest rates of all Australian industries.Employees may have to be given financial compensation and providedwith additional incentives if penalty rates are to be abolished or reducedto a manageable level.

If Australia is to attract a much greater number of overseas touristswhich would spur growth in tourist-related industries, then our servicecharges for hotels, airlines, transport and communications etc. must beon a par with rates being offered overseas. It is nonsense to think thatAustralia's service industries such as hotels are unable to compete withtheir counterparts in other countries because they are labour-intensive. Itis precisely for this reason that they must entice international touristswith the best services (in quality and price) that are possible ifinternational tourism in Australia is to expand. In conclusion, TheMinister for Industry and Commerce says that, "Tourism offers excitingprospects for Australia and has potential for growth in both theinternational and the domestic markets. To achieve that it must not dwellon the problems of the past but plan for the future with determination,common cause and optimism". (IPA emphasis)


Lawmaking, Bureaucracyand VouchersThe I.P.A. Presidential Address

by

Mr. W.D. Brookes, C.B.E., D.S.O.

In the 1930 s the Commonwealth Income Tax Legislation was re-cast into a comparatively simple Act of modest proportions. That Acthas been amended very frequently and is now so complicated andvoluminous that the average taxpayer has little or no chance ofunderstanding it.

Income Tax Law is only one example of what is happening to thewhole range of regulations which govern our daily lives. A former StateAttorney General who is also a member of I.P.A.'s Council, the Hon.Vernon Wilcox, a man who has spent many years in Parliament andshould know what he is talking about, has recently been quoted in "TheAustralian" as suggesting that too many laws mean that Australia is be-ing strangled by government.

The dangers implicit in this situation were aptly summed up by Mr.Justice Gillard in June this year when he said, and I quote:

"We should closely scrutinise the legislation that is being churned out atthree levels, Federal, State and municipal, whereby, slowly but surely, thecitizen is being enmeshed in inhibitions and prohibitions of all kinds and theinterests of the unfortunate individual are completely overlooked. If everthere was a brake on human initiative and an invitation to disregard the law,that kind of executive administration is a means of doing so."

A critical approach which points accusing fingers at the inade-quacies of the system, may identify problems, but it does nothingtowards finding solutions. Debate should centre around all possiblemethods of simplifying legislation and of reducing the size and influenceof bureaucracies whilst maintaining and raising the levels of efficient ad-ministration. This is one problem area that I would commend to govern-ment, business and the law to attempt to tackle now. The need is for lessnew legislation and more revision and simplification.


In addressing myself to this problem, I wish to dwell on the lawsgoverning social welfare.

It is becoming clear that financial outlays are no longer an adequatemeans of measuring the effectiveness of solving social welfare problems.Bureaucratic administrations are soaking up a large proportion of fundswhich were originally destined for distribution. Public servants cannot beblamed for this situation. The fault lies in the very nature of the serviceitself which is gathering a growth momentum which nobody, not even aGovernment determined to keep real growth of public expenditure downto zero, seems capable of controlling.

Public reaction is becoming increasingly vocal. We hear more andmore expressions of frustration at the inefficiencies of thosebureaucracies which fail in their primary aim — the effective distributionof funds — and strangle personal liberty with over-government in theprocess.

Of fundamental importance in the distribution of taxpayers' fundsis the question of accountability. Under state controlled education forexample, schools are accountable to the bureaucracy who are theoretical-ly accountable to the taxpayer through the elected government of theday. This method, which at best promotes collective rather than in-dividual accountability, has long since shown a tendency to break down.

The use of vouchers is one possible — but hitherto rarely tried —alternative means of bringing the situation under control. One of themain attractions of voucher schemes is that bureaucracies are largely by-passed. In effect, vouchers are cheques on the government purse madeout directly to those in need; they are non-transferable and can only beredeemed for the specific purpose for which they were intended.

Again using education as an example, vouchers which cover themaintenance costs of running schools would be sent direct to all parents,who would then cash those vouchers for the education of their childrenat a limited range of local schools. Under this kind of scheme parentswho wanted to send their children to schools with above averageresources would pay fees in addition to the voucher.

Education vouchers force schools to be accountable to thecustomer, the parent, the one for whom the service is provided. In an ad-vanced scheme, a parent simply takes his voucher to another school if heis dissatisfied with the standard or style of education.

Much thought has been given to introducing various voucherschemes in Australia. Health, welfare housing and education are hereused as illustrative examples.

HealthIn restructuring Medibank in the August Budget, the Government

wisely showed how regulations can be simplified and are to be en-couraged to go further. They missed, however, the opportunity of in-corporating a voucher scheme. Health vouchers would be sent directly tocertain categories of individuals, pensioners for example, who would


then cash their vouchers with any Health Fund of their choice. It was agreat opportunity to introduce the concept of vouchers to the Australianpublic and it is to be hoped that the Government's previous plans fortheir introduction and testing have not been completely shelved.

Welfare HousingThe shortage of welfare housing is acknowledged, but it is now clear

beyond question that pleading for more funds for distribution throughthe Housing Commission bureaucracy will only meet that need at greatcost in terms of value for money. On the other hand, housing vouchersare sent direct to those in need to be cashed only for the purpose of ren-ting or buying a house on the open market. A voucher scheme holds outthe prospect of meeting the need for housing whilst eliminating welfareestates and reducing the overhead costs of the bureaucracy.

With this vision in mind, the Fraser Government set up the HousingAllowance Voucher Experiment (the HAVE scheme) which was to havebeen introduced in parts of Melbourne and Tasmania in January 1978. Iunderstand the cost of this experiment was estimated at $12 million, andwe think the Government was shortsighted in allowing the HAVEscheme to be one of the casualties of their austerity programme. Noassurance has been given yet that it will be re-introduced when theeconomy picks up.

EducationThe possible use of education vouchers has been hotly debated in

academic circles for several years. An experiment, which was set up inless than ideal circumstances, was introduced at Alum Rock in Americain 1972. Federal funding of the experiment has now ended but manylessons were learned about the operation of parental choice. The eyes ofthe world are now on a second experiment which has recently beenstarted by the County Education Committee in Kent, England.

Australia is not lagging too far behind the rest of the world in in-vestigating the possibilities. Much work has been done at Federal andState levels. The Victorian Government, for example, has just completeda two year inquiry under the chairmanship of the Deputy DirectorGeneral of the Education Department. The Report has not yet beenmade public, but it would be surprising if it did not emphasize the pro-blems involved in setting up any form of experiment. Even when educa-tion authorities are willing to consider giving up a measure of control infavour of a system where all schools become effectively private schoolswhich are financed by the State without enforcing uniformity, it has tobe admitted that the cost involved in experimenting is likely to be an im-portant factor in the decision to proceed.

In conclusion, I would like to say this. Despite, what seems to us, anobvious need to simplify laws and regulations and to reduce the extentand inefficiencies of bureaucratic control, the trend towards more andmore legislative action is widely supported by some sections of the corn-


munity.In a letter to The Age (4th August, 1978) a sociologist pointed to the

need for education to be geared towards encouraging the development of"free, natural and spontaneous relationships", rather than the casual,loveless relationships of a permissive society. Having identified a need,he proposed a solution; Governments he said, should set up, and here Iquote, "a Department of Human Relations and Social Communicationsso as to provide for the creative emotional friendship, social and spiritualneeds of all people."

God help us! We are entreated to create yet another bureaucracy. Itis symptomatic of our times that we have raised a generation of citizenswho see in government action the answer to all our problems.

It is really a very simple equation which governments have tobalance. Expenditure must be matched by income from taxes. It is easyto identify needs, but much more difficult to accept that citizens can onlybe taxed to a certain level. Needs have to compete with each other forlimited resources. One never seems to mind if the other fellow pays.

We should not make demands on governments, who are only thevehicle for the distribution of funds, without relating our demands to thelevel of taxation involved. I sometimes find myself offending this princi-ple.

Some previous Australian Governments have taken the easy roadand attempted to meet needs without due regard to the cost. When ex-penditure exceeds income by an excessive amount we live beyond ourmeans and the result is inflation. That was the core of Mr. Howard'sbudgeting problem. Having lived beyond our means, we are now goingthrough the painful process of trying to return to what we can affordwithout hurting the patient more than he can bear. The taxpayers' revoltin California is no doubt being watched with interest by many people inall walks of life.

In the circumstances, however much we complain about high taxeson the one hand and, on the other hand, what appears to many as ex-cessive government expenditure, it is surely a much more justified actionto seek a more effective distribution of taxpayers' funds. Voucherschemes offer one possible way in which this can be done in the long-term, but no suitable solutions will be found if we do not experimentwith various options in the short-term.

Let me end on this note — that more innovation is essential if weseek a better way for tomorrow.


ENERGY RESOURCES DEVELOPMENT

by E.D.J. Stewart

Mr. Stewart is General Manager, Fuel& Energy Minerals, Western Mining Cor-poration Limited. Before joining WesternMining in 1970 Mr. Stewart was foralmost twenty years with the S.E.C. ofVictoria.

During the 1960's, in addition to his ac-tivities with the S.E.C., Mr. Stewartundertook Colombo Plan work for fueland power authorities in Thailand and In-dia related to development and use oftheir lignite resources.

He is a member of the Australian Na-tional Committee of the World EnergyConference and of the Committee of thatorganisation set up in 1976 to study andreview the Australian scene with regard tofuture energy resources.

Australia's low cost energy era —1960-1980

Throughout the Western World costsand prices have risen steeply since thefour-fold increase in the price of OPECoil in 1973.

However, today in 1978, Australiansare still living in a low energy cost era.


It is important to appreciate thesignificance of low cost energy supplies tothe Australian economy and the factors inour earlier resource development thatbrought this about and what we shouldlearn from them.'

In Australia by the late 1960s threelocal factors contributed to the creationof our low cost energy society which still

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prevails in 1978 despite changeselsewhere.

These factors were —* the construction of oil refineries

around the Australian coastline. Theserefineries produced a 30% by-productof residual oil after extraction ofpetrol, diesel oil and other light frac-tions. This fuel oil was sold as fuel forpower stations and industry in com-petition with black coal and browncoal briquettes on the Australianmarket. This established the lowmarket prices for coal and other com-peting fuel from the late 1950s on.

* the discovery of the Moonie, BassStrait and Barrow Island oil fields,making us for a time at least 60-70%self sufficient in liquid fuels, togetherwith the associated discoveries of com-mercial quantities of natural gas infour States, and

* the last but by no means the least fac-tor, the realistic taxation structure ofthe mining industry, plus theassistance for petroleum exploration

existing at that time, created the incen-tives for large exploration program-mes which resulted in the oil and gasdiscoveries.

Since the OPEC oil price rise in 1973the costs of various forms of energythroughout the Western World haveescalated in relation to wages and in-comes. In Australia, because of our selfsufficiency, our energy costs have re-mained relatively low, but our wages haveincreased both in dollar values and realterms as the table below shows.

These energy cost data are based onVictorian costs, costs in other Stateswould vary in detail as far as each sourceof energy is concerned. The general pic-ture would be similar if not quite asdramatic particularly as far as gas is con-cerned.

The figures used in preparation of thistable were published Australian averageweekly earnings and the average prices ofVictorian Electricity Commission elec-tricity sales, Gas & Fuel Corporation gassales and retail standard grade petrol (all

COMPARISON OF REAL COST OF ENERGYAUSTRALIA v USA 1948-1977

Figures are indices of real prices using CPI figures to adjust to 1967 year base

Earnings Electricity Gas Standard Petrol Steel PlateYear Aust. U.S. Aust. U.S. Aust. U.S. Aust. U.S. Aust. U.S.48/49 67 68 133 164 n/a 50 171 113 n/a n/a51/52 n/a 72 117 146 114 51 149 104 80 12956/57 76 85 120 129 108 76 111 110 108 13161/62 86 94 117 121 106 102 n/a 102 103 12466/67 100 100 100 100 100 100 100 100 100 10071/72 123 101 85 89 46 102 100 87 98 8076/77 140 105 71 109 21 202 85 105 110 96n/a not available

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States). These were deflated by the CPI toexpress each in constant money values us-ing 1967 as the base year.

The cost of labour does not includepayroll tax, workers' compensation andother loadings which today add almost30% to direct wages compared with about15% in 1970.

Comparable U.S. figures are given ineach case. The price of labour in the U.S.is expressed as the average hourly ear-nings. All of the U.S. costs and priceshave been deflated by the U.S. CPI.Although statistically some of the figuresused are , not strictly comparable, they arevalid enough to establish the point that wein Australia are still living in a low costenergy society.

The figures show how the real prices oflabour and energy in Victoria have shiftedrelative to each other over the past thirtyyears. During this period the real costs oflabour doubled, SECV electricity halved,GFCV gas fell to one-fifth and the retailprice of standard grade petrol halved.These relative real price changes have pro-duced in our industries a shift fromlabour to energy usage.

The movements in the real prices ofsteel are also shown in a similar manner,indicating what happened to the price of abasic manufactured product with substan-tial energy cost input. The low energy costhas helped to offset the labour cost in-creases.

The effect of low energy costs onAustralian primary and secondary in-dustry

The 1960s and early 1970s were a periodof growing prosperity and opportunitybecause of sustained economic growtharising from new development and pro-sperity in the natural resource industries.

Our low energy costs, in particular elec-tricity and gas, relative to labour costshave encouraged maximum mechaniza-


tion and automation of farms, in mines,industries and offices. Our majortransport systems (the rail system and in-terstate shipping, plus material handlingfor loading and discharging) have notalways kept up with industry standardsand are a high cost component particular-ly due to the size of our continent andremoteness from markets.

Together low energy costs and automa-tion have helped offset the loss in com-petitiveness in the market place of our ex-port and import-competing industriescaused by the large increase in direct wagecosts plus indirect costs of labour.

There is a further point which must beunderstood, that is the progressive step bystep flow-on of primary energy costs intosecondary energy costs and prices.

Primary energy means the initial formof energy — coal, oil and gas — which isconverted or processed into one or otherforms of secondary energy before beingused i.e. coal into electricity, crude oil in-to petrol etc.

The increase in the price of crude oil oc-curred in 1973 and since then the prices ofother forms of primary energy i.e. coaland gas have increased.

The cost of secondary energy forms,i.e. electricity and petrol, do not as yetreflect the full impact of the new levels ofprimary energy prices because most of thepresent energy conversion plants, such aspower stations and refineries, were builtat a time when primary energy costs andhence material costs of which the plantswere built were related to pre-1973 costs.

As the increased primary energy costsflow on into material costs for new secon-dary energy projects the costs of secon-dary energy will increase further and thissecondary energy cost in turn will flow in-to new materials costs etc.

The foregoing comments relate tocosts, not prices. Prices at which secon-dary energy forms are sold reflect first,

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the competitive market conditions, andmore significantly government policiesand intervention in the market place.

In brief our Australian economy hasover the last few years become increasing-ly dependent on the low energy costs tomaintain our internal standard of livingand our international market com-petitiveness. Without these low costs theeffect of the wage explosion of the firsthalf of the 1970s on our manufacturingand primary industries, agricultural andmining, would have been even moredestructive than it has been.

Our natural advantages in agriculturaland mineral industries have been erodedto the extent that higher costs have causedan exodus from farms and in the last twoyears many mining projects have• beenforced to close or curtail production in thelower grade areas of their operations, oras a last resort seek temporary govern-ment assistance to avoid financial disasterfor the dependent mining communities.Few Australian companies are nowgenerating enough cash flow to face thefuture with complete confidence.Development of new projects is not possi-ble without the financial assistance of in-ternational customers or major energycompanies whose financial strength hasnot been reduced by world market condi-tions.

Today the combined effect of highwage costs, the high cost of materials andmanufactured goods resulting from ourtariff protection combined with an over-valued Australian dollar means that anysharp or sustained increase in energy costswill see further contraction of these sec-tors of the economy.

The need for a nation-wide energy in-formation programme

I think what I have said to date showingour dependence on low energy costs andthe current state of our economy makes it

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clear that they must continue to remainlow relative to the rest of the world if weare to remain competitive in worldmarkets and in import competing in-dustries. The continuance of low energycosts is dependent on maximum exploita-tion of potential resources requiring* a vigorous continuous programme ofexploration and development of energyresources,* incentives to achieve maximumrecovery from discovered deposits,* incentives to minimize waste of energyresources at all points through theirdevelopment, processing and usage,* disincentives to prevent use of formsof low cost energy in short supply.

Underlying the problems that can be ex-pected in seeking to achieve the above amajor hurdle to be overcome is the lack ofunderstanding in our comunity of ourenergy dependence and the amount ofunnecessary waste of energy resourcesthat is a current feature of our everydaylife.

There is need for a continuing nation-wide programme to inform and educatethe community. I believe we need anongoing national effort.

If people are not properly informed itwill be extremely difficult politically totake the required action and achieve theessential objectives in energy usage andconservation. The decisions will be dif-ficult enough even if the communityunderstands the issues.

Renewable energy sourcesA world-wide study conducted in 1977

entitled the Workshop for AlternateEnergy Strategies Report "Energy GlobalProspects 1985-2000" in its main conclu-sion stated:

"Other than hydro-electric power,renewable resources of energy — e.g.solar, wind-power, wave-power — are


unlikely to contribute significant quan-tities of additional energy during thiscentury at the global level, althoughthey could be of importance in par-ticular areas. They are likely to becomeincreasingly important in the 21st cen-tury."For Australia on this subject we can

draw from the Report of the Task Forceon Energy prepared by the Institution ofEngineers of Australia in October 1966,the CEDA Policy Statement "Energy inAustralia 1977-2000", August 1977, andthe Federal Government Senate StandingCommittee on National Resources 1977on Solar Energy. The opinions expressedin these three reports could be sum-marized by saying:(i) with the exception of Tasmania most

hydro-electric resources have alreadybeen developed,

(ii) tidal and wave-power whiletechnically feasible show no presentpotential for economic development,

(iii) wind-power will have someapplication principally in outbackareas but will not make any signifi-cant contribution to the nation intotal,

(iv) on solar energy the Institution ofEngineers report can be accepted asthe consensus "The large scale generation of elec-tricity by solar, thermal orphotovoltaic means does not appearto be economically feasible in theforeseeable future. Solar energy canand should be used wherever prac-ticable and economically feasible, asa heat source to replace oil and gas inheating application."(This last comment refers to low levelheat such as in domestic and industryuse.)

Solar energy resources will be increas-ingly used in Australia particularly inwarmer and remote areas where the cost


of electricity or gas will become increas-ingly expensive.

Hydro carbon fossil fuelsTo continue to have low cost energy

resources we need a vigorous continuingprogramme of exploration and develop-ment particularly for oil and natural gas.Although the black and brown coal situa-tion looks satisfactory, the knownresources are limited mainly to N.S.W.and Queensland as far as black coal isconcerned and eastern Victoria for browncoal. What we can expect only the futurecan tell but it is certain we must step upour exploration effort.

High risk money must be available forexploration, testing and proving ofdiscovered deposits and, as stated in theFederal Government's policy, every en-couragement must be given for localAustralian investment.

In determining what course of actionshould be pursued to achieve this wewould do well to look at the resultsachieved in the 1960s when, recognizingthe need for major self sufficiency, theGovernment established incentives and arealistic tax structure. This led to thediscovery and development of vast energyresources.

We are still living off the fat of the 60sand early 70s.

The Government has shown under-standing of what is necessary but severalfactors make the situation worse than thatwhich existed in the 1960s. Depressedworld metal markets have reduced theamount of risk money available fromrevenue for Australian mining companiesto very low levels, and our wage inflatedcost structure means that exploration anddevelopment costs are far higher.

As mentioned previously we aresingularly fortunate in having extensivedeposits of black coal and brown coal inthe Eastern half of Australia, although

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S.A., W.A. and N.T. are much less wellendowed. There is evidence of furtherdeposits of coal in these States but in loca-tions and/or under geological conditionsthat make development unattractive atpresent.

Oil and gas only become resources, thatis, stocks that can be drawn on, after theyhave been found, proved and shown to becommercially attractive to develop.

In total we have coal, both coking andsteaming, available to supply our internalneeds throughout Australia, with capacityto become a major source of supply forother nations less well endowed withenergy resources.

The story of our oil resources is wellknown — we have been fortunate in re-cent years to be about two-thirds self suf-ficient, thus insulating the economy fromthe OPEC oil price shock, but our suffi-ciency falls away to about one-third orless by the mid-1980s or thereabouts oncurrent supply/demand projections.

The foregoing assumes no major oilfinds in the immediate future.

I think it would be the consensus ofprofessional opinion that we have very lit-tle likelihood of being more than 20% selfsufficient in crude oil by the year 2000 andmore likely to be between 10 and 15%.

Our estimated national reserves ofnatural gas are at present sufficient forsome years to come but the situationvaries greatly from state to state, and onlyin Victoria and Western Australia are pro-ved reserves established much beyond the1980s. N.S.W. must import its suppliesfrom S.A. There is still considerable

potential for new natural gas finds but avariety of uncertainties from governmentintervention in marketing inhibit explora-tion. We would do well to learn from thevery considerable mistakes made bygovernment intervention in marketing inthe U.S.A.

UraniumWith regard to nuclear power we

already know we have enough uraniumreserves to supply a significant portion ofthe world's needs for the rest of this cen-tury as well as our own, and much moreremains to be found. The export ofuranium by the latter half of the 1980s canbe expected to pay for as much as half ofour oil import bill, perhaps more, depen-ding on the success in oil exploration andconservation and our success in sellinguranium.

The end of the 20th century will see thegrowing development of nuclear power inAustralia. Western Australia has alreadyannounced plans for nuclear power plantsfor the mid-1990s and other states willfollow suit in due course as they seek toconserve non-replaceable hydrocarbonfossil fuels for other uses. Despite currentgovernment policies South Australia, withits limited supplies of expensive low gradecoal and natural gas which could be put tobetter uses than power generation,together with its known interest in theestablishment of a uranium enrichmentplant, must soon be seriously consideringits nuclear power options.


BOOK REVIEW

A TIME FOR TRUTH

by

William E. Simon

Former Secretary of the U.S. Treasury

Any book with a preface by MiltonFriedman and a foreword by Hayek needhardly be opened in order for the prospec-tive reader to know what is inside. "ATime For Truth" by William E. Simon(McGraw-Hill 1978) contains no newideas nor does it assemble any new am-munition for those who wish to fight "biggovernment".

It is nonetheless compelling readingprimarily because, as Secretary of theTreasury of the United States, the authorpresided over the worst recession andhighest unemployment levels since thegreat depression in the world's largestdemocracy.

One might expect Simon to be a discipleof big government having occupied soprestigious a political position for fouryears, but quite to the contrary his periodin office (including a period as energy czarwith overall responsibility for minimisingthe effects of the Arab oil embargo in1973/74) only convinced him of the im-perfections of government and the great


strength of the market system. Despitethis great strength, as Friedman observesin his preface, selling the market system isso much more difficult than selling in-tervention.

On the way to developing his ownprescription for handling the liberals' andother interventionists Simon levels anumber of charges at various groupswithin his community — the liberals, thepoliticians and businessmen as well.

DreamersHe argues most strongly that the in-

terventionists are often dreamers whohave little real world experience andwhose main aim in life appears to beequality in results for all Americans. Un-fortunately as Simon points out many of

' Here, "liberal" is used in the American sense whichindicates a preference for an extension and concentration ofgovernment powers, rather than in its European sense,broadly epitomised by the opposite preference for minimaland dispersed government.

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the programs designed to raise the livingstandards of the poor, end up lining thepockets of the middle class, and evenwhere funds are actually spent on specificprojects like urban renewal, the bulk ofthese funds is often spent on analyses ofthe problems (lining the pockets of themiddle class again) rather than on actuallyhelping the poor.

Simon refers back to the United StatesConstitution which embodies the motionof equal opportunity for all and arguesthat the greatest possible aid for the pooris jobs, and only the productive portion ofthe economy can provide this form of aid.

He emphasizes again and again the viewthat big government will contributedirectly to inflation and by strangling theproductive sector of the economy throughregulatory and taxation activities willpositively contribute to loss of jobs and aserious disadvantaging of the poor.

Simon points to the very obvious con-nection between economic and politicalfreedom, a connection which he argues isnot clearly perceived by the liberals.Moreover he points the bone at thebusiness community for aiding and abet-ting the loss of economic freedom.

Whilst Simon argues that the movetowards big government has continued todevelop throughout the 20th century, hedoes hold out hope for a reversal of thistrend. In particular, he points to the birthof a movement dedicated to individualliberty in recent years. There are, ac-cording to him, three strands of thismovement.

The first is the older pro-free enterpriseconservative movement. The secondgroup has sprung from within the heart ofthe liberal world disillusioned by the ef-fects of their own interventionistphilosophy. And the third broad grouplies within the world of business itself.

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UniformSimon points out however that these

three groups are not large and do not haveuniform views and he argues that nothingless than "a massive and unprecedentedmobilization of the moral, intellectualand financial resources which reside inthose who still have faith in the human in-dividual" will be sufficient to turn backthe tide.

In particular, he suggests that we can-not expect our politicians to turn back thetide unless they have such a reservoir ofanti-authoritarian scholarship on whichto draw.

It is interesting to consider therelevance of Simon's analysis of theUnited States' situation to that ofAustralia. Unfortunately in reading hisbook I had the feeling that if the namesand places were changed, many passagesin his book could have been written forour own country. Similarly one mightpoint to some straws in the wind asevidence of a conservative revival inAustralia.

Simon's prescription for long term sur-vival for business therefore bearsrepeating — whole-heartedly support thefree enterprise philosophy by resistingfurther encroachment by government onyour activities, actively support institu-tions and groups promoting the freedomof the individual as the centrepiece of oursociety, and above all have the guts topreach this philosophy for it is in the com-munity's interests.

"A Time for Truth" was reviewed forIPA Review by Barry Ferguson,Economist with the Shell Group inAustralia.


Thirty-fifthAnnual Report

1978

Council ofthe Institute

W. D. BROOKES, C.B.E., D.S.O. (President)NORMAN N. ROBERTSON, C.B.E. (Chairman, Executive

Committee)W. D. McPHERSON (Treasurer)W. A. BEATTIEL. C. BRODIE-HALL, C.M.G.PETER J. DERHAMANDREW GRIMWADE, C.B.E.J. A. HANCOCK, O.B.E.SIR JOHN HOLLANDW. A. INCE, C.M.G.E. A. JONES, C.M.G.ROBERT S. McKAYSIR JAMES McNEILLHUGH M. MORGANJ. L. NAVEG. M. NIALLHILTON J. NICHOLAS, O.B.E.SIR ROBERT NORMANSIR IAN POTTERNORMAN SAVAGER. A. SIMPSOND. W. STRIDE, A.O.HON. VERNON WILCOX, C.B.E., Q.C.

Executive and NORMAN N. ROBERTSON, C.B.E. (Chairman)Editorial ROGER NEAVE, M.A. (Oxon.), A.F.I.B.A. (Director)Committee DAVID L. ELSUM, B.E.E., B.Com., M.Sc.

J. A. LECKEY, B.Com.DENYS I. McCULLOUGH, B.E. (Aero)ROBERT S. McKAY, B.Com. (Hons.)G. R. MOUNTAIN, A.M., M.A.HON. VERNON WILCOX, C.B.E., Q.C.J. H. McCLURE, B.Ec., A.A.S.A. (Administrator)T. J. BUCHAN, B.Com. (Research Economist)

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

INSTITUTE OF PUBLIC AFFAIRS289 Flinders Lane, Melbourne, 3000.Phone 63 6558.

Lawmaking, Bureaucracy

and Vouchers

The I.P.A. Presidential Addressby

Mr. W. D. Brookes, C.B.E., D.S.O.

In the 1930's the Commonwealth Income Tax Legislation wasre-cast into a comparatively simple Act of modest proportions. ThatAct has been amended very frequently and is now so complicated andvoluminous that the average taxpayer has little or no chance of under-standing it.

Income Tax Law is only one example of what is happening tothe whole range of regulations which govern our daily lives. A formerState Attorney General who is also a member of I.P.A.'s Council, theHon. Vernon Wilcox, a man who has spent many years in Parliamentand should know what he is talking about, has recently been quotedin "The Australian" as suggesting that too many laws mean that Aus-tralia is being strangled by government.

The dangers implicit in this situation were aptly summed up byMr. Justice Gillard in June this year when he said, and I quote:

"We should closely scrutinise the legislation that is being churnedout at three levels, Federal, State and municipal, whereby, slowly butsurely, the citizen Is being enmeshed in Inhibitions and prohibitionsof all kinds and the interests of the unfortunate individual are com-pletely overlooked. If ever there was a brake on human initiative andan invitation to disregard the law, that kind of executive administra-tion is a means of doing so."

A critical approach which points accusing fingers at theinadequacies of the system, may identify problems, but it does nothingtowards finding solutions. Debate should centre around all possiblemethods of simplifying legislation and of reducing the size and influenceof bureaucracies whilst maintaining and raising the levels of efficientadministration. This is one problem area that I would commend togovernment, business and the law to attempt to tackle now. The needis for less new legislation and more revision and simplification.

1

In addressing myself to this problem, I wish to dwell on thelaws governing social welfare.

It is becoming clear that financial outlays are no longer anadequate means of measuring the effectiveness of solving social welfareproblems. Bureaucratic administrations are soaking up a large propor-tion of funds which were originally destined for distribution. Publicservants cannot be blamed for this situation. The fault lies in the verynature of the service itself which is gathering a growth momentumwhich nobody, not even a Government determined to keep real growthof public expenditure down to zero, seems capable of controlling.

Public reaction is becoming increasingly vocal. We hear moreand more expressions of frustration at the inefficiencies of thosebureaucracies which fail in their primary aim — the effective distribu-tion of funds — and strangle personal liberty with over-government inthe process.

Of fundamental importance in the distribution of taxpayers'funds is the question of accountability. Under state controlled educa-tion for example, schools are accountable to the bureaucracy who aretheoretically accountable to the taxpayer through the elected govern-ment of the day. This method, which at best promotes collective ratherthan individual accountability, has long since shown a tendency tobreak down.

The use of vouchers is one possible — but hitherto rarely tried— alternative means of bringing the situation under control. One ofthe main attractions of voucher schemes is that bureaucracies arelargely by-passed. In effect, vouchers are cheques on the governmentpurse made out directly to those in need; they are non-transferable andcan only be redeemed for the specific purpose for which they wereintended.

Again using education as an example, vouchers which cover themaintenance costs of running schools would be sent direct to all parents,who would then cash those vouchers for the education of their childrenat a limited range of local schools. Under this kind of scheme parentswho wanted to send their children to schools with above averageresources would pay fees in addition to the voucher.

Education vouchers force schools to be accountable to thecustomer, the parent, the one for whom the service is provided. In anadvanced scheme, a parent simply takes his voucher to another schoolif he is dissatisfied with the standard or style of education.

Much thought has been given to introducing various voucherschemes in Australia. Health, welfare housing and education are hereused as illustrative examples.

Health

In restructuring Medibank in the August Budget, the Govern-ment wisely showed how regulations can be simplified and are to be;encouraged to go further. They missed, however, the opportunity ofincorporating a voucher scheme. Health vouchers would be sent

2

directly to certain categories of individuals, pensioners for example,who would then cash their vouchers with any Health Fund of theirchoice. It was a great opportunity to introduce the concept of vouchersto the Australian public and it is to be hoped that the Government'sprevious plans for their introduction and testing have not been com-pletely shelved.

Welfare Housing

The shortage of welfare housing is acknowledged, but it is nowclear beyond question that pleading for more funds for distributionthrough the Housing Commission bureaucracy will only meet that needat great cost in terms of value for money. On the other hand, housingvouchers are sent direct to those in need to be cashed only for thepurpose of renting or buying a house on the open market. A voucherscheme holds out the prospect of meeting the need for housing whilsteliminating welfare estates and reducing the overhead costs of thebureaucracy.

With this vision in mind, the Fraser Government set up theHousing Allowance Voucher Experiment (the HAVE scheme) whichwas to have been introduced in parts of Melbourne and Tasmania inJanuary 1978. I understand the cost of this experiment was estimatedat $12 million, and we think the Government was shortsighted inallowing the HAVE scheme to be one of the casualties of their austerityprogramme. No assurance has been given yet that it will be re-introduced when the economy picks up.

Education

The possible use of education vouchers has been hotly debatedin academic circles for several years. An experiment, which was setup in less than ideal circumstances, was introduced at Alum Rock inAmerica in 1972. Federal funding of the experiment has now endedbut many lessons were learned about the operation of parental choice.The eyes of the world are now on a second experiment which hasrecently been started by the County Education Committee in Kent,England.

Australia is not lagging too far behind the rest of the world ininvestigating the possibilities. Much work has been done at Federaland State levels. The Victorian Government, for example, has justcompleted a two year inquiry under the chairmanship of the DeputyDirector General of the Education Department. The Report has notyet been made public, but it would be surprising if it did not emphasisethe problems involved in setting up any form of experiment. Evenwhen education authorities are willing to consider giving up a measureof control in favour of a system where all schools become effectivelyprivate schools which are financed by the State without enforcinguniformity, it has to be admitted that the cost involved in experiment-ing is likely to be an important factor in the decision to proceed.

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In conclusion, I would like to say this. Despite, what seems tous, an obvious need to simplify laws and regulations and to reduce theextent and inefficiencies of bureaucratic control, the trend towards moreand more legislative action is widely supported by some sections of thecommunity.

In a letter to The Age (4th August, 1978) a sociologist pointedto the need for education to be geared towards encouraging thedevelopment of "free, natural and spontaneous relationships", ratherthan the casual, loveless relationships of a permissive society. Havingidentified a need, he proposed a solution; Governments he said, shouldset up, and here I quote, "a Department of Human Relations andSocial Communications so as to provide for the creative emotionalfriendship, social and spiritual needs of all people."

God help us! We are entreated to create yet another bureau-cracy. It is symptomatic of our times that we have raised a generationof citizens who see in government action the answer to all our problems.

It is really a very simple equation which governments have tobalance. Expenditure must be matched by income from taxes. It iseasy to identify needs, but much more difficult to accept that citizenscan only be taxed to a certain level. Needs have to compete with eachother for limited resources. One never seems to mind if the otherfellow pays.

We should not make demands on governments, who are onlythe vehicle for the distribution of funds, without relating our demandsto the level of taxation involved. I sometimes find myself offendingthis principle.

Some previous Australian Governments have taken the easyroad and attempted to meet needs without due regard to the cost. Whenexpenditure exceeds income by an excessive amount we live beyondour means and the result is inflation. That was the core of Mr.Howard's budgeting problem. Having lived beyond our means, we arenow going through the painful process of trying to return to what wecan afford without hurting the patient more than he can bear. Thetaxpayers' revolt in California is no doubt being watched with interestby many people in all walks of life.

In the circumstances, however much we complain abouthigh taxes on the one hand and, on the other hand, what appears tomany as excessive government expenditure, it is surely a much morejustified action to seek a more effective distribution of taxpayers' funds.Voucher schemes offer one possible way in which this can be done inthe long-term, but no suitable solutions will be found if we do notexperiment with various options in the short-term.

Let me end on this note — that more innovation is essential ifwe seek a better way for tomorrow.

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Report of Chairman of Executiveand Editorial Committee

Mr. Norman N. Robertson, C.B.E.

During the last two years I.P.A. has undergone some far-reachingchanges. Starting with the retirement of Mr. C. D. Kemp, a leadingeconomist and a man on whose thirty-five years of creative effort ourreputation largely rests, we successively suffered the loss of hissuccessor, Mr. H. N. Warren, of Mr. J. Abrahami, Research Economist,and of virtually the entire staff. Moreover, Mr. W. A. Beattie, Chair-man of the Executive and Editorial Committee, retired last year, andthat is why I am here to address you today. All these events, of course,have imposed considerable strains upon the Institute and strenuousefforts have had to be made to keep up our standards. We hope youwill feel we have had success in this and also that we have opened upsome new lines of thought. For this, considerable credit must go toour new Director, Mr. Roger Neave, a man of wide experience anddeep belief in the cause of free enterprise. The team is striving hard,not only to maintain the high reputation of I.P.A. but also to enhanceit.

Success will depend upon our ability to influence public opinion in thepublic's interest. For this reason it is worth reflecting upon some ofthe subjects which have been highlighted in the "I.P.A. Review" and"Facts" during the past year. They include the high cost to the com-munity of industrial disputes in the building trade, the current appallinglevel of absenteeism in many Australian industries, and the need toimprove productivity without aggravating unemployment. I.P.A.'spresentations of some of these important economic topics have receivedsome coverage in the press. They are examples of our trying to lookahead to the 1980's and beyond, and to identify economic problemsrequiring solution.

Studying major matters that affect us all, offering suggestions to govern-ments and managements and unions so that our industrial problemsmight be solved — these are important functions that I.P.A. is carry-ing out. For I.P.A. no function is more important than contributingto the economic education of all Australians, no matter what part ofthe political spectrum they may .occupy. Both the "I.P.A. Review",with a circulation of 22,000 per issue, and "Facts" (64,000 copies perissue) continue to be devoted to this important objective.

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Contributed articles to the "I.P.A. Review" also have played their partin maintaining the high standard to which readers all over the worldhave been accustomed. We have been fortunate in securing valuablecontributions on important current affairs from various persons of highrepute (both in Australia and abroad) in the field of economics andworld affairs. Through these articles, which do not necessarily representI.P.A.'s views, debate has been stimulated and interest in current affairspromoted. A few of the articles have been reprinted fully by publishersof other journals devoted to current affairs.I should now like to turn to some special activities in which I.P.A.was involved during the year under review.

Special Activities

"Facts" in Foreign Languages

Over the years I.P.A. has striven to reach as many people in as manydifferent occupations and with as many different lifestyles as possible.To the extent that "Facts", the "Review" and our various specialpublications have been spread throughout the English-speaking com-munity in Australia, I.P.A. has succeeded in achieving this objective.However, for the 11 million New Australians who make up a quarterof the nation's workforce, "Facts" in English has very little to offer.It was primarily for this reason that I.P.A. decided last year to extendits influence to the Italian community by printing "Facts" in Italian.This was achieved by publishing a weekly article in "Il Globo", thelargest Italian newspaper in Australia, with a national circulation of40,000. So far, 10 articles, some illustrated, have appeared, coveringsuch important issues as New Australians in the workforce, the miningindustry in Australia, nuclear energy, Australia's high standard ofliving, the tax burden, trade unions and the problems of Australianmanufacturers.Although this project is in its infancy, if the programme is successful,I.P.A. will print "Facts" in other languages in the non-English press.Many progressive companies are currently distributing employee reportswritten in several languages to their migrant employees. I.P.A. is willingto co-operate and feels it has a special part to play in informing andeducating New Australians of the facts about free enterprise in Australia.

Nuclear Energy : Professor Petr Beckmann

Last year, in November, I.P.A. was host to Professor Petr Beckmann,Professor in Electrical Engineering at the University of Colorado(USA). The author of "The Health Hazards of NOT going Nuclear",Professor Beckmann gave a most stimulating luncheon address toI.P.A. Council Members and a few interested experts on the urgencyof adopting nuclear power immediately. I.P.A. reviewed Professor Beck-mann's book in the October/November 1977 edition of "Facts". Thisstimulated much debate and discussion, and since then I.P.A. has

a

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devoted several articles in "Facts" to the energy crisis and the needfor Australia to develop alternatives to traditional sources of energy.The importance of informing the public about the economic and socialimplications of the so-called energy crisis cannot be overemphasised.

Special Booklets

In previous years I.P.A.'s special booklets on inflation, profits, freeenterprise etc., have been read by hundreds of thousands of Aus-tralians, not to mention many people in other parts of the world.I.P.A. is proud of the wide circulation achieved by these publications;almost three-quarters of a million have been sold, and this has made asubstantial contribution to the Institute's financial stability. Thecirculation of the special booklets has grown significantly in the lastfew years, an indication that more and more Australians are concernedabout economic matters affecting their welfare.

The year 1977-78 was particularly successful in this respect, with morethan 200,000 copies of I.P.A.'s special booklets being sent to com-panies, large and small, and to schools and individuals throughoutAustralia. The Free Enterprise booklet, which was first published in1975, was revised in response to a request from the Life and GeneralInsurance Committee. Some 65,000 copies were distributed, mainly tostaff in the insurance industry. We are indeed indebted to this industryfor its unfailing support for our work.

"Everybody's Business" has so far achieved a national circulation of145,000. Only one other I.P.A. booklet has ever beaten this record,namely "Inflation — Everybody's Responsibility" which attained salesof 200,000. "Everybody's Business", which is primarily an attempt tobring management and employees closer together so that co-operationand communication in industry can be improved, has been well received,especially by some of the banks. We hope that many more companieswill recognise the importance of promoting improvements in produc-tivity while at the same time striving to keep employees informed ofthe benefits it offers to all.

I.P.A. is currently working on its next booklet, which will discuss waysin which employees may play a more useful part in matters affectingtheir work and their. welfare. In fostering this sense of partnership inindustry, I.P.A. is trying to further its aim "To work always for a fulland friendly understanding between employers and employees and forgood relations throughout industry."

Concluding Remarks

It is our aim to safeguard and, if possible, to enhance the reputationI.P.A. has achieved over so many years and we are presently reachingout in new directions indicated by the needs of our times. An importantrequirement for success in the future will be the need to reach non-English speaking communities and, of course, students. Besides our

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efforts in this direction with "Facts", we have plans to intensify ourwork in the schools through the use of other media, such as videotape.We look forward to a future in which we will meet these challenges bymaintaining the traditions we have built up in the past.

SPECIAL BOOKLETS

Each year I.P.A. publishes a special booklet carrying a free enterprisemessage considered to be of special interest to all Australians.In the last six years the circulation of these special booklets hasincreased significantly.

Title Circulation

1973 "Profits and Prices" 62,000

1974 "Inflation — Everybody's Responsibility" 200,000

1975 "Free Enterprise" 126,000

1976 "What Went Wrong? How to put it right" 130,000

1977 "Free Enterprise" — Revised edition 65,000

1978 "Everybody's Business' 145,000 (to date)

"EVERYBODY'S BUSINESS"

"Everybody's Business" was designed to show how improvements inproductivity could be achieved through various means involving com-munication between employers and employees.I.P.A. is especially gratified that the booklet has obtained such a widecirculation among schoolchildren. In this respect the ProductivityPromotion Council of Australia (PPCA) has been extremely helpful bymeeting the cost of producing 100,000 copies which PPCA has sentto secondary schools throughout Australia.

"FACTS" ON VIDEOTAPE

The first script for videotape pn the topic of "Nuclear Energy" hasalready been written and is currently being produced. If the demandfor video cassettes is strong from both employers and schools, I.P.A.will proceed with videotapes on other interesting economic issues.

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FINANCIAL SUPPORTThe continued support of subscribers, particularly those which havecontributed to the I.P.A. since its inception, is deeply appreciated bythe Council.The current inflation presents great problems for non-profit, educationalorganisations like the I.P.A. If the Institute is to be maintained in astable financial position, income will need to rise year by year to meetincreasing costs. This means both the enlistment of new subscribersand increased support from subscribers of long standing. Only in thisway can the educational work of the I.P.A. be expanded where it ismost needed, particularly in schools, universities, and among office andfactory employees. At a time when the free business economy is com-ing under attack by the unthinking, the misguided and the prejudiced,it is important that the activities of the Institute not only be maintainedat full strength but also expanded.During the year we made with I.P.A. (Queensland) an arrangement, tobe reviewed annually, whereby I.P.A. (Queensland) collects subscrip-tions from all our supporters in that State and pays us an annual con-tribution to our overheads.Broadly, the thinking behind this arrangement is that a locally basedorganisation should be better placed than we are to rally Queenslandsupporters for our objectives. Naturally we can no longer countQueensland subscribers as direct subscribers to our organisation, sothat our comparative subscriber strength figures as follows show areasonably satisfactory position:—

Numbers1977 1978

Companies 546 557Individuals and Sundry 1,171 1,149Schools/Teachers 164 172

1,881 1,878

I.P.A. SUBSCRIPTION RATES

Companies — $75.00 per annumIndividuals — $8.00 per annum

EntitlementNo. of copies of each issueI.P.A. Review Facts

3 101 1

The above are minimum rates and entitlements increase with largersubscriptions. Concessional subscription rates are available for teachersand schools. The I.P.A. relies in the main on the financial help ofCompanies and organisations which contribute larger amounts.

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Documents

Editorial — THE HAMER SUMMIT · capital-intensive labour-saving devices is being accelerated by the disinclina- ... counteract its structural disadvantages. Thanks to political