P. P. McGuinness, “Where Friedman is a pinko,”
The Australian Financial Review, April 4, 1978, p. 4.
Government intervention and regulation have always been extensive in the Australian economy, and are constantly on the increase. Yet little attention has been given to the effects and costs of such intervention.
Business attitudes to intervention have for the most part been ambivalent.
While denouncing government interference when it suits them, most Australian business interests have a well-established interest in some part of the government assistance and regulatory framework; while talking of free enterprise, they are likely to denounce as socialistic proposals for a systematic reduction in government involvement (through tariffs, import restrictions, export incentives, licensing and so on) in the economic system.
On the other hand, the Labor Party and the trade unions, particularly those on the Left, continually demand more intervention by government when it is demonstrably the case that most intervention measures in the past, and those of the type advocated by the self-styled socialists, have acted to strengthen the position of large business and redistribute income from the lower income groups to the higher.
This paradoxical alliance between the socialists and big business was typified by the recommendations of the Jackson Committee on manufacturing industry.
A conference last weekend, organised by the Centre for Independent Studies, on “What Price Government Intervention?” presented a refreshing change from the generally uncritical approach to the whole range of government intervention and regulation which is characteristic of Australian policy discussions.
The CIS is, as yet, a small body, which was set up to promote the kind of strongly free enterprise views often associated with Milton Friedman.
Friedman, however, would look decidedly pink to many of its adherents, who are of the tough pro-capitalist, anti-socialist mould which has been popularised by writers like Ayn Rand. She is not one of their mentors, however — rather, it is the so-called “Austrian” school, as represented by economists like Ludwig von Mises and Friedrich von Hayek, which they follow.
Some of the followers of this school must be classified with the lunatic fringe; nevertheless there is a solidly respectable intellectual position involved, and it was this which was most apparent at the conference.
The papers presented, taken together, amounted to an effective critique of the whole range of government activity in the Australian economy.
They dealt with issues of central importance, whether one’s final position is pro or anti-intervention.
For, as much Australia experience shows, intervention is not of any use at all if it is ineffective or harmful.
It may be, as some of the speakers at the conference believed, that intervention by government must necessarily be harmful.
But even if intervention is considered desirable, it is vital to ensure that it is beneficial; for the aim of intervention is not just to make more jobs for public servants.
Two of the papers dealt with stabilisation policy. Professor Michael Porter, of Monash University, argued that the effects of much “stabilisation policy” in Australia, which involved changing the rules of the game in order to resist change imposed by changing economic conditions, have been to destroy confidence, and to divert much entrepreneurial ability to dealing with government rather than business.
“Controls,” he said, “and the ability of civil servants to change them, not only give the key bureaucrat the ability to corner the Prime Minister with a timely (and undoubtedly urgent) submission, they also focus the attention of the business community on Canberra and Martin Place. Controls misplace entrepreneurship.”
And he pointed out that stabilisation and price equalisation schemes, like the petrol price equalisation scheme being proposed by Mr Fraser, do not tend to work as intended.
To require petrol companies to sell petrol at the same price in Alice Springs as in Sydney, is likely to have perverse results.
Lachlan McGregor, also of Monash University, presented a general critique of macro-economic stabilisation policy, in which he suggested that since the theoretical basis for demand management policies is uncertain, and since we do not know to what extent the economic mechanism is self-adjusting, the conduct of stabilisation policy is a mix of “intuition, crude empiricism and good luck.”
As history shows, the luck has not always been good.
The case for macroeconomic stabilisation must therefore, since it cannot be said with certainty to work as it is supped to, be considered unproven.
It might be better to let well enough alone.
Two papers considered the way in which well-intentioned consumer protection legislation can make consumers worse off, and sometimes simply result in lessening competition in an industry by restricting entry, making the firms in the industry better off, and everyone else worse off.
Amongst a number of examples of such counter-productive effects of existing consumer legislation, Ted Sieper of the Australian National University, gave particular attention to the NSW Motor Dealers Act, 1974, and the establishment and operation of the Builders’ Licensing Board in NSW.
The warranty provisions of the Motor Dealers Act effectively impose a tax on the sale of used cars, and it is impossible for a buyer to evade the cost of this if he buys through a dealer.
Thus, a low income earner who might be prepared to put in hours of his own time in working on a car is forced instead to pay for the expensive labour of a professional mechanic.
That there are many people who would prefer not to pay for the warranty is evidenced by the mushrooming of private sales since the Act was introduced: “Private and auction sales have burgeoned at the expense of sales through dealers while an entirely new institution, the open air market, at which private sellers are able to hire space and display their cars at a centralised location has emerged wherever this legislation has been enacted to help minimise the deadweight losses occasioned by the tax.
“To the vigilant Department of Consumer Affairs such consumer recalcitrance is evidence not of error but of ‘loopholes’ in the law to be closed by foreshadowed amendments to the Act developed during long hours of consultation with the Motor Traders Association of NSW.”
The hilarious history of the Builders’ Licensing Board, which expert witnesses like the Rural Bank attested at the inquiry which led to its establishment would serve no useful function, is spelt out in detail by Sieper. The board, he points out, now has a staff of 320, and manages to spend $4 million a year collecting its licensing fees of $4 million a year.
Just how the board manages to soak house-buyers for the benefit of the established builders will be spelt out in detail in a coming issue of The Financial Review.
Unfortunately, this kind of analysis is only too rare in Australia.
Apart from the tariff, there has been relatively little detailed documentation of Government intervention in the economy, and even less meticulous documentation of how that has, whether well- intentioned or not, often had the result of destroying efficiency, turning business from a consumer-orientated to a regulation and licensing-orientated activity, and imposing the paternalistic standards of bureaucrats in all areas of private consumption.
(Copies of the papers given at the conference can be obtained from the Centre for Independent Studies, PO Box 32, Turramurra, NSW, 2074. Telephone (02) 84 5818.)
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