P.P. McGuinness, “Libel laws block insider’s revelations of Australia’s industrial mess,” The Australian Financial Review, August 28, 1986, p. 14.

Why is Australia in such a mess, economically? Could no one have foreseen the present problems and taken action to cope with them?

The answer is that there have been plenty of people warning, for many years, that the Australian economy could not depend forever on exports of rural and mineral produce: a manufacturing sector which was built on a protected home market alone, without ability to compete in world markets, was not enough.

In part, the argument was couched in terms of the costs imposed on the Australian populace as a whole of heavy disguised subsidies to protected manufacturing industry. Very few people ever saw the bonanza of primary sector exports coming to an end.

But it was common ground among the much-maligned “economic rationalists” that it made no sense for Australia to build up a manufacturing sector behind barriers of protection, such that manufacturing was an expensive hobby rather than a serious business directed towards earning a living.

However, from the earliest days, the protectionist lobby has been a strong one in Australia. It has a lot to do with nationalism and the sometimes justified feeling that England saw Australia as little but a useful economic adjunct, with no independent future.

But it also had a lot to do with the fact that protection was always an easier way to earn a living for employers and workers in the cities than competing for world markets.

Relative wage structures have nothing to do with the issue. The reason why Australia has had higher real wages than most Asian countries for many years is, basically, that Australians were a small enclave of whites sitting on an enormously rich country.

There was some rationale in the idea of protection, as developed by the Brigden Committee in 1929 especially, when the tariff was seen as a means of redistributing income from landed capital to city capital and labour.

With the now dim future for our export markets, such a rationale makes no sense any more. The real issue now is why there is so little prospect for adjustment of the structure of Australian industry to the new world situation.

It is not a question of real wages, but of labour productivity. The level of real wages is a major contributory factor to domestic unemployment. But as countries like Japan have shown, high labour productivity can sustain wages higher than Australia’s without the same natural endowments.

The rigidity of labour markets and the problems of high real wages combined with low labour productivity in Australia is a phenomenon which cannot be blamed on the trade unions alone.

The alliance between highly protected manufacturing industry, with managements which have preferred to resort to lobbying and log-rolling, preferably behind the scenes, to protect inefficiency and high cost structures against competition from imports, is at the heart of the problem.

For years, many Australian manufacturers have preferred to engage in mock conflict with militant unions, knowing that whenever the Arbitration Commission granted wage increases, they could go off to government or a complaisant Tariff Board and get an increase in protection to restore profit margins.

Instead of seeing through this, the manufacturing unions, especially those in the most highly protected sectors, formed an alliance with the manufacturers.

At the same time, the manner in which Australia’s centralised wage fixation generalised wage increases across the whole workforce ensured that any industries competing in export markets were immediately and directly penalised by the wage protection nexus.

A recent book serves to remind us of the recent history of all this, and to make clear that Australia need not be in its present fix. There was a chance, just a chance, that things could have been better done.

The book is Alf Rattigan’s Industry Assistance — The Inside Story, recently published by Melbourne University Press. Alf Rattigan was chairman of the old Tariff Board from 1963 until its replacement by the Industries Assistance Commission in 1973, and chairman of the IAC from 1973 to 1976.

Thanks to the enlightened approach of Professor Fred Gruen of the ANU, Rattigan, whose formal education had never progressed beyond midshipman in the RAN, was given the opportunity to sit down in a tranquil atmosphere and write about what he had been doing.

In the first draft, Rattigan is supposed to have told the real story of the political chicanery, the power-mongering and the dishonesty which underlay tariff-making under the old regime. Along with plenty of names, dates and places.

Thanks to the protection afforded Australia’s rich and powerful by Australia’s oppressive defamation laws, such a book was unpublishable. (I sincerely hope the manuscript survives, to haunt the future policy-makers of Australia.) The book just published is only what could be published.

But it is strong stuff. It tells the story of how a public servant took his job description seriously and as head of a statutory authority responsible not to ministers but to Parliament fought for the public interest.

Oddly enough, despite the abuse to which he has been subjected, Alf Rattigan did not fight for free trade. What he wanted to do was fulfil the terms of his own Act, make protection policy-making in Australia open and transparent and genuinely concerned with making industries “economic and efficient”.

The minister he served — McEwen and Anthony in particular — tried to discipline him in secret, but were not brave enough to take the matter to Parliament and change the provisions of the Act which gave him the power to defy them.

The reasons were simple. Their own party, the then Country Party, was not happy with manufacturing protectionism. Nor were some of the Liberal Party. But above all, what the manufacturing interests feared most was public exposure of the deals which they were making or hoping to make to get “tailor-made” protection which would insulate them from the risks of the world market.

Even now, it is a delicate matter to describe many of the deal which were done, or the way in which protection policy was made in the old days. Often enough, it would be difficult not to suggest that there was corruption involved. Perhaps it was a matter of political favours and party funds.

There was also among some of the protectionists in government, the bureaucracy and business a genuine commitment to the national development of Australia; a commitment, however, which was not held to strongly enough to risk inspection in the cleansing light of open day.

Rattigan tells only part of the story; his part, essentially. How he manoeuvred other bureaucrats and government into allowing the Tariff Board to grow and develop as he thought it should — his book ought to be a text for any student of the tactics of public service infighting, although it could do with a few footnotes explaining moves which Rattigan prefers to pass over in silence.

How, also, he saw that a new reformist government could be directed towards enhancing, rather than eroding, the role of the independent statutory body which he lad, rather than abandoning it to the attentions of such as Dr Cairns.

Incidentally, Rattigan quotes one of the most famous of Whitlam’s speeches on protectionism, in which there is a passage which includes the words:

“As soon as an industry has come into existence, too often its very existence entitles it to a certificate of immortality and changelessness to be guaranteed — by way of government subsidy and protection by tariffs or even worse, permanent quantitative control on imports — a safe and easy life.”

Now it can be told. I wrote that passage, to oblige Graham Freudenberg, Whitlam’s speech writer, when I was senior advisor to Bill Hayden, then Minister for Social Security.

Be that as it may, the Whitlam Government with all its failures did a lot to address the problems of Australian industry — one of its best moves being the 25 per cent tariff cut of 1973.

But under Fraser, Alf Rattigan retired (early, due to ill health) and the Fraser Government relapsed into a degree of protectionism, and indeed cronyism, quite as bad as that implicitly documented by Rattigan in his book.

Malcolm Fraser strutted the world stage talking about international trade policy and the great issues of the world, while at home he pursued the shabbiest and most timid of protectionist policies.

Given his declared principles, he could have pursued the initiatives of Whitlam and the Industries Assistance Commission and made a real contribution to the continued restructuring of Australian industry which was then commencing, as much because of Whitlam’s mistakes as because of the world economic situation.

Instead, the IAC was forced into a period of relative quiescence.

Hinc illae lacrimae — or, in other words, there goes your J-curve.

(in order of appearance on Economics.org.au)
  1. Where Friedman is a pinko
  2. The Economic Guerrillas: A lecture in honour of Maxwell Newton
  3. The Libertarian Alternative
  4. Libel laws block insider's revelations of Australia's industrial mess
  5. But perhaps the merchants of doom have a point
  6. The Origins of Paddy McGuinness
  7. The Itch for Influence
  8. LA safe from religious poverty
  9. Aunty should hang up her boots in face of premature senility
  10. Warning: health is a budget hazard
  11. New ABC Tory chief won't rock the boat
  12. Time to sell the ABC
  13. Youth victims of the welfare con
  14. Paddy McGuinness on class sizes (1991)
  15. More teachers won't solve the problems in our schools
  16. Paddy McGuinness on Catholics and wealth distribution
  17. Paddy McGuinness proposes inheritance tax equal to handouts received by deceased
  18. Let them swim nude
  19. Time to legalise heroin
  20. State-sponsored sports rorts
  21. The blight of the baby-boomers
  22. To reduce the problems of crime and corruption, legalise heroin
  23. We should ban Olympics
  24. Evidence shows heroin policy is not working
  25. Wowsers deny society while killing children
  26. Will Australia compete?
  27. Canberra's social revolution
  28. Paddy McGuinness in 1994 on the 2012 class size debate
  29. Why not pay for the ABC?
  30. Paddy McGuinness on David Stove
  31. Sometimes the truth hurts
  32. Paddy McGuinness on compulsory, informal and donkey voting, and breaking electoral laws
  33. Thomas Sowell, McGuinness, Aborigines and other minorities
  34. Genocide with kindness
  35. Hyde, McGuinness and Sturgess on Chaining/Changing Australia
  36. Paddy McGuinness defends comparing IQ of races
  37. Do-gooders should glorify smokers
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(in order of appearance on Economics.org.au)
  1. Libel laws block insider's revelations of Australia's industrial mess
  2. Public needs protection from industry protection
  3. Bert Kelly on Alf Rattigan's Industry Assistance: The Inside Story
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