Bert Kelly, “What the market will bear,” The Bulletin, Aug. 14, 1984, p. 124.
At the end of 1981, when the Fraser government was trying to screw up its courage to do something sensible about the car industry mess, a group of more than 30 members of federal parliament did their best to make the government take the inevitable decisions that the Labor government now has had to take. This group became known as “the dries,” to differentiate its members from “the wets” who talked bravely about tariff reductions — particularly when overseas — but did nothing about it.
One of the dries was Grant Chapman, the member for Kingston (South Australia) which electorate contains the Mitsubishi car plant. For Chapman to speak out as he did took courage and all the political pundits prophesied his imminent demise. He was defeated, too, but suffered a much smaller swing than did other Liberals who kicked with the wind as per instructions from on high.
Chapman had another virtue which endeared him to me: he was (and is) a member of the Society of Modest Members. This is a group of past and present members of state and federal parliaments who believe, as I do, in less government intervention in business and who also believe that MPs should do what is right rather than what is popular. I am proud to be their patron.
You can understand, then, that I was desolated when Chapman was defeated. He disappeared from my view for a year or more, so I was delighted when he bobbed up again recently — still a member of the Modest Members Society and still talking sense. He has written a chapter, “Labor And The Market,” in a book called The Crisis of Unemployment which is to appear soon, edited by Professor Cooray of Sydney.
I do not pretend that Chapman has uncovered any new earthshaking truths, but he has spelled out with unusual simplicity the plain facts of the labour market. His message can be summed up in this paragraph: “If a shopkeeper sets a price for an item above the market clearing price, some will be left on the shelf. Similarly, if the price for labour is consistently above the market clearing price, some will be left on the shelf; that is, unemployment will result. The more the price for labour is above the market clearing price, the higher will be the unemployment.”
Some high-stepping intellectuals will sneer at such a simple, self-evident statement. But they will not sneer at a statement by the high priest of labour relations in the Labor Party, Clyde Cameron. In his book Unions in Crisis, after describing briefly how hard he had to work and his determination that the youth of today not suffer as he did, he said: “We have not helped to young by demanding that they may not be employed unless paid excessive wages. We priced them out of the labour market and we deserve no thanks for that.”
I learned the hard way what happens when prices are set above market rates.
My dad had recently handed the farm over to me and we were struggling. Mavis had three kids at foot and greedy little beggars they were. I once drove 350 wethers 13km to the Riverton sheep sale with stern instructions from the banker that I had to get at least 35 shillings for them. But the bidding stopped at 27 and, though I got up on the rail with my youngest and hungriest spring and made a powerful speech about the injustice of it all, the audience just melted away and I had to drive to sheep back home.
When I went inside, Mavis said that the banker wanted me to ring him at once. I did so, of course, and told him the sad news. “You wanted too much for them, Bert,” he snapped. “You should have met the market.”
As it was the banker who had insisted that I must get 35 shillings, I thought his attitude was most unfair, but unfortunately I was not in a position to tell him so. So I just said meekly, “I am sorry, sir,” and went out and milked the cow.
It is significant that, though our economic performance has been gratifyingly good lately, our unemployment rate has fallen hardly at all.
In many businesses, it is just not profitable to employ people; it is not that no work is to be done, but we cannot afford to pay people to do it. This is the case on our farm. But in the US, where they have a much more flexible system which allows them to adjust wages to the demand for labour, the unemployment rate has been falling.
Justice Higgins started the rot here early this century when he said that it would be better for an industry to be closed down if it could not pay proper wages. When proper wages plus all the fringe benefits are higher than the market for labour, unemployment follows as night follows day.
Chapman’s may be a simple message, but that reinforces its validity.
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