C.R. Kelly, “A Modest Farmer looks at the Problems of Structural Change,” Economic Papers, no. 59 (August, 1978), pp. 91-95.

I have been looking forward to talking to a group of economists. People talk of a flock of sheep, a herd of elephants and a grumble of graziers. I have never known the correct term for a group of economists, is it possible to use an eclectic of economists? My Chamber’s dictionary says that one of the many meanings of eclectic is “choosing or borrowing, choosing the best out of everything”. But I have always wanted to talk to such a group so that I can get my own back. None of you know how Eccles has harried me over nearly 9 years. I have a lot of scores to settle.

I am glad that you have asked me to talk about the problems of readjustment. As a farmer I have had to make more than my share of readjustments, and as a politician I have seen how bad governments can be at intervening in the affairs of businessmen.

When I was a member of Parliament, I was asked to talk to an RSL group in the bush. These were not as respectful to their member as a typical Liberal Party branch. One big raw boned bloke said in rather a threatening tone:

The farms in our district are becoming bigger every year and the country towns smaller and sicker. I want to know what you are going to do to stop it?

Then he added sourly that he didn’t want a polished display of political footwork, he wanted a straight answer to his question. I took a quick look around to make sure the door into the supper room was open, made a quick prayer, took a big breath and said bravely that I had quick solutions to both problems. First, the size of the farms in that district were originally about the size that an eight horse team could handle. But when tractors started replacing horses, the farms grew bigger. Then as tractors increased in size, the farms grew bigger again. And if they wanted their farms of the original size, all we had to do was make tractor farming illegal.

Then, realising that I might as well be killed for a sheep as a lamb, I charged on, saying that the little country towns were located where they were and were once healthy, because the original settlers could not travel far for their groceries and mail in their buggies. And the rail sidings could not be more widely spaced when the wheat was carted with horse-teams. So if they wanted their country towns to be healthy again, all we had to do was to get rid of our cars and trucks.

I must admit they took it well. But, after all, they were farmers, and farmers have had their noses rubbed in the unpleasant facts of change ever since Adam started farming. Farming must continually change as a bucket of worms must continually turn. If either stop, the results are devastating.

I do not pretend that farmers like change. We are a conservative group so we hate it. And most of us hated parting with our horse-teams. Indeed only last year I had a brief hope that we were about to go back to horses again. This was when Mr Fraser said on February 21, and I quote:

Employers are tending to use machines instead of people in the production process and if tariff protection was reduced, the trend would worsen.

When I heard the PM say this I thought he was about to urge us to go back to horses again so as to create employment. But evidently he was only thinking about secondary industry.

Farmers are used to change, we had to change or go broke. And the government has been helping us change with its farm reconstruction legislation. But the government has not told us what to grow. It is now rather belatedly examining how it can help secondary industry adapt to meet the changing situation. My purpose is to look at one narrow aspect of this problem, how deep should be the government’s involvement in structural change in secondary industry?

I should first ask this question of secondary industry leaders. I am well aware of the deep dedication of these gentlemen to the free enterprise philosophy. They are a bit like the Liberal Party in this. When the Liberals have a big get together we usually spend the first hour worshipping at the free enterprise shrine. If we are lucky we may perhaps hear the PM himself say, as he said in 1977:

People must question their own demands on government. Governments must foster this awareness and tell the truth more plainly. When governments promise any programmes, they must make it plain that all the people of Australia must pay. The day of the cargo cult must be banished.

Having got these fine flowing philosophic phrases out of his system, he often goes on to assure secondary industry that they can count on getting the protection that fits their need, irrespective of the effect on the rest of us. This always seems to be a queer way of getting rid of the cargo cult.

Secondary industry spokesmen are equally eloquent about their deep devotion to free enterprise. I have been to many of their seminars. They perhaps spend rather longer polishing their private enterprise halos, but the balance of the programme is usually devoted to twisting the government’s arm so as to persuade it to give them an even bigger tariff subsidy at the expense of the rest of us.

But sometimes they become more specific as to what they want from the government they so often despise. “We will accept that there is logic in encouraging secondary industry to leave the highly protected sector,” their leaders say bravely, “but first the government must tell us into which other sectors we should move. We want to government to tell us what to do next.”

Let me give an example. The Australian Confederation of Apparel Manufacturers (ACAM) says:

It casts grave doubts upon the intelligence of the architects of that plan (the tariff review) or perhaps reflects upon their indifference towards the workforce, that they could make the absurd mistake of recommending the reduction of high protection industries before ascertaining if there were sufficient low protection industries within the Australian economy to provide alternative jobs for the workers who were retrenched.

ACAM is not noted for the strength of its intellect, though its ability to kick in the ruck is unquestioned. The more prestigious AIDA, whose research officer, Dr Norman, has spoken to you earlier today, are more careful with their language, but if you winnow carefully through its new gospel, Protection in Perspective, you will find this statement (made about the Jackson Report, I think):

There is inadequate or no provision for positive identification and encouragement of new industry development which will be vital to continued and increasing high living standards in a secure and prosperous Australia. This is left to chance.

I envy the stately splendour of the prose, but what I find irritating is the implied criticism that things are to be left to chance. What they are really worried about is that decisions are going to be left to the market to make, that free enterprise is to be encouraged to be enterprising, this being the system which secondary industry worships so ostentatiously before lunch. But after lunch they want the government to tell them what to do next, not how to do it perhaps, though that too would be nice, but what to do.

I have no ideological objection to government direction of this kind, and if the government was good at it I would be happy. But they almost always make a mess of it. If the government is to tell industry what to do next, the government must assess what the supply and demand for a product is going to be in, say, 5 years time. And that advice will be given to the government by people who work for the government. But any civil servant who can correctly foretell the supply and demand situation for any product for even one year ahead will not for long be working for the government, he is shortly sitting in the South of France with his feet in a bucket of champagne! When I first became an MP my neighbours watched me because they knew that I would be close to the wise ones in Canberra. When I sold cattle, so did they. But 19 years later, when I sold cattle, they bought. The government has no well of wisdom on which to draw, it is just as likely to be wrong as the rest of us. If you want an example of what a mess the government can make of its planning, look at our car industry.

But even when the government is right, as it will be sometimes, troubles will still loom. There will always be some manufacturers who are naturally messers in the same way as there are some farmers who are not good at farming. But these messers, when things start to go badly for them, will blame their failure on the government:

You told us to produce what-nots and we are not even recovering the costs of production. We are doing what you told us to do so you must look after us.

I dread government intervention of this kind, because I know from experience that governments are clay in the hands of pressure to stop to “weak-uns from deeing”. This is a process absolutely essential to the health of capitalism.

And it is all very well to sneer at the “nervous Nellies” in Parliament, but resisting sentimental pressure is not easy, not as easy as it used to be, since TV has hit us. For instance, if a factory was going broke because it was making a mess doing what the government told it to do, the local member would have to contend with the TV camera showing a poignant picture of the closed factory gates, with a housewife wiping a tear or two from her eyes, and with two bare-footed children holding her hands. She would say with a sob in her voice:

Is the government going to stand idly by while my husband is flung on to the scrapheap? And what is our local member doing about it?

Governments don’t make a mess of things because they mean to or because their intentions are not honourable and good. But they find it increasingly difficult to let the weak ones die. Again the car industry is a sad warning. Even the government has known for years that the car industry as now structured is hopelessly inefficient, that some units will have to die to allow the remainder to have the throughput necessary for economic production. But each time the industry seems about to take the necessary medicine, to take the painful readjustments, the silly kind-hearted government takes the medicine cup away.

So I know what the secondary industry spokesmen would say if I asked them how they want the government to help with reconstruction. They will beg the government to tell them what to do next. I know, and am glad, that there are many manufacturers who despise this philosophy, but, in spite of this, I say with infinite sadness, that it is the dependence of industry on the government that troubles me most. I suppose that this is inevitable. The Bridgen Committee recognised this tendency fifty years ago, and I quote from the Report:

The most disquieting effect of the tariff has been the stimulus it has given to demands for government assistance of all kinds, with the consequent demoralising effect upon self-reliant efficiency throughout all forms of production.

But I have forgotten where I am, that I am speaking to an eclectic of economists. What do you economists think about government intervention of this kind? There may be a small number of you working for private firms and I know from past experience what will happen. You won’t say anything to me publicly, but some of you will edge up to me privately and admit, out of the side of your mouths, that you know that I am right but you cannot get your directors to get out on the end of a limb in case the government doesn’t like it.

Some of you will be employed by the government and you will be too wise and careful to say anything to me at all. But perhaps in the still of the night you will recall Alan Peacock’s Wincott Memorial Lecture, where he is discussing the way civil servant economists rationalise the abandonment of their belief in the market:

Reluctantly, so that pragmatic argument continues, the only solution will be to extend selective intervention by government. Indeed, in an international economy riddled with externalities, this will be the only prudent way to ensure that private enterprise will be able to function efficiently at all. Paradoxically, therefore, selectivity will be the principal means of preserving rather than destroying the market economy.

Perhaps some of you will believe your protestations.

To all of you, including old Eccles if he is listening, I have a message passed on by Milton Friedman. I quote from From Galbraith to Economic Freedom:

There is nothing that produces jobs for economists like government controls and government intervention. And all economists are therefore schizophrenic: their discipline, derived from Adam Smith, leads them to favour the market; self-interest leads them to favour intervention. And in large part the profession has been led to reconcile these two opposing forces by being in favour of the market in general but opposed to it in particular. We are very clever at finding “special cases” — there are external effects, there are monopolies, there are imperfections in the market; therefore we can have our cake and eat it. We can be in favour of the free market and we can at the same time promote these separate interventions that promote our private interest by providing jobs for economists.

Now I would never have dared to say that to you, but I am quite brave when I can shelter behind Friedman. And Eccles can like it or lump it.