A generation ago, spread over four columns in The Bulletin, Bert Kelly provided a great introduction to his economics and politics. (The best introduction to his journalism is here.) To celebrate that we’ve now made available over 200 items featuring Bert Kelly (and we don’t republish everything we find; only the most interesting material), we’ve collated the four-part series into one document, under a hyperlinked list of the eight lesson headings, to make Bert Kelly as accessible as we know how.
The Eight Lessons
1. There are no free feeds. The exporter pays.
2. It is not what you know, it is who you know.
3. Remember Canberra taxis.
4. It is indeed a lousy climate.
5. Familiarity with the processes by which public policies and sausages are formed destroys the appetite for both.
6. Remember the bucket of champagne.
7. Ministers would generally be better in bed.
8. I was in the right anyway.
(To navigate back here after clicking on a heading, click the back button on your web browser.)
Eccles and I are about to embark on a mournful exercise: looking at some of our highly-protected rural industries. Mavis thinks we are mad to get ourselves embroiled in the arguments that will follow.
“Why can’t you let sleeping dogs lie?” she asked querulously. “Eccles got you into trouble all the time you were in parliament. Give it up now. You have your State funeral to look forward to. If you offend people they might pinch it off you and I have your striped trousers pressed already.”
However, we are going on with it, mainly to make Eccles happy; he loves being miserable.
Before we look at particular industries — which we will be doing with measured tread over the next few weeks — it will save time if I deal now with some aspects that are common to most troubled industries.
And I will try to use a heading for each aspect of the business so that I can abbreviate it in future.
Everyone knows that farmers pay the high price of protecting grain harvesters but not everyone knows that Fred, being an exporter, pays his share of the cost of protecting the nappy industry even if he hasn’t got a grandfather gleam in his eye. This is because the increased cost of nappies — and of sheets, refrigerators, clothes, shoes, cars and all the other protected goods that Fred may not buy — gets built into the Consumer Price Index and into wages and is then passed back along the line until it comes to Fred, the exporter. He has no one else to whom to pass the burden so he has to pay the bill.
Well, the same process operates when some industries charge artificially high home consumption prices. For instance, the high home consumption prices for sugar, wheat, dairy products and eggs all end up on the exporter’s back, in the end. It doesn’t matter much with the first two as they export most of what they grow and the home consumption price is often lower than the export price.
But with eggs and dairy products the proportion exported is small so most of the cost of supporting them with a home consumption price is paid by wool, meat and other exporters.
So when I grizzle in future about the exporter paying, you will know it is shorthand for a long lecture telling you that home consumption price schemes operates in the same way as tariffs as far as exporters are concerned.
The next shorthand heading is: “It is not what you know, it is who you know.” Some of the industries we will be examining are mind-boggling in their complexity, particularly sugar and dairying. It must have been easy for some of them to get away with all kinds of queer goings-on. Industry leaders who have come up through the ranks and who know where all the bodies are buried are in a strong position to fend off critical comments from inquisitive politicians, economists and even ministers. “What do you know about it?” they snarl. “Why, you wouldn’t know what a ‘mill peak’ was if you saw one in the street!”
However, it is not only amateurs such as politicians and economists who get bemused by the complexity of industries. In evidence to the Industries Assistance Commission dairy inquiry, the Dairy Council of the Tasmanian Farmers and Graziers’ Association said: “One of the major problems with the existing administrative arrangements, and indeed with any centrally controlled system, is that it creates opportunities for individuals and groups to exert influence to manipulate the system to their own advantage. This does not imply anything sinister or dishonest but rather should be seen as an inevitable consequence of the system … The whole system results in advantages to those organisations or companies which are represented on boards and committees and, in so doing, tends to divide the industry into those ‘in the know’ and those on the outside … It is clear that the industry administration is subject to pressure and indeed it does yield to pressure. This is perhaps the worst aspect of the current arrangements.”
If this had been said by me or even Eccles it could have been brushed aside easily as coming from outsiders ignorant of the intricacies of the industry. But this criticism came from the Dairy Council of the Tasmanian farmer organisation, who should know their industry inside out.
So when these experts warn the IAC about the special advantages for those “in the know” there is good reason to have a long, hard look at what is going on. This is the justification for my second heading.
We will grimly continue down the morbid path of trying to understand the general principles that are common to so many of our highly protected rural industries. The first heading this week is a queer one, “Remember Canberra taxis.” This sounds a bit odd, I suppose, but there are good reasons for including it. Many years ago the government allocated Canberra taxi plates free (or almost free) to owners of Canberra taxis. As Canberra grew, more taxi plates were given away with the same generosity. But the number of plates issued was limited by the government, thus creating an artificial shortage and making plates artificially valuable.
Recently my taxi-driver told me that the going price for a plate was $56,000 if an owner was foolish enough to put his on the market. Every time I travel in a Canberra taxi I am acutely conscious that, besides paying for the wages of the driver, the petrol and all the upkeep costs of the taxi, I am also paying the interest on this $56,000, the price the taxi owner knew he could get for his if he sold it or hired it out. This saddens me; I now walk a lot when in Canberra.
The reason I inject this mournful subject into this series of articles is as follows: one problem of many of our sick rural industries is that there is a very weak export demand that is surplus to the local market, so it is necessary to try to limit local production so that it fits the local market and leaves little to be sold overseas. But if the market signals are distorted by high home consumption prices, there is a grave risk that we will produce too many eggs or dairy products or tobacco, which will have to be sold at sacrificial prices on the export market. If they are sold cheaply here, they destabilise the home market.
The solution is to give to selected producers the right to produce an allotted quota of eggs, whole milk or tobacco, the quantity being tailored to fit the estimate of the home market so there is little left to be sold cheaply overseas. The right to produce this quota is allocated to selected growers who are “in the know,” and is denied to others.
This way of doing things is known as “orderly marketing” which is an altar at which almost everyone worships. But the queer thing is that these quota schemes quickly become like tigers from whom it is hard to dismount. When I told a Canberra taxi-driver recently that, in London, taxi plates were given freely to anyone with a good presence, a good knowledge of the geography of London and with a suitable vehicle, he burst into tears. “Don’t tell me that you want to hand taxi plates around free to anyone when I had to pay $56,000 for mine,” he sobbed. “It just isn’t fair!”
Quotas are allotted freely to selected producers, particularly those in the know. Then the home consumption price creeps up, encouraged by the wise advice of those in the know — the quota holders. So the value of the quotas goes up also and soon they become valuable pieces of paper. And before long the purchaser of the quota goods has to pay for the interest on the value of the quota, as I have to pay for the interest on $56,000 when travelling in a Canberra taxi. And the longer quotas are in existence, the more valuable they become.
There are two powerful reasons why we should hesitate before introducing quota schemes. First, it is dangerous for a government to give to selected people rights that they deny to others. Second, once you are on the back of a quota tiger, it is hard to get off without being eaten. They have been trying to disentangle the Canberra taxi mess for years.
The second heading is, “It is indeed a lousy climate.” One day during the drought I complained to Fred that Australia had a lousy climate. I expected that this statesmanlike utterance would be received with respect and admiration but Fred put me in my place by saying, “Yes, Bert, we do indeed have a lousy climate. And if we didn’t, the place would be lousy with farmers.”
The reason our farms are as big as they are is that we are drought prone. Most government drought relief measures discourage farmers from looking after themselves next time or else encourage us to hold our stock when, for the sake of our soils, we ought to sell them. And I know that farmers pretend to be paragons of virtue but there are always queer goings-on if the government cow is in the drought bail.
The problem is that it is difficult for governments to be compassionate and wise as well, particularly if an election looms. The Federal Government did not worry about the WA wheat-belt drought that ran for two years preceding the drought in eastern Australia. But when the election trumpet sounded, the panic button was pressed. Generally speaking, ministers would be better in bed if there is a drought.
Two weeks ago I began a series of articles dealing with some of our more highly protected industries. I mentioned two headings which will occur frequently when we get down to examining particular industries in detail. The first is: “The exporter pays for high home consumption prices as he does for tariffs.” The second: “It is not what you know; it is whom you know.”
This week, we shall select three similar headings. The first is long-winded: “Familiarity with the processes by which public policies and sausages are formed destroys the appetite for both.” You will agree that it is too good not to be given a prominent place.
As I have been through both the parliamentary and ministerial mangle, I have had a grand opportunity to know the shallowness of the examination to which most political policies on agriculture are subjected.
Party committees are warned than an election is looming and are urged to earnest, even frantic endeavour in order to have some goodies ready to spread before the electorate when the election trumpets blow.
My phrase, “At each election, I feel a dam coming on,” is a sample of our problem, but it is not only dams I feel coming on. Before each election I sit quivering with fear that yet another half-baked closer settlement scheme is just around the corner or perhaps some great plan to encourage young people to buy farms, thus discouraging older farmers. Or someone might be preparing to parade a monster such as the WA Lamb Marketing Board. One or more of these might be festering through the political gestation system. So remember the similarity between public policy and sausages.
The next heading is: “Remember the bucket of champagne.” This is shorthand for a longer sentence: “Any government servant who can foretell correctly the supply and demand situation for any product one year ahead, let alone five, is not for long working for the government: he is soon sitting in the south of France with his feet in a bucket of champagne.”
Farmers are cynical in their regard for bureaucrats when talking off the record among themselves, but as soon as you gather farmers in a meeting they tend to endow bureaucrats with wisdom which the latter would never presume to process.
My neighbours watched me closely when I became an MP — knowing that I was now moving among the wise, the good and the great. When I bought store cattle, so did they.
One reason why farmers are so quick to ask the government to tell them what to grow is because they are cunning at heart. They know that, even if the government’s advice is correct — as it must be sometimes — about a third of them will make a mess of doing what the government told them to do and then they will be able to blame their failure on the government.
“You told us to grow barley instead of oats,” they will complain. “Now you must look after us. Surely we are entitled to the cost of producing what you told us to grow.”
Governments should be careful about what advice they give farmers and farmers should think carefully before taking it.
Another reason why farmers should hesitate before taking government advice is the constant risk that too many other people also will take it.
Fred may not have a degree in agricultural economics or political science, but I would have been a lot richer had I listened to his advice. “When everyone runs, you walk, Bert, my boy. But you go off like blazes when they walk.” So, if the government had a tree-pull scheme for peaches, Fred’s first reaction would be to plant peaches. He left school in 1929 and was urged by the government then to grow more wheat. He has taken a jaundiced view of government advice ever since.
I can remember an Outlook Conference when Ian Sinclair was Minister for Primary Industry and we faced one of the intermittent crises to which Australian farming is heir. I forget which group it was that was in trouble, but Sinclair pressed the panic button and unveiled some half-baked scheme to rescue it. Sinclair is no fool and he must have known that his Band-Aid measures were perhaps weak, but, when I slung off at him, he replied: “It is all very well for you to be so superior, but what would you do if you were in my place?”
I said: “I’d go overseas and stay there for two years. When I returned the problem would have gone away.”
Most of the panic measures which governments take would be better not taken. Ministers generally would be better home in bed.
It is, “I was in the right anyway.” It originated when a chap was being rushed to the hospital in an ambulance after an accident, saying through his muffling bandages to his nurse, “Well, I was in the right anyway!” But he was still going to the hospital.
I think of that heading every time I hear some brave defender of some rural industry proclaiming in ringing tones that surely his producers are entitled at least to get their costs of production. He then usually hammers his point by saying that many secondary industries get tariff assistance so that they can get their costs of production, so surely his people are entitled to the same treatment.
But I have to warn him that, if he and his group are guaranteed the costs of production, then it will probably be bad for them in the end.
Why is this?
First, there is the difficulty of arriving at what is the cost of producing anything. My costs will certainly be different to Fred’s and our will be different yet again to most of the others in our district and different again to farmers in other districts and different yet again to farmers in other states. The plain truth is that there is clearly no single cost of production for any crop grown in widely separate areas.
The second danger is that this way of fixing prices always distorts the market signals.
It encourages farmers to keep on producing something for which the demand is falling or vice versa. It almost always works in opposition to the law of supply and demand which always wins in the end.
Thirdly, the cost of production philosophy is frequently used as the excuse for a muddled up social welfare system. Poignant pleas are made that some producers are in real trouble and are living below the poverty line and so on. To cure this, some people say that if all farmers were guaranteed the costs of production, then everyone would at least get enough to live on.
The trouble is that, under this system, most of the money would go to farmers who did not need it. I have a very competent farmer friend who has a big English farm. We always compare our farming figures and his are always better than mine. Not only is he a better farmer but he also gets very generous treatment from his government which seems frantic to keep the small EEC farmers happy. When I asked him rather quizzically for how long he could continue to get such generous treatment from his government, he replied, “Bert, as long as there are enough poor struggling farmers around me, I shall be all right!”
If prices are raised by the cost of production formula to protect the position of the small farmer, most of the money will end up in the pockets of big farmers.
If governments feel that they should help poor farmers for welfare reasons, it would be better to pay the money to farmers in proportion to their need, not their production.
The sad truth is that you can put off the day of reckoning for years by hiding the unpleasant facts of economic life behind cost of production schemes, but the law of supply and demand always wins in the end; and the longer the end is delayed, the more painful will be the inevitable shake-out.
I said after the January Agricultural Outlook Conference that now very few producer groups advocated the cost of production method of fixing prices compared with 14 years before, when the conferences began. But it lurks there all the same. For instance, I heard a sugar grower make a stirring appeal for sugar producers to have their home consumption price fixed in this way. Then he said that, if it was good enough for manufacturers of cars to have the cost of producing their cars subsidised by the government, then it was surely good enough for sugar growers too. I was glad to notice that almost all the sugar growers present had the grace to grow red behind the ears at the thought of the mess we had made of the car industry being taken as a model for anything except disaster. After all, the sugar industry stands on its own feet nearly all the time, while the car industry stands on ours.
If only prices were fixed by what is just and fair, the cost of production system would be excellent. But prices are, in the end, fixed by the law of supply and demand and nothing can stop this law working.
That is why the chap was going to hospital, even though he was in the right.