1) Kelly, “Successful government intervention can occur,” AFR 24/8/79
2) McG, “Intervention: tinker, tailor, solder, failure,” AUS 10/4/91

1.
A Modest Farmer [Bert Kelly], “Successful government intervention can occur,” The Australian Financial Review, August 24, 1979, p. 11.

Some people think that Eccles’ dislike for government intervention in industry springs from philosophical or political prejudices, but he tells me that this is not so.

He says that he would be quite happy to have the Government interfering all over the place if only the Government was good at it.

But Eccles says that the history of government intervention has been a sad saga of failure after failure.

Eccles admits that the governments that make such a mess of things always mean to do well but the sad fact is that they almost always end of doing badly.

To back up this assertion, Eccles then usually proceeds to give endless examples of the failure of government intervention.

The last time we had one of these discussions, Eccles went far back into the past and reminded me how, in 1930, the Government urged farmers to grow more wheat to save the country from financial collapse.

I had no difficulty in remembering what happened then because I had just left school and was very idealistic and shiny-eyed about doing my duty and that kind of thing.

So our family rallied around in fine fashion and grew more wheat and then we watched the market collapse.

Indeed, I remember having to sell wheat at under two shillings a bushel in order to get enough money to get married to Mavis.

I often wonder (in private) if she was worth it.

Then Eccles went on to remind me of the mess made of the dairy industry by continuing the butter bounty, and by so doing, encouraging dairy farmers to produce more butter when the world needed less of it.

The Government would have been far kinder to dairy farmers if it had used the butter bounty money to case dairy farmers out of dairying instead of encouraging them to stay in it.

Once Eccles gets going on this subject he takes some heading off. Indeed, he has sung his song so often that I almost know it by heart.

He says that the failure of government stands out above all the rest.

We have lavishly protected the production of cars in Australia at a frightening cost to the economy and car consumers with the result that we now have so many car manufacturing plants that it is quite impossible for any of them to operate economically because the throughput of cars is too low.

Eccles was then about to pursue the textile industry with his usual ferocity when I could stand it no longer.

I stood in front of him waving a red flag and claimed that I knew of one case where government intervention had been successful.

This startled Eccles because he is not used to me having the hardihood to argue with him on his own ground and out loud too.

It is true that I have been known to mutter my disagreement to myself once or twice, but making sure that Eccles did not hear.

However, on this occasion I took my courage in my hands and said that the cotton industry was an example of successful government intervention.

The Government encouraged cotton growing by paying a cotton bounty for many years but then had the courage to phase out the bounty and most people expected the industry to go into a gradual decline.

But to everyone’s surprise cotton growing was not only able to survive but even to expand into a healthy and valuable export industry.

One of the reasons why the Government took the vital step of gradually scaling down the cotton bounty was the support it received from some of the growers, particularly from a chap called Paul Kahl.

Kahl was a cotton grower in California but the Government prevented the expansion of cotton growing in the arid irrigated cotton areas in California in order to force expansion of cotton growing in the deep South, the traditional cotton growing area, where there were a lot of unhappy unemployed cotton growers.

So a frustrated Paul Kahl came out to Australia and started growing cotton at Wee Waa in NSW, using tried and successful American methods.

Then there was a Tariff Board inquiry into whether the cotton bounty should be continued and Paul Kahl startled everyone by asking that the bounty should be phased out.

Bitter experience in America had taught Paul that if government intervention continued, it would hurt the industry it was supposed to help.

So the Government, encouraged by the good sense and resolution of Paul Kahl, and other growers, phased out the cotton bounty and now the industry stands proudly on its own feet and not ours.

So here is an example of government intervention being successful, of an infant industry that was encouraged to grow in its early stages and then weaned, instead of being like so many of our highly protected industries who are still sucking away at mother’s milk when they are about 50 years old.

Even BHP, always cited as the shining example of the infant industry argument, still wants to be nurtured at the breast of the economy.

Eccles was startled that I should have the temerity to argue with him on his own ground and he went off muttering angrily about lack of respect for one’s teachers and how I would live to regret my rashness in questioning his statements which he has come to regard almost as pronouncements from On High.

But, dash it all, a fellow has to stand up for himself sometimes.

***
2.
Padraic P. McGuinness, “Intervention: tinker, tailor, solder, failure,” The Australian, April 10, 1991, p. 11.

It is a phenomenon of political life that those most in favour of intervention in the economy by government are those with the worst record of unsuccessful and botched intervention.

The history of socialism and protectionism, of governmental attempts to promote entrepreneurial activity in Australia, is studded with disastrous botch-ups. Always, however, the advocates of intervention start from the presumption that they have a clean record, and next time somehow things will be better.

When somebody like the Minister for Employment, Education and Training, John Dawkins, who has just spent the past few years wreaking havoc on our tertiary education system, argues for more action by his Government to interfere with the workings of the economy, one can only wonder at his gall. Especially so since he comes from the Western Australia Labor Party, which has brought the art of intervention to heights unusual even for Australia.

Those who believe that intervention is not a good idea are for the most part far from doing so on ideological grounds. Rather they have come to the conclusion after years of study and observation of the performance of governments that most of them are simply not very good at it. This is particularly so with regard to Australian government and bureaucrats. Some people, however, seem impervious to the lessons we have had, over and over.

None more so than Mr Dawkins, who is now, it would seem, bidding for the support of those sections of the Labor Party which are nostalgically committed to the belief that somebody, somewhere, knows more than is evidenced by market outcomes. There is indeed a case for intervention from time to time — but that case needs to be made for every proposed type and occasion of intervention. The point of economics is that it is good at analysing the ways in which interventionism can give rise to unexpected and unwanted outcomes.

Of course Mr Dawkins in his speech at the weekend, which read like an undergraduate essay written in one of the universities staffed by tenured relics of the 1970s “political economy” movement, was sceptical of the uses of economics and condemnatory of the “orthodoxy” which refuses to treat old-fashioned nonsense masquerading as new ideas as anything but old-fashioned nonsense.

The examples of Japan and Germany, where indeed there has been widespread government intervention and which have been enormously successful economies, continue to fascinate those who would have our country run as “Australia Inc”. These, of course, are countries which emerged from World War II as defeated and destroyed economies, determined to rebuild. The factors which led to their economic success are still subject to lively debate — but it is interesting that those economists who have carefully analysed the economic performance of Japan and Germany tend to ascribe their successes to factors other than the supposedly central role of government.

By contrast, those analysts who rate the positive role of interventionism high tend to be political scientists, sociologists or “political economists” with little formal training and no particular record of expertise in economics at a high level. To them, of course, careful analysis of the facts and the evidence is “ideology”. Thus again and again economists from the Brookings Institution in the United States, by no means a conservative or right-wing think-tank, have found the analysis of those who took to the almighty MITI as the creator of Japan’s economic success unsupported by the evidence.

Perhaps we should turn to the sociologists (the real ones — not the pop-sociologists of the Dawkins universities) who have realised what the economists are reluctantly concluding, that much of the explanation for the economic success of Japan and Germany has to be sought in their education systems, in their national attitudes to work and co-operation in the workplace, and in the traumas of conquest.

That is, there is no easy formula for economic success, no shopping list of policy initiatives and government intervention which can be guaranteed to deliver a sudden improvement in economic performance.

In a sense, those who advocate a more or less free market approach do so as a counsel of desperation. Australian governments, even the present Government, have always taken interventionist approaches. They have tried all kinds of measures of intervention — fiddling with the taxation system, protectionism, whether across the board or “tailor-made”, fiddling with the exchange rate, interest rates, expansion of the money supply, monetary rules, selective bans or restrictions on foreign investment, minimum wages, arbitration, union monopolies … the catalogue is endless.

Surely, sometime one of these approaches must have yielded dividends? When was the golden age when the Australian economy did well as a result of any specific form of intervention? Perhaps it was in the days when governments did least. Certainly nothing which has been done by any Commonwealth government in the past 40 years has done anything to reverse the long-term trend of the economy to declining competitivity in international terms. And just about everything has been tried and tinkered with in one way or another.

Except, that is, exposing the economy to the rigours of international markets in such a way as to make profitable performance dependent on sales to the world first, and Australia second. To do this, it is necessary to remove all the pockets of privilege, monopoly and restriction which shackle our exporters.

The exchange rate is really a non-issue. Of course it would be better to have a fixed exchange rate. But what shall we fix it against, and how? Perhaps we should link the dollar to the US dollar. That would mean that we would have to abandon any domestic autonomy in monetary and interest rate policy, in budgetary policy and wages policy, and direct all macro policy towards maintaining the stability of the link.

Until we become part of a wider economic grouping, tending towards the formation of an economic union, we cannot pick our exchange rate. The markets for commodities and services, our internal cost structure and the international flows of capital are going to do that for us. To the extent that we try to interfere in international flows of trade and capital, we can influence the exchange rate. But we need to look at the costs of any such policy of trying to insulate the economy from the world economy.

By all means, let us as Mr Dawkins advocates abandon “sterile, doctrinaire ideology”. Of course there are undoubtedly some things which government can do which will be beneficial to our economic performance. However, I suspect that the real change in performance will come only when Australians, whether in government or not, accept that most of our traditional ways of doings things are unsatisfactory. Neither the free-marketeer nor the interventionists — those hard-headed “practical men” who ran the economy for so many years — have a clue as to how to achieve this.

The minister is not offering new or fresh ideas. He is not producing a skerrick of evidence to support his ideological onslaught on those he accuses of being slaves of ideology. He is merely trying to perpetrate WA Inc on the national stage. No doubt that is why the Prime Minister is telling him to shut up — for who right now would trust the Labor Party to run an industry policy?