Inside this Issue Volume 49 • Number 3 • March 1997

ARTICLES REGULAR FEATURES The Future of Hong Kong Editorial 21 Can Hong Kong Remain Free?—Scenarios for 1997 Welcome aboard the new look IPA Review! Democracy and traditional political liberty might not be retained; but outright mainland dictatorship is also unlikely.A middle way 2 Savings and Budget Honesty based on pragmatic considerations, may well be the best hope The Commonwealths increasing dependence upon income for Hong Kong after the handover David Armstrong taxes—including the taxation on private savings—gives a misleading picture of the Commonwealths Budget performance 25 The Economic Implications of the Take-over Geoff CarmodylAccess Economics Natural assets aside, Hong Kongs economic success has depended upon its open markets and the security of property 3 What does it Mean to be Indigenous—and does it and contract under the rule of law. If these are seriously Matter? threatened, then the outlook is doubtful Alan Oxley It might seem simple and obvious, but drawing the line between indigenous and non-indigenous peoples is not always straightfor- 28 China—How Stable is the Monolith? ward_Whats more, applying the distinctions creates problems of Internal regional tensions, the presence of Taiwan and the its own Kenneth Maddock spillover effects of taking back Hong Kong may yet prove a headache for Beijing Michael OConnor 5 Howards Way A year since the Federal election, its time for an assessment of John Howards Coalition government John Hyde 29 Renovating Civil Society Between the State and its citizens lies a tier of intermediate 7 New Zealands Reforms: The Next Stage institutions—mostly small-scale and voluntary in nature. At Michael James, the Editor of Agenda, interviews Sir Roger least thats the theory. Practice suggests otherwise, and calls for Douglas about the prospects for further reform and what an urgent re-examination Patrick Morgan Australia might learn from the experience 30 IPA Indicators 9 C.R. (Bert) Kelly, I9I2-1997 Mining investment, land claims and mining, tax rates on An appreciation of the work and influence of the original Modest investment, Howards battlers, and executive salaries. Member who did so much to expose the costs of Australias long-standing protection policies Torry Rutherford 32 The `R Files Reforms to Victorias electricity generation and distribution 10 The Workplace Relations Act—plus ca change... industries have put the pressure on the other States to open It was supposed to be revolutionary, but then it met the Senate. up their markets Alan Moran Whats left of the Coalitions industrial relations reforms? Robert Skeffington 34 The Pyrrhonist It might seem like heresy, but someone has got to say it—most 11 Black and White appeals to the notion ofsustainable development are either The recentATSIC elections raise the question once again--is empty, oxymoronic or hypocritical Brian Tucker there really any justification for ATSICs continued existence? Ron Brunton 36 Free_Enterprise.com An introduction to the Internet—especially for the novice— with a decided leaning toWebsites with a political, legal or economic flavour Stephen Dawson The IPAs Immigration Debate 38 Myths About the Minimum Wage Serious economic analysis suggests that there are other means 13 The Debate Itself for dealing with the problems of unemployment and low Jim Byth introduces an edited version of a wide-ranging debate held incomes Philip Lewis by the IPA late last year. Of the seven participants, three, whose positions are well separated on the argumentative spectrum. are BOOK REVIEWS featured here: Bob Birrell,TheoTheophanous and Phil Ruthven. 19 Immigration and Unemployment: The Economic 39 • Hindmarsh Heresies • Declining Sperm Counts Ron Brunton reviews Chris Kennys Womens Business and Evidence wonders why telling the truth gets such a bad press: Roger All the empirical evidence points to one conclusion: there is no Bate reviews the latest piece of environmental alarmism, Our causal link between the two John Freebairn Stolen Future, and concludes that it is scientifically ill-founded. 000000 Editor: Tony Rutherford. Publisher Executive Director: Mike Nahan. Production Manager: Chris Ulyatt. Editorial and Production Office: 2nd Floor, 46 Kings Park Road, West Penh WA 6005. Phone: (09) 321 1420. Fax: (09) 321 1479. Email: [email protected] Designed by: Colin Norris, Kingdom Artroom. Printed by: Print Hotline, 47 Milligan Street, Perth, WA 6000. Published by: The Institute of Public Affairs Ltd (Incorporated in the ACT) ACN 008 627 727. 128-136 Jolimont Road, Jolimont, V1C 3002. Phone: (03) 9654 7499. Fax: (03) 9650 7627. Email: [email protected] Cover Photograph: Reproduced with the kind permission of the Hong Kong Tourist Association Unsolicited manuscripts welcomed. However, potential contributors are advised to discuss proposals for articles with the Editor. Views expressed in this publication are those of the authors and do not necessarily reflect the views of the IPA. Reproduction: The IPA welcomes reproduction of material from the Review, but for copyright reasons the Editors permission must first be sought. From the Editor TONY RUTHERFORD

S the friends of the IPA will the near-consensus that the other limits know, the previous Review are less compelling than the usual content was the last completed of the debate would have us believe. under the editorship of Ken In our next issue, we shall, among Baker. This issue is the first under the other topics, be looking at those limits new editorship—although it is in the from another, oblique perspective: from nature of these things that the contents across the Tasman. Expanding upon the are not all newly-gathered. themes alluded to by Sir Roger Douglas This is also the first with our new in this issue, we will be continuing to look: leaner, more direct, and simpler in examine the progress of New Zealands layout. Part of the reason for this is that reforms and, by implication, the effects of we will over the next few years be more our own failure to emulate them. closely integrating our hard copy In other lead articles, John Hyde, Mike publications with electronic forms of Nahan and Robert Skeffington look at the publishing. record of the first year of the Howard The change in editorship and, more interests mute whatever official government from their different particularly, the change in layout have expression our government might give to perspectives. And from any perspective, combined to delay the appearance of this our natural feelings of deep concern over that record is not good, nor is there number, and for this we apologise to our the plight of the citizens of a country who much in it to encourage the expectation readers. We fully expect to be able to will very shortly have a bizarre and of better things to come.Those few true catch up with and resume our regular ramshackle tyranny replacing the believers who quietly cheered on the schedule over the rest of the year. essentially benign and minimalist rule of then Opposition when they supported The magazine is a mixture of old and their former colonial masters. It is one of the good reforms of the Hawke and new. The regular columns still appear, and those situations where we instinctively Keating governments, must wonder what to these we have added a new one: feel that diplomatic niceties go contrary happened to the apostles of genuine Stephen Dawsons free Enterprise.com, an to both heart and mind. labour market reform (to name only one introduction to the Internet and the But as our contributors make clear, important policy area), apostles like Reith World Wide Web. While there is still a Hong Kong at least has the advantage that and John Howard himself. good deal of both hype and bogus the eyes of the world will be upon it. Again, in Opposition, the Liberals expertise attached to them, there is no More than that, interested observers now provided much-needed backing for the doubt that rapid access to the global know with the benefit of observing the progressive tariff-reduction programme public policy debate is one of their real painful transition of Eastern Europe from put in place by Labor. As our tribute to strengths. With an intelligent guide, we communism to democracy—just which the original Modest Member, Bert Kelly, hope to make that access easier. elements of Hong Kongs imperfect sadly reminds us, that adherence to Readers will also notice that we are democracy are the important ones, the principle now seems to be evaporating. introducing a separate central section, ones worth defending. Whatever the decision eventually made which will contain the articles comprising One of Hong Kongs strengths, of by the government on the car industry-- our focus issues. course, is that its wealth was largely the and it might well be the right decision— In this edition, we focus on two creation of a society of migrants who it will represent another opportunity lost issues: we look at the likely fate of Hong were able to unleash their to demonstrate leadership in reform. Kong after its return to Chinese entrepreneurial skills within a remarkably And serious reform is still needed if we dominion later this year; and we discuss open and free economy. This makes a are to remove the limits to growth. the realistic options available to Australia point not usually considered in the in the area of immigration policy. Australian immigration debate: our The future of Hong Kong under capacity to absorb new migrants—not Chinese rule is of obvious interest to least entrepreneurial entrants from Hong Australians. We have a fairly narrow Kong, and other ethnic Chinese—is commercial interest in the continuing limited most by the limits we impose on prosperity of the city; and that coincides the freedom and openness of our very neatly with the diplomatic interest in economy. That aside, what emerges most avoiding offence to China. These clearly from our immigration debate is BOB L1©0il©© MARCH 1997 1 Savings and Budget Honesty

GEOFF CARMODYIACCESS ECONOMICS

MAGINE a family which de- made the Commonwealth Budget balance underlying Budget balance were measured cides to get its financial affairs look better, but essentially at the States ex- on an expenditure tax basis, this problem under control. All agree that pense. They are now repaying the favour by would not arise, because expenditure taxes each must start saving. To loosening their purse strings as their own fall on spending only, not saving. flmonitor performance, a record of their ef- budget situations improve, thereby under- This suggests a useful addition to the Fed- forts is produced. Imagine the other family mining the Commonwealths announced eral Governments Charter of Budget Hon- members surprise and anger when they dis- public saving programme. Australia is a fam- esty. To expose the extent to which public cover that the household head has dipped ily divided. saving relies on cannibalising private saving, into the childrens piggy banks and the Theres more. The Commonwealth an expenditure tax-based estimate of the un- spouses Christmas saving account to boost Budget—even in underlying balance derlying Budget balance should be a routine his own saving effort, while cutting back less terms—is being fattened by raiding taxpay- feature of Budget reporting. This estimate than agreed on his own spending. The fam- ers savings. Present and previous govern- would be larger than the present underly- ily has missed its joint saving target. Family ments agreed on compulsory private saving ing Budget balance, but national saving harmony is shattered. Other family mem- to fund individuals retirement and reduce would remain unchanged, with the difference bers ease up on their own efforts. Debt rises. demands on the age pension. But increas- being credited to private saving. Australia is much like this family. The ingly since 1988, the Commonwealth Gov- Why stop here? If an expenditure tax- household head is the Commonwealth Gov- ernment has taxed these private savings and based Budget bottom line is better, why not ernment. Increased national saving is an used the proceeds to make the Common- move to greater reliance on expenditure taxa- agreed policy priority. The States and Terri- wealth Budget bottom line look better. This tion, thereby reducing the gap between the tories, and private individuals and businesses, is like raiding the childrens piggy banks to two measures of the Budget balance? This is are the other family members. The Common- finance the household heads spending hab- not a radical proposal. The largest single in- wealth Budget balance records the household its. It adds nothing to national saving. In vestment for most Australians savings re- heads performance; the National Accounts some cases, the proposed super surcharge mains the family home, now expenditure- show national and household saving. taxes super savings at marginal rates up to taxed on an up-front basis. The home is pur- At several levels, the Commonwealth 115%! chased out of after-tax savings but capital Budget has overstated the Commonwealths The Commonwealth Government, gains from its subsequent sale are tax-free. real contribution to national saving and has moreover, relies increasingly heavily on in- Superannuation contributions (before 1988) scrambled the signals on saving. come taxes, which fall on both private spend- were also effectively expenditure-taxed. (but For a while, proceeds from selling off ing and saving. Again, the Commonwealth at the end of the accumulation process: con- public assets, and State debt redemption, is dressing up its own saving effort partly by tributions were tax-deductible and draw- were treated as reductions in the Budget defi- siphoning off private saving. Understandably, downs were taxed). cit—as an improved Commonwealth saving other household members are rebelling. Why Expenditure-taxing superannuation con- effort. Thankfully, this piece of fiction—they should they increase their effort when the tributions at progressive rates as they are are simply transfers of assets between family Commonwealth increasingly appropriates it accessed would make the tax treatment of members—is no more. The present Govern- into its own coffers? Income taxes—partly super much simpler and much more equita- ment has put emphasis on the so-called un- taxes on saving—are dividing the nation and ble. Introduction of similar saving vehicles derlying Budget balance, which removes undermining its total saving effort. fornew non-superannuation saving would be these transactions. This is more honest. Below is a simple illustration of how taxa- particularly beneficial to lower-income tax- In the past, the Commonwealth concen- tion of private saving boosts the apparent payers who cannot afford to negatively gear trated its genuine above the line expendi- saving performance of the Commonwealth (dissave) into risky investments. Australias ture saving effort on payments to the States Budget at the expense of private saving. Si- savings would be used more efficiently, too. and Territories rather than own outlays. Par- phoning off private saving through taxation On balance, these improved incentives ing back the States housekeeping allowances covers up the real Budget saving effort. If the for private saving would raise national sav- ing, even if, initially, this required a more ca Unscrambling Budget Balance Saving Signals honest exposure of the full extent of public dissaving. Q- Present underlying Grossed up fortax Equals expenditure tax And, finally, the Australian family would co balance basis... on private saving.., underlying balance basis be more united in terms of its national sav- ing effort. Greater Budget honesty would ensure that both public and private sectors pulled their weight, rather than undermin- Ui III _ JL ing each others efforts. This article is based on research commissioned by the Life Investment and Superannuation Associa- titm of Australia Incorporated and the investment Funds Association of Australia Limited. o ® Private saving ED National saving • Public saving 0 Taxation of private saving Boo 0©0H©© MARCH 1997 What does it Mean to be Indigenous—and does it Matter?

KENNETH MADDOCK

Specialrights for specific indigenous groups require difficult conceptual distinctions between indigenous and other peoples.As Ken Maddock shows, the application of the distinctions is bound to be inconsistent and provocative.

HE indigenous movement cestral territories, and their ethnic suffered a brutal conquest by Maori who often presents itself as con- identity as the basis of their contin- arrived on the brig Rodney, thereby, as stituting a Fourth World. ued existence as peoples, in accord- Manuel would put it, using Western tech- The name was popularised ance with their own cultural patterns, nologyto extend and enhance traditional in 1974 by George Manuel, then presi- social institutions and legal systems. life forms. Many Moriori were slaughtered dent of the Canadian National Indian How well does this definition do the and eaten. The survivors were enslaved. Brotherhood, in his book The Fourth job of separating indigenous wheat from In the 1870s, when the Native Land World. Though mainly about Canadian exotic chaff? If it enables indigenous soci- Court adjudicated on rights, the Motioni Indians, it deals also with peoples whom eties to be clearly distinguished from all lost again, for New Zealand judges took Manuel thought similar, such as Maoris other societies, then there might be a the view that 1840—the year the Treaty and Australian Aborigines. basis for advocating a special class of of Waitangi was signed—was the baseline Manuel defined the Fourth World by indigenous rights over and above rights for determining customary land owners. By two features: acommon understanding of available to people generally. (Of course, that time, which marked the beginning of the universe held by many tribes before the question of whether persons who sat- British colonisation, the Maori had be- Europeans arrived; and their subsequent isfy the definition ought to have special come proprietors through conquest and oc- shared experience of colonialism. Unlike rights would remain.) Unfortunately the cupation. Today, of course, Moriori might the Third World, intent on adapting life- criteria used by the Working Group are appeal to the Working Groups emphasis style to Western technology, theAborigi- inadequate. on continuity with pre-invasion times, nal World cleaves to romantic otherness. For example, population movements, meaning the period before Maori con- It rejects Western political techniques; often assisted by force, have occurred quest. The Chatharns by no means repre- [and] it is unable to comprehend Western throughout history. If continuity with pre- sent an exceptional case in New Zealand. technology unless it can be used to extend colonial or pre-invasion times is important, It is plain that pre-colonial and pre- and enhance traditional life forms. which invasion or colonial settlement is invasion are not synonyms. An area may Manuels activities helped lead to the to be chosen? Manuel defined the Fourth have seen a succession of invasions or cola formation of a World Council on Indig- World as a product of Western expansion, nisation. If this is so, even in a country enous Peoples in 1975, which quickly ob- but there seems little logic in treating the with as short a history as New Zealand, tained NGO status with the United Na- arrival of Europeans as the critical event how much more must it be the case nearly tions. Later, the UN established a Work- in history. In tacitly rejecting this limita- everywhere else? Continuity requires a ing Group on Indigenous Populations, tion, the Working Group landed itself with baseline, but competing groups can be ex- which has met annually since 1982. One the problem of identifying the invasion or pected to choose the one that best suits of the indigenous movements aims is to colonial settlement by which the indig- their contemporary interests. have the world body adopt a Declaration enous people of a country are to be distin- The concept of ancestral territory faces on the Rights of Indigenous Peoples. guished from the non-indigenous. New a similar difficulty. The members of every In 1983, the Working Group at- Zealand illustrates the tempted a more elaborate definition ofin- difficulty. digenous people than the one Manuel had By the sixteenth provided: century, voyagers from Indigenous populations, communities, New Zealand had oc- peoples and nations are those which, cupied the Chatham having a historical continuity with Islands, about 870 pre-invasion and pre-colonial societies kilometres east of that developed on their territories, South Island. Their consider themselves distinct from culture developed other sections of the societies now pre- along its own lines in vailing on those territories or parts of the new and isolated them. They form at present non-domi- setting. The people nant sectors of society and are deter- have become known mined to preserve, further develop and to history as Moriori. transmit to future generations their an- During the 1830s, they L1©L!IH©© MARCH 1997 society are located somewhere, and they identity stressed by the are descended from people who also lived Working Group. On somewhere. Human groups wax and wane, the one hand, the sup- split and merge, so there is almost infinite posed characteristics of scope for confusion and uncertainty about indigenous peoples are ancestral territory, even where the situa- also held by others— tion has not been complicated by invad- in the United King- ers or colonists. Different generations of dom, for example— ancestors may have been associated with whom the Working different territories. In the bitterly-con- Group is unlikely to tested Finnis River land claim in the accept as indigenous. Northern Territory, for example, it tran- On the other hand, spired that the ancestors of one claimant even within a suppos- group had moved into country vacated by edly indigenous popu- the ancestors of another group, who had lation—such as the migrated to European settlements. In find- Maori—there may ex- ing that the later occupants better ist differences of the satisfied the requirements of traditional kind which the Working Group wants to people put down roots and come to feel at ownership than the earlier, the Land Com- use to divide mankind into indigenous and home, even though they may still feel an missioner rejected the dogma that an non-indigenous. attachment to some other place, such as Aboriginal group cannot ever lose its ter- The Working Groups definition in- Home for the New Zealander of British ritory. Similar situations exist in other parts cludes one other element. Indigenous descent or Hawaiki for his Maori coun- of Australia and will add to the difficulty populations are at present non-dominant terpart. of determining who holds native title. sectors of society. Unfortunately, this will One would not expect the Working Owing to the shallowness of historical not do the trick of turning bad definition Group to be happy with Mulgans ap- records and oral traditions, however, Aus- into good. Should a population become proach, but something like it can be found tralia is simplicity itself compared to some dominant, as did the ethnic Fijians in Roger Moodys introduction to his com- other parts of the world. through a military coup and a rigged con- prehensive anthology The Indigenous Voice: stitution, or purely democratically through Visions and Realities, published (jointly) by an increase in their numbers, would they the International Working Group for In- cease to be indigenous? Malaysia is a good digenous Affairs. Suggesting that indig- example of a country in which a numeri- enousness might be regarded as beginning cally preponderant population, the Malays, where historical origins (first comings, first has arrogated indigenous status to itself in emergences, dreamtime) and individual order to dominate groups which have as perceptions (being of the people) coa- good or better claims to it. The families of lesce, Moody then admits that this some non-indigenous Chinese, for in- cannot be the whole story. Among the stance, have lived 600 years in Malaysia, contemporary communities which can while some indigenous Malays arrived rightly be calledaboriginal, many do not from Minangkabau in present-day Indo- trace a primogeniture ... on the lands they nesia only 150 years ago. now occupy. So why are they demanding If the Working Groups approach to `special priorities, rights and recognition? definition is unhelpful it may be worth Perplexingly, it is because they are in their looking again at the word indigenous. It present place (or demanding a present place The Working Group also stressed that can obviously mean the original inhabit- from which they have been uprooted) at indigenous peoples have ethnic identities, ants of the land, but it can also mean the this point in time. which apparently they determine for people born in a particular region. The To claim indigenous status can thus be themselves. Their sense of identity sepa- latter, more extended, meaning allows it a politico-legal move. But such a strategy rates them from the rest of the population, to cover peoples whom the Working will succeed only if the persons at whom while making them feel as one with their Group wants to keep apart. Once again, it is aimed accept that assertions of indig- pre-colonial or pre-invasion forebears. Re- New Zealand offers an example. enousness are factually correct and mor- cent unpleasantness over entitlement to In his 1989 book Maori, Pakeha and ally significant. They may be unimpressed use the nameMacedoniashows what po- Democracy, the political scientist Richard if they cannot see the basis of the distinc- tent emotional forces ethnic identity can Mulgan defined the culture of the Pakeha tion between communities seeking spe- release. In any case, how seriously should (primarily the descendants of British set- cial priorities, rights and recognition and we take a status that people impute to tlers) as the branch of European culture other communities in the same country. themselves? Can it ever lend legitimacy which is native or indigenous to New It is likely that Europeans at least will to demands made on others, or is it analo- Zealand. He pointed out that to restrict be more likely to accept demands made gous to a deluded mans belief that he is indigenousness to the descendants of a pre- by or on behalf of peoples who can be held Napoleon? How many people today give colonial population `freezes time at the out to be aboriginal (cab origine, from the credence to the claims of Aryan identity point of original settlement and denies beginning)—perhaps because of the that used to be made so vociferously by that the descendants of colonial settlers legacy of Romanticism. This disposition German Nazis? can ever be at home in the country their gives an advantage to Amerindians, Abo- Clearly there are two problems with ancestors colonised. In this sense, indig- rigines and Maori, for they are generally the criteria of continuity, territory and enousness connotes a process, by which thought to be descended from the people

0©L!AH©© MARCH 1997 who were occupying those countries long before the arrival of racially and culturally distinct outsiders from across the sea. in Howards other countries, however, the situation is Way less clear-cut and may be muddled in the extreme. JOHN HYDE No doubt the Working Group would wish to restrict the use of the wordindig- enous, but where should the line be Just over a year has passed since John Howard and the Coalition drawn? Already it has been embarrassed swept into power. John Hyde assesses the first year and whether by a delegation of Afrikaners. It does not wish to accept them, but has no princi- `Honest John has lived up to expectations. pled basis on which to reject them. The difficulty cannot be swept aside by suggest- OWARD has stated that he circumstances. Not so understandable ing that precision of meaning is unimpor- wants to be a reforming Prime were promises to retain Medicare, water tant to indigenous ideologues. What the Minister. That can mean only down labour market reform and retain word means is made critically important that he intends to make Aus- several anti-competitive features of the because of the claim that people have, or tralia a better place structurally. But, not economy. Nevertheless, there was still ought to have, special rights simply by vir- even a year into his first term, he finds room for a reformist government. I ex- tue of being indigenous. himself criticised for weakness, tardiness pected less additional backsliding and a The latest Draft Declaration on the and being side-tracked from the main is- different approach to Senate management Rights of Indigenous Peoples sets out an sues. Although his critics rarely make due that made greater use of the threat of a ambit list of claims which, if accepted, allowance for democratic processes and double dissolution while the mandate and could have radical consequences for the the need to carry public opinion, they are popularity made it feasible. countries affected. For example, Article 27 not just carping. Strategies to make the Against this background—and over states that indigenous peoples are entitled most important reforms possible are not 8 per cent unemployment—failure to to the restitution of the lands ... which evident in, for instance, the first term re- make substantial progress toward a more they have traditionally owned or otherwise port he gave himself. It compares unfa- equitable and more efficient labour mar- occupied or used, and which have been vourably with his `Headland speeches ket is a big disappointment. Howard es- confiscated, occupied, used or damaged delivered before the election, and the tablished his reformist credentials with without their free and informed consent; `agenda for next year is not, as he claimed, labour relations. In 1992 he had an- compensation is due where restitution can- clear. The section in the report card deal- nounced an industrial relations policy not be made and it will, unless they freely ing with export performance was actually that provided for: agree otherwise, take the form of lands, mercantilist in tenor. • removal of restrictions on working territories and resources equal in quality, Gun laws and changing from consti- hours; size and legal status to what was lost. This tutional monarchy to republic are, as • an end to compulsory arbitration; would provide an excuse for throwing his- Rupert Murdoch asserted, side tracks that • termination of awards except where tory into reverse, for precipitating a messy will not much affect the lives of our chil- the parties agree to be bound by them; march backwards which could have no dren. On the other hand, the race debate and logical stopping place. is not. It must be asked, however, whether • voluntary membership of organisa- Scepticism about the pretensions of an Howard did not get it about right. Surely tions (this last made effective by end- international movement does not require he was right not to be led into statements ing closed shops and abolishing un- rejection of local claims by particular peo- that would limit his options for dealing ion preference clauses, minimum ples who may choose to call themselves with tensions that were evident long be- numbers of union members, and the indigenous (although without that self-de-, fore Hanson, and for rebuilding the im- `conveniently belong provision of scription their claims might be less com- migration consensus. He was right not to awards which protects unions from pelling in todays climate of opinion). lend prime-ministerial status to the me- effective competition). What has gone wrong is that Canadian dia beat-up of what should have been an Taken together, these measures would Indians and others who resemble them are unimportant speech. have made possible the sort of reduction far from typical of all the peoples who in The main-track issues that do not in unemployment that New Zealand has some sense could be described as indig- seem to have been sufficiently addressed enjoyed (down from 10.9 per cent to 6.3 enous; yet they have made the running in- are: labour market reform, micro-eco- per cent so far). ternationally and created a movement in nomic reforms that increase domestic and Their gradual erosion, culminating in their own image. In doing so they have international competition, the dismal sav- Reiths capitulation to Kernot, that, propagated a charter of rights which may ings performance, taxation, Common- among other things, retained theconven- have a limited application in countries like wealth–State financial relations, and iently belong clauses, is not excusable. Australia and Canada, but which, if ap- health. Howard has, however, gone some The unemployed deserved better. Not, in plied fully and universally, is likely to fuel way toward rebuilding the social cohesion the long run, do I believe it is politically endless fantasy and conflict. and the respect for political leadership expedient. The concessions may deliver that will allow him to build a consensus peace in our time or—more likely—they Kenneth Maddock is emeritus professor of for reform, if he has the political courage may do for Reiths political career what anthropology at Macquane University and has to do that. sacrifice of the Sudetenland did for written several books on anthropological and During the election campaign the Neville Chamberlains. In which case, we legal topics. Coalition promised to eschew major tax can be sure that Costello will be more BOB reform. This was understandable in the than willing to play the role of Churchill ► 0©0U©© MARCH 1997 To qualify, however, he will have to make Importantly, too, just by being civil, should not allow Ministers, such as Moore a good fist of tackling the savings prob- Howard has achieved a much more re- and Wooldridge, who are too close to rel- lem—and his new tax on superannuation laxed parliament and society. Beazley also evant vested interests for the good of the was not a good beginning. Waterfront deserves credit here. country, to distance the government from reform gives Reith his second chance and, Unlike Fraser in his first two terms, sound advice. again, New Zealands achievements offer Howard does not have the numbers in the A steady flow of informed public ad- him a yardstick. Senate. Unlike Hawke, he does not have vice is essential. Even the Democrats and an Opposition that will support economic Greens may be persuaded by some of it. reform. But, unlike Keating, he does have There is, moreover, too much crossing- the possibility of wooing two independ- over of interests for the minor parties to ents to give him the necessary Senate harvest the votes of vested interests pre- numbers. His popularity, so far, with the cisely. One not uncommon voter may public and other MPs is also a huge asset; want cheap CDs and protected rain for- he should use it to convince them of the ests, another protected cars and protected rightness of the reforms his knowledge of CDs, while a third wants logged rain for- public affairs advises him are necessary. ests and cheap cars. No three policies can He is thus in a position to lead. But to be appeal to any of them, and minor parties a winner he needs to take the ideas and problems are more complex and difficult authority of reports such as that of the than the example. Even they must there- Commission of Audit, the Productivity fore convince at least some voters that Commissions reports on cars and health they are more than just spoilers and serv- care and the coming Wallis report and ants of interests. run with them. This he has signally failed Behind-closed-doors negotiations to do. would seem in the longer run to be bad Howard may have a blind spot on tactics. The Greens and Democrats There are other straws in an ill wind. Commonwealth–State finances but he should be compelled to state by what prin- Cabinet backdowns to vested interests, does not need to be educated from ciples they oppose the government—they such as the decision to extend the ship- scratch. He probably already knows that cannot cite the vested interests. The en- building bounty to the end of this year, community rating is inconsistent with any suing debate will educate the public, force augur badly for micro-economic reform sensible way to run an insurance scheme, them to face their own inconsistencies in general. The big issues here are tex- but making himself the arbiter of premium and avoid conferring undeserved status on tiles, clothing and footwear, and motor increases was inconsistent with any policy them. Meanwhile, important Bills that vehicles. If Howard does not lift the bur- approach. He once knew that much more may trigger a double dissolution should den of over-priced vehicles from small than he has so far achieved is required to be presented twice to the Senate. businesses he has no credible concern for reform the labour market. He once knew One day Labor will return to power. them. If he does not lift the burden of that Australia needed a broad-based con- The only way that Howard can be sure over-priced textiles from hisbattlers, his sumption tax akin to Keatings Option C. that he will not again suffer the embar- rhetoric there too will be shown to be The essence of political leadership is rassment of watching it make the liberal- hollow. explaining and inspiring. It is about de- ising reforms the Coalition was afraid to Nevertheless, the Howard Govern- veloping strategies to make good policies make, is to lead now. Of course leader- ments, as yet short, reformist record is not into good politics. It is about using prime ship entails political risk, but as another all so bad. It has budgeted to eliminate ministerial authority to outface vested in- Prime Minister observed, `Life was not the budget deficit over the life of the par- terests in trade unions, medicine and pro- meant to be easy. liament—if the economy continues at a tected industries, to take just three par- reasonable pace. Given, however, that it ticularly egregious examples. Agree or inherited a budget $10 billion in the red disagree with Kennett, he has shown that at the point in the business cycle when it people can be inspired to accept tough should have been that much in the black, decisions—in short, that political leader- balance is not enough. There is no op- ship is possible. tion but to tackle the big ticket items It is easy to find examples of when (again): middle-class welfare, subsidised even strong political leaders have found tertiary education, Medicare and waste- leadership impossible or, as is more often ful bureaucracy. And there are thousands the case, not worth the authority that more modest budget items that might well would be squandered on an issue that is be pruned back or cut out—are Mr not critical. They, nevertheless, do not Howards battlers enthusiastic about their react like improperly-propositioned vir- compulsory donations to sport, for in- gins when presented with politically un- stance? palatable but correct advice. If allowed to mature, the toughest issues can have Howard has continued Keatings pri- John Hyde entered Federal Parliament as the their day and, if they cant be supported, vatisation programme, selling one third Liberal MHR for Moore in I974, and held the seat of Telstra. Very much more importantly, they can at least be dealt with in terms until I983. He then became Executive Director of his government is enacting a Charter of that do not foreclose options. Under ex- the Australian Institute of Public Affairs and was Budget Honesty that will prevent, among ceptionally difficult circumstances, Executive Director of the IPA from 1991 to 1995. other rubbery figuring, _the proceeds be- Howard showed that this was so during ing used as a political slush fund. the height of the race debate, and he naca

12©130©© 6 MARCH 1997 New Zealands Reforms: The Next Stage

MICHAEL JAMES INTERVIEWS SIR ROGER DOUGLAS

MJ Its about a month since New Zealands referenda, which could recommend a re- But New Zealand First wasnt calling for general election of 12 October, and no new turn to the previous first-past-the-post change. I think the labour market legisla- government has been formed. Is it too soon voting system or even something like tion is likely to survive, perhaps with mi- to draw any conclusions about the Mixed Australias preferential system. But the nor amendments. Member Proportional (MMP) voting system people will want to see how the new sys- used at that election? tem works before they vote it out. MJ Some years ago you said that reforming governments tend to lose support if they give up RD Probably. The only real conclusion MJ The big issue raised by the election is on reform. Do you think the Bolger Govern- that one can draw so far is that the next the fate of the economic reforms implemented ment might have been re-elected with a major- government, whoever forms it, is going to in New Zealand over the last dozen years or ity had it been more reformist since 1993? spend more money. The players are keep- so. Are you confident that the essentials of RD I think they really stopped being a ing very quiet about what is being dis- the reform programme will survive under the cussed but there are indications, and cer- next government? reformist government at the end of 1991, tainly some rumours, including some that and in my view that certainly added to I believe are well-founded, that even the RD Im confident that the programme the perception that this was a government National Party is prepared to spend up big will in large part remain intact. But, as I that had lost its way. It was a do-nothing in some areas in order to remain in said earlier, the next government, who- government that enabled the other par- government. ever forms it, is going to increase public ties to come forward and attract attention spending. The enormous fiscal surplus we with their proposals for increased public MJ Is it possible that the present Bolger care- have at present is likely to disappear. spending. Had the Bolger Government taker government could become a minority actually tackled some of the remaining MJ How would that affect the inflation tar- government by default? problems, particularly in the social policy get range of 0-2 per cent a year pursued by area, it may well have been returned with RD That has always been a possibility, the Reserve Bank? but I think only a marginal one. In many more seats than it has at the present time. RD Its certainly not going to help it. ways its logical for Winston Peters, the MJ Would you say that experience around And it puts pressure on the Reserve Bank leader of New Zealand First who holds the the world supports your belief that reforming to keep up interest rates and potentially balance of power in the Parliament, to al- governments succeed? low a minority government to continue the exchange rate as well. Don Brash, the and to ensure that it consults with him Governor of the Reserve Bank, has RD I think it does, in many ways. In Vic- on all major issues. That would put him warned against big expenditure increases toria, the Kennett Government is doing in a very strong position. But his prefer- by the incoming government; but unfor- quite well. One could argue about the de- ence quite clearly is to become a member tunately I think its likely to happen. The tails of what it has done, but it has tack- of the next government. climate of opinion is pushing government led the problems with a lot more vigour to spend more, particularly in the social than any other of the Australian govern- MJ Is it likely that New Zealanders will want policy areas. ments, including the federal one. In to change the MMP electoral system when it Canada, the only government that is re- MJ You imply that New Zealands Fiscal Re- comes up for review in a few years time? ally starting to tackle its problems is the sponsibility Act would not be a very effective provincial government of Alberta, whose RD I think its very doubtful that they constraint on public spending. will change it. A select committee of Premier Klein is probably the most popu- parliamentarians will review it and hear RD The Act requires the government to lar political leader in the country. In the evidence. But a large number of parlia- indicate what its fiscal policy is, but it end, the voters will support someone who mentarians have been elected under MMP doesnt actually prevent it from increas- has the guts to make the necessary who simply would not be elected under ing spending. changes. any other system. Its highly unlikely that MJ Is the Employment Contracts Act un- MJ What are the main outs tanding items they will recommend a change of system. der threat? on the reform agenda in New Zealand? MJ You are referring to the list MPs who RD We wont know until we see what RD Quite clearly, the social policy areas are appointed by their parties rather than to changes are proposed. But you have to re- like health, education, pensions, accident the constituency MPs? member that the left got a hiding at the compensation, and the various welfare RD Absolutely, and also to some MPs election. The Alliance and the Labour benefits. These areas contain a great deal from the smaller political parties. A refer- Party, which were calling for major of protection and monopoly power, but endum could be called on the issue under changes in this area, each lost between 7 they remain virtually untouched by the New Zealands system of citizen-initiated and 8 per cent of their electoral support. reform programme.

L1©L!AU©© MARCH 1997 MJ You are a strong advocate of compul- lieve the government is going to be par- really avoid paying it. New Zealand has sory superannuation. How would you make ticularly efficient at it, but it can make an enormous fiscal surplus at the moment. a case for that in a free society? the money available to private-sector However, I believe we shouldnt reduce groups, including the churches, who the rate of GST But we should further RD The point is that we will have a big would be prepared to take on this respon- reduce personal tax. free-loading problem if we dont go for sibility. At least we would have a way of MJ Is there a danger the GST can make it compulsory superannuation. Im suggest- knowing whether the system was work- too easy far governments to collect revenue? ing that people should be compelled to ing. If a mentor were looking after six save up to an amount which will give them families, and they were all off welfare de- RD That argument has a degree of merit. a pension equivalent to what the govern- pendency after three years, we would But its a pretty negative argument in that ment gives them now. There should be know that the mentor was a suitable per- it assumes that politicians cant be trusted: no compulsion to save beyond that point. son to undertake such work. If the six fami- they will somehow spend all the money a Without compulsion, some people dont lies were all still on welfare, there would GST brings in. There is some truth in that. save enough and then receive benefits be a problem. But its also true that a GST can contrib- from the taxpayer, even though theyve ute enormously to creating a well-bal- MJ In the United States there is a consen- had just as much chance to save as every- anced tax system. A GST would improve one else. Theres no fairness in that. With- sus that welfare policy has gone wrong and Australias economic performance by needs Is there a similar consensus in out compulsory saving, compulsory taxa- reform. making it possible to reduce personal in- New Zealand? tion has to do the job. come tax, thus enhancing economic in- look to MJ In your new book Completing the Cir- RD Many New Zealanders still centives. the state as their saviour in health, edu- cle, you say that an underclass of unemployed MJ Would you recommend stronger focal cation and welfare. There is a big constitu- and welfare-dependent people is emerging in responsibility legislation in Australia to con- ency of people who understand that the NZ... tain public spending? system is rotten and has to be changed. RD Id say that that is taste throughout But a huge group of people feel vulner- RD I would do that as well. And follow- the developed world. able: people in retirement, or who have ing New Zealands example with accrual reached middle age but havent saved accounting and appointing CEOs to run MJ ... and you also say that economic enough. These people are fighting to government departments would also help. growth is unlikely to help them. Why so? maintain the welfarist status quo. On this MJ A final question. Do you intend ever to topic, New Zealanders are divided not by RD In New Zealand, the number of jobs retire from public life? philosophy but by age. has increased since 1991 by well over RD Ive almost retired already. I will cer- 200,000. But some people are ill-equipped The increase in social welfare spending tainly remain President of ACT New Zea- and often unwilling to take on the jobs that we are likely to see over the next three land for some time to come. Im not go- that have been created. They regard liv- years is not going to help. We will get a ing to do as many speeches or things of ing on welfare benefits as their chosen life- return of only ten or 15 cents in the dol- that nature, but Ill probably egg a few style. lar. Health care will get marginally better, people on from the sidelines. and perhaps education will too, but at MJ In your book you suggest establishing a huge cost. But social welfare will deterio- MJ Thank you very much for talking with system of mentors to control the welfare budg- rate as more and more people are encour- IPA Review. ets of dependent families; those families that aged into welfare dependency. Crime and refused to be managed by mentors would have family breakdown will get worse. to accept benefits in kind rather than cash. How far do you think public poli cy can affect MJ What is your opinion of Australias the problem? Does it require a moral change? Howard Government? Do you have any con- fidence tat it will achieve the breakthrough RD Ive always said that this is not a real on economic reform that New Zealand has solution. But its better than what weve achieved? got. We have to be concerned about the growth of dysfunctional families, which RD My observations so far suggest that pace of any reform is going to be slow. It are responsible for 80 per cent of all crime. has not yet been equivalent to what it was A child born into a dysfunctional family in the first year or two under the Hawke is 100 times more likely to become a seri- Government. Unfortunately, it looks as if ous offender than a child born into the the Liberal Party has ruled out the possi- average New Zealand family. We have just got to stop providing support payments for bility of doing certain things. teenagers to become mothers and then MJ A much-debated area of reform in Aus- providing them with housing. Without tralia is taxation. New Zealand has had a Sir Rougar Douglas (pictured above) was Minister those incentives, 80-90 per cent of the goods and services tax (GST) for ten years. for Finance in the Lange Government and architect problem would simply disappear. In addi- In the light of that experience, do you think a of many of its major reforms. He is now Party tion, we need to change the regulations GST is a good idea? President of ACT New Zealand governing adoption. But that is a long- RD Absolutely. Its proved to be a very Michael Janes is the Editor of Agenda, a quarterly term answer. worthwhile tax. It certainly enabled us to journal of policy analysis and reform, published by The only way to help the tens of thou- reduce personal taxes. It probably made a the Centre for Applied Economics at the ANU. sands of families who fall into this category major contribution to getting the fiscal now is on a one-to-one basis. I dont be- situation in better shape. People cant 00M

MARCH 1997 tC R. (Bert) Kelly, 1912-1997

TONY RUTHERFORD

T is far from easy to bureaucrats, the tenets of old- write an apprecia- fashioned political economy tion of a man like were more or less a dead letter. Bert Kelly. On the It was possible for advocates of one hand, his subversive wry- protection to use all sorts of jus- ness persists, hovering like the tifications for their arguments. Cheshire cat, forbidding all the The politics of the day—the easy pomposity and flowery dominance of the Country Party eulogy. And on the other in trade policy, especially—con- hand, it is distinctly difficult spired with do-it-yourself eco- simply to write about his place nomics to produce a comfortable in history, which now seems to consensus: a sensible tariff be again uncertain. policy was essential to protect Kelly worried about his- the economy and employment. tory—not about his place in After Kelly, all that changed. the history books, but about All that comfortable rhetoric whether or not his crusade was was exposed as a fraud, and those in the end successful, about who now push it in the public whether he had been a force debate still know that it is a for historical change. He of- fraud. ten quoted Arthur Hugh Only a person of extraordi- Clough: nary qualities could have achieved that. Say not the struggle naught Those who want to know more availeth, verbal abuse. The rules of the game— about the man can read John Hydes The labour and the wounds are the old game now being played all over obituary in The Australian, or Ray Evans vain, again by the government and the car eloquent eulogy. Or they can read Kellys The enemy faints not, nor industry—havent much changed. As he own sketch in his One More Nail (Brolga faileth, wrote: Books, Adelaide, 1978)—a book worth And as things have been, Any MP representing an area which reading for its own sake, find for the fun things remain ... contains [a protected-industry[ fac- of it. A full biography is in the writing, tory has a very easy task in mobilis- and it is to be hoped that it will appear As far as history is concerned, it is a ing a rush of sympathy for the af- soon. routine irony that he died as a new Lib- fected factory. All he has to do is to Perhaps the biography will explain eral Government was wrestling with yet arrange to get the local TV station how Kelly, with not much more than a another car plan. Equally ironic was the down at the closed factory gates and standard secondary education, and a speech, given on the same day as his he is regarded as a local hero. And if completely traditional farming back- funeral, by Senator Robert Hill, a sen- he is really cunning he will have a ground, could have done what he did. ior minister from Kellys home State, in wife of one of the displaced work- It is so often remarked in Australia that which he promised his Adelaide busi- men there, with her apron on and a our heroes and prophets tend still to ness audience that the decision on pro- couple of bare-footed kids in hand. come from the bush. Theres usually tection for the car industry would be But you can imagine how difficult it nothing particularly mystical about this. made on commonsense grounds and would be to show on the screen the Farmers do, as Kelly often remarked, without reference to what he sneeringly benefits that follow a low protection have a lot of time to think; and they are called ideology. policy, with more people finding acutely close to their livelihood. To Here is a code that Kelly knew well: employment in a more efficient quote one of Kellys favourite bits of ideology means a simple bit of barely economy. Kipling- refutable economics, and common Does this mean that nothing, then, sense means a supine retreat in the face has changed at all?—that it was all a sad The toad beneath the harrow of any lobby group which uses cheap, waste of time? knows emotive and inaccurate arguments Without hesitation the answer Exactly where each tooth-point about saving jobs. The language has, comes—No. goes; of course, matured since Kellys day: to When Bert Kelly started his crusade The butterfly upon the road describe someone as economically ra- against tariffs in the 60s, with the sup- Preaches contentment to the tional is now to commit pretty serious port of only a handful of economists and toad.

1©L!JU©© MARCH 1997 -9 That goes only part of the way to- ward explaining his achievement. It does not explain how it was that The Workplace he wrote so well, wrote about essentially technical matters in such a clear man- ner. Rereading his columns, one is con- tinually struck by the absence of the jar- gon; how often he depended on the apt Relations Act metaphor. Kelly understood precisely enough economics to explain his subject without recourse to the language of eco- nomics. It was, indeed, the language of old-fashioned political economy: in just plus ça change... such a way might our intelligent forebears have explained the repeal of the Corn Laws—absolutely intelligible to virtually ROBERT SKEFFINGTON any reader. Nor does it sufficiently explain the underlying strength of his writing: the knowledge that, although economics was In an IPA Backgrounder published last year, Robert Skeffington put forward a useful accomplice, what was at stake was some criteria for measuring the worth of the Governments IR legislation. not economic theory, but the morality of Here he assesses the Act as it eventually passed through the Senate. a governments economic actions. In a very real sense, the Australian culture of protection marked a return to an eight- HE Governments new The World Competitiveness Yearbook eenth-century style of government by Workplace Relations Act is 1996 (IMD) ranks Australia an undis- grace and favour, so vigorously rejected deft politics, but it may make tinguished 30th out of 46 countries in by good nineteenth-century liberals. little difference to the day- terms of industrial relations perform- All this was cast not in a stem nine- to-day industrial relations of Australian ance, defined as the productive teenth-century mode, but in a style which workplaces. relationship between employers and Ray Evans aptly compares with Steele The Governments starting-point employees. It is interesting to note that Rudd and C. J. Dennis; always using his was to base its reforms on the need for countries such as New Zealand and cast of characters—pragmatic and pushy higher wages and improved productiv- Chile, which have recently embraced Mavis, blunt no-nonsense Fred, and ity—an exemplary objective and a sig- fundamental market-oriented reforms, slightly superior Eccles. Kellys wit and nificant paradigm shift for Australian were ranked 8th and 11th respectively. humour—often directed at himself— governments. To get his changes If our firms are to be internation- saved him from being a boring crusader, through the Senate, however, Industrial ally competitive, their productivity per- perhaps enabled the success of the cru- Relations Minister Peter Reith had to formance must improve, and in order sade. Everyone will have their favourite water down what were already very to unlock this productivity, substantial passages. Some will always remember his modest proposals for reform. The result workplace reform is needed. line on a former Prime Minister: is that many employees and employers Although the legislative framework `Malcolm Fraser is not notable for his wont be affected by the legislation. has now been changed, we cannot be- sense of humour; if you see him smile you The Act appears to be based upon come complacent, and assume that the know that it is either wind or he has been the deluded belief that Australian in- whole system has been fixed. Obvious working on a joke for a week. Or more dustrial relations are better than they shortcomings of the new Act include subtly:... the Jim Killen I used to know are—while the reality is that many of the facts that: was no ones lap dog. It is true that he Australias key export industries are • The Industrial Relations Commis- would rather orate about economics than bedevilled by poor workplace produc- sion still retains a significant role, think about them but that is different tivity. the tribunal being vested with re- from obeying his masters voice. Of If you actually set out to try to sponsibility for the vitally important course, and not least, the wry wit made sabotage the Australian economy by award simplification process; him a delightful companion. inflicting unproductive workplace • Trade unions are still accorded It remains only to say that we must arrangements on our most significant special privileges, including the mo- all be grateful for his life and his work— industries, you couldnt do much better nopoly coverage of award employ- it was, above all, a fully justified life. The than the present situation. Industries ees; Clough poem continues: such as coal, meat-processing and the • Although the Government has at- waterfront immediately come to mind tempted to improve the previous For while the tired waves, as sectors that are critically important Labor Governments unworkable vainly breaking, for the Australian economy, yet their unfair dismissal laws, it has fallen Seem here no painful inch to industrial relations are often, justifiably, short of scrapping them; gain, deemed to be basket cases. • Due to the reliance on the corpora- Far back through creeks and Australias industrial relations sys- tions power of the Constitution, inlets making tem is still one of the most highly provisions in the legislation such as Comes silent, flooding in, regulated in the world, despite years of individual contracts are not ex- the main. U130 urging that the system be changed. tended to the unincorporated sec-

0©00©© I0 MARCH 1497 tor, which includes many small busi- finger on the phenomenon that many trial relations. This will entail rejecting nesses. business people are now experiencing: industry-wide wage agreements pre- What the Government has done is that is, although sales volumes may be sented to them by trade unions, but also to provide parties with increased improving, prices are not increasing as appealing directly to the hearts and choice. This range of choice extends to they had in the past. minds of the workforce to achieve sub- the type of agreements and the remedies Many firms are now facing this re- stantial improvements in productivity available in case of industrial disputa- ality, and if they do not improve their within their particular enterprise. tion. management of costs, it will eat straight This process can start by firms genu- The Parliament should have done inely using the increased choices in the more—but it didnt. So it is now up to Workplace Relations Act. This includes individual employers and employees to using individual contracts, establishing work together and fix their own prob- enterprise unions, and limiting disputa- lems. Mining giant RTZ-CRA has tion by holding unions responsible for proven that if workers and management their actions. co-operate in improving their But some employers will use the leg- workplace then both benefit through islation as an excuse for doing nothing, increased wages and higher output—de- claiming that it ties their hands. It is spite obstacles such as legislation, tri- important that these companies are not bunals and awards. let off the hook. Industries such as the What we are now seeing in Austral- waterfront will only improve if the em- ian industry is the creation of two ployers start using the law as a stepping streams: one has companies who wish stone and not a straitjacket. This will to be innovative and not be bound by require Australian management signifi- the constraints set down by govern- cantly to lift its game. ment; and the other stream has compa- In tandem with this, we also have nies who do little more than work to keep pressure on the Government within their comfort zone and then and Parliament for further legislative complain about the system. reform. But in the meantime, individual RTZ-CRA is an example of an in- workers and employers will need to take novative company, but there are far too greater responsibility for the perform- many lazy ones around. ance of their workplaces. It goes with- The distinction between the two out saying that the Industrial Relations streams is not just about industrial re- Commission will need to improve, given lations. It is about the ability of Aus- that it has proven itself incapable of tralian firms to compete in the new in- implementing reforms in the past. ternational economy. into their profits. Brokerage house What then is the industrial relations The well-respected Chairman of County NatWest estimates that the reform message to employees and em- Pacific Dunlop, Mr John Gough, has wages push in the last 18 months has ployers?—just do it. described the environment of trade lib- sliced approximately 1 percentage point eralisation, low inflation and increased from the corporate profit share. Robert Skeffmgton is an Assistant Director at the National Farmers Federation. competition as producing `profitless In order to deal with this, firms will prosperity. Here Mr Gough has put his need to reclaim the initiative in indus- 00L

170-IT- Yo U RS ELF IN 7USTR1J L RELAT1 O N PLAN

jeRE I

0L!I0 ©© MARCH 1997 Black and White

RON BRUNTON

The ATSIC rather than their supposed constituents. Certainly, some worthy people have Elections been elected to the regional councils. There are indications that a significant number of Aborigines with a good track record in small business were successful, and this would be N 12 October last year, Abo- a positive sign. Even more positive is the rigines and Torres Strait Island- appointment of Gatjil Djerrkura as chair of ers voted to elect 375 regional ATSIC. councillors for the Aboriginal But any cheer about these develop- Dand Torres Strait Islander Commission ments has to be tempered by the fact that a (ATSIC), the major policy-making and ad- number of people with a bad track record ministrative organisation for indigenous in ATSIC and elsewhere were also elected. Australians. This was the third election Just as depressingly, some prominent reform- since the body was established by the Hawke ers, such as Sharon Firebrace and Graham Government in 1990. This figure is little higher than the per- Atkinson in Victoria, failed to win re-elec- The Electoral Commission, ATSIC, centage of Aborigines who told the ABS tion. The new Victorian state commis- and other indigenous organisations put a 1994 Aboriginal and Torres Strait Islander sioner, Geoff Clark, interpreted the elec- substantial effort into encouraging Aborigi- Survey that they do not recognise any spe- tion results as reflecting a national swing to nes to participate in the non-compulsory cific area or region as their homeland. If it the left in Aboriginal politics. Despite his poll. Large advertisements appeared in ma- is reasonable to entrust the administration good sense and considerable ability, Gatjil jor newspapers on voting day. A number of and direction of Aboriginal affairs to a body Djerrkura will find it difficult to place his prominent Aborigines urged a high turn- to which little more than one in four Abo- stamp on ATSIC to the extent that would out, arguing that it would send a message to rigines feels any commitment, perhaps it be required if his views about economic self- the Howard Government that indigenous might also be reasonable to base native ti- reliance are to find fruition. Indeed, the very Australians were angry with reforms and fi- tle and land rights policies on the attitudes concept of ATSIC expresses notions of col- nancial cutbacks to ATSIC. of the one in four Aborigines who has no lectivism and separatism that do more to So how did Aborigines and Tones Strait attachment to a particular home area. subvert than to assist the individual and Islanders respond to their leaders call? ATSIC has a stock response to the ar- family-focused approach that is the key to To hear ATSIC tell it, the message was gument that the low voter turnout shows progress in overcoming the high rate of eco- unequivocal, which shows how easy it is to that there is little justification for continu- nomic and social disadvantage amongst put a spin on statistics. In its October issue, ing with the organisation. It compares the Aborigines. the ATSIC Reporter, the staff magazine for ATSIC figures with those for local council Politically, it would probably be impos- the Commission, headlined the story on the elections, which in some States are not sible for the present Commonwealth Gov- polling with96 Regional Council elections compulsory. The ATSIC Reporter, for in- ernment to move toward the abolition of see increased voter turnout. The story noted stance, noted that in Western Australian ATSIC. Nevertheless, there needs to be that there had been an increase of 8.7 per local council elections the turnout varies widespread discussion about whether there cent over the 1993 election turnout. between 6 and 41 per cent. can be any justification for the organisation The media generally accepted this line. But local councils do not form electoral to exist—and indeed, whether State and The Melbourne Age, for instance, quoted colleges to choose national leaders. With Commonwealth governments should con- the State manager of ATSIC as responding ATSIC, the thirty six regional councils are tinue with distinct departments of Aborigi- to criticisms with comments that there has organised into eighteen zones, and the nal affairs, as opposed, say, to specific Abo- been a steady increase in voter turnouts councillors from each zone meet to elect a riginal sections or programmes where these since ATSICs inception in 1990, allowing commissioner to represent them. These may be appropriate within mainstream de- the organisation to become increasingly rep- eighteen representatives, together with the partments. In the long run, the only kind resentative of indigenous people. Government-appointed National Commis- of self-determination that ATSIC is ever In fact, while the number of voters has sioner and the Chair, form ATSIC. likely to foster is the political kind, in which indeed gone up, that growth is at a substan- Furthermore, an equally poor or worse Aborigines obtain a collective status which tially lower rate than the corresponding voter turnout in local government elections differentiates them from other Australians growth in the number of Aborigines and does not mean that all is well with ATSIC. to an even greater extent than is the case at Torres Strait Islanders over the age of 18 It is just as legitimate to suggest that most present. years. So ATSIC is becoming increasingly people feel as indifferent about their local Dr Ron Brunton is Director of the unrepresenta tive of indigenous people. In councils as Aborigines obviously do about Indigenous Issues Unit within 1993 the turnout was just over 32 percent, ATSIC. Whatever the explanation for this the institute of Public Affairs. whereas in 1996 it had dropped to under 29 indifference, or even hostility, it is more per cent. likely to be the fault of the organisations 012

a0©130©© 12 MARCH 1997 THE IPAS IMMIGRATION DEBATE The IPAs Immigration Debate

MODERATED AND EDITED BY JIM BYTH

N 27 November 1996, the IPA relatively low—although even a steady net intake Jim Byth, the moderator of the IPAs Immigration brought together seven prominent of a minimum 50,000 annually would produce a Debate, is a Melbourne- Australians to exchange opinion on 23 million population in 30-plus years. He also based public affairs O current government migration policy and has some salutary warnings from recent research consultant. desirable future policy—Dr Bob Birrell, Victor Borg about the unintended consequences of govern- Professor Peter Lloyd, Terry McCrann, Michael ment planning in both family reunion and skilled MacKellar, Phil Ruthven and Theo Theophanous, MLC. migrant (especially engineer) intakes. This heavily-edited transcript presents an Victor Borg expresses cautious optimism overview, with some selected highlights of individual that Australia might get back to a functionally position statements and subse- quent discussion on immigration policy. The debate was illuminat- ing good-natured and construc- tive. We regret only that we do not have sufficient space to publish it in its entirety. Out of the seven contributors, we have chosen three—Birrell, Ruthven and Theophanous—as being representative of clear points along the immigration spectrum. (The full text of the transcript is available from the IPA,) Jim Byth introduces the debate.

Current policy, announced by Minister Ruddock in mid-96, is for an annual intake of 74,000, with emphasis on bipartisan approach to immigration, and a business and skilled streams.The ministerial press triennial rather than annual target. He thought Under the previous release stated: an annual intake of 100-120,000 defensible and government the The shift in emphasis is also due to the high achievable. He makes a strong (and generally Preferential Earn iIy and sustained levels of unemployment in the under-discussed) point about Sydney as the hot Category carne to dominate the migra- Preferential Family category. Under the previous button area of greatest migrant impact. tion programme in government this category came to dominate Professor Peter Lloyd sees diversity as the an unsustainable the migration programme in on unsustainable fundamental criterion for selection, and a manner manner. 100,000 annual intake as feasible. He strongly We have acted to ensure Australia obtains supports more humanitarian and refugee optimal benefit from a non-discriminatory migration.The family reunion systems had been programme which balances our social, humani- wrongly permitted to grow unduly. Consider tarian, economic and environmental ecological concerns by all means—but farmers responsibilities. had much to answer for, and immigration little to Participants agreed to exclude many highly do with it. debatable issues (single or dual citizenship. long- Terry McCronn sees immigration as term consequences of the Australian detainee unstoppable, and its policy issues important system) to concentrate on the government mostly where they interface with other major policy and administration. domestic ones (e.g., Mabo).The starting point The result is a fascinating set of individual should be hard-headed national economic self- perspectives.To me, some highlights interest. An intake of 70-100,000 with a mix of R^IE4►V^II]IElW Dr Bob Birrell argues that it is in Australians skilled and family is feasible. MARCH 1997 own best economic interests to keep population 13 THE IPAS IMMIGRATION DEBATE

Michael Mackellar (complimented by other points that I think are important participants for his record in the portfolio) sees a I.We are moving into a period where the 60-70,000 intake as appropriate, saleable and decision on levels of migration wont be ours defensible.The increasing number of Asian tourists alone to make. I am not suggesting thats this year can be perceived wrongly as migrants.A popula- or next year, but I think as the world aggregates tion of 100 million might be achievable, but very, into bigger and bigger units of humanity the very uncomfortable: one of 23-25 million was big responsibility for immigration moves up the ladder. enough to give economies of scale. That migrants So no longer do the States of Australia determine are going to have an active, positive beneficial immigration policy as they did before 1901; its impact on Australia has still to be sold to the now determined by the nation. As we emerge community. The Mackellar definition: non-discrimi- gradually into the APEC regional economy, well natory, but selective. find that gradually we will have APEC, not us There is a wide Phil Ruthven doubts that longer-term vne alone, deciding what our immigration policy is, or range of views have a choice about numbers, thinks an annual at least being very influential.The global informa- about the rise of intake of 200,000 will set Australia alight, but will tion village is going to be a de facto contributor to our desirable long- settle for 75,000 until we are performing properly our immigration policy from outside as well.To term population, on vision, thrift, focus and productivity—which decide this issue from inside is like an emu with its the numbers and now we are not Our 2.3 people per sq. km. head stuck in the sand, it simply wants to pretend and categories of compares with 85 per sq. km. in the Asia-Pacific that the outside world doesnt exist. migrants that Australia can overall. Desert and lack-of-water arguments make 2. Our population density of 2.3 people reasonably absorb us look plain idiots. Burt you can be a very good per sq. km. is going to be known more widely by given a va riety of small nation-12 of the 20 richest nations have our 2 billion neighbours in the Asia Pacific: and environmental and smaller populations than Australia. when you compare that to the 85 people per sq. economic conszd- Theo Theophanous sees the yet-to-occur km. of the Asia Pacific we have got a gross erations debate as to whether the migration programme distortion. I think that exerts pressure on us both should be elitist, which a concentration on skills morally and in other real ways as well. Now thats implies, and which would exclude probably 99 per not discounting the fact that weve got perhaps cent of the rest of the world—including his own two-thirds of what Australians might call desert parents if it had then applied, and probably people but then again Japan with 126 million is 75 per like Arvi Parbo.We want a society which is cent mountains. Every time we talk about the fact compassionate, multicultural, and unafraid of that we havent got any liveable arable land, youve engagement with the world. If we can support got tears of mirth running down the faces of most 75,000. then we have still to hear good economic people around the worid.We just look plain idiots argument against 100 or even 120,000—eco- every time we raise that desert or lack-of-water nomically sustainable, certainly manageable. argument People make their own visions. 3.More immigration from the point of view of boosting our economy, to give us economies of Phil Ruthvens opening statement scale, was an argument at one stage and never a I would be expected to give a long-term view, good argument Twelve of the 20 richest nations in rather than a very short-term view just eight the world on a GDP per capita basis have a

Some Facts About Migration Only four coun- Immigration tries have perma- Australia is one of four countries with permanent Australia.The main birthplaces in rank order were nent immigration New Zealand, the UK, and the Ptoples Republic of progrannne s- immigration programmes—others are Canada, Australiu is one of New Zealand and the US. Although the US has the China. Five of the top ten source countries of them highest annual intake of immigrant numbers, and immigrants are in the Asian region. New Zealand the highest immigration rate (per The numbers from China trebled from previous capita), Australia has the highest proportion of years.This was largely due to family migration arising overseas-bon residents in its population.This from Chinese students who had previously gained suggests that over the last generation, Australia had permanent residence in Australia after being allowed In 1995 -96 we the highest immigration rate of the four countries. to extend their visas following theTienanmen Square accepted almost All four immigration countries have three broad massacre. 100,000 new categories of entry family reunion, supply of In 1995-96.47 per cent entered Australia in the arrivals needed labour skills, and humanitarian considera- family stream (including 8 per cent in the tions. Strong emphasis is given to family concessional family category who are points-tested), reunification, which is the largest category of 20 per cent in the skill stream (selected by points- entry—except in New Zealand, where demand for testing for skill, expertise, age and English-language R ^E1 v.I I-IT1W entry under this category is relatively low. ability), and 14 per cent in the humanitarian pro- In 1995-96, there were 99,139 settler arrivals in gramme (which includes refugees as defined by the MARCH 1997 14 THE IPAS IMMIGRATION DEBATE

smaller population than Australia.The difference own backyard. with those countries is that they focus much 8. Immigration is largely neutral if not slightly better on their economy than we do, we try to be positive in terms of its impact on the welfare of jack of all trades, master of none; and therefore existing Australians. Immigrants in the immediate Our obligation to even with 18 million people we dont do as well as past five years have contributed about 25,000 to immigrants will be in Singapore with 3 million people or Switzerland 30,000 homes a year to demand: not the year the Asia-Pacific and with 6 million.You can be a very good small nation they arrive, of course, but within three years. If we not elsewhere: you begin in your own as well as a very good big one. want to apply some economic reasoning to backyard 4. If we grow as slowly in the next century as immigration, I think we ought to be careful that we we did in the twentieth century—which is I.7 per dont cut off our nose to spite our face even in cent per annum—then we are going to have fairly terms of economics. close to 100 million by the end of the next century, probably nearer to 150 million but that [During the debate:] scares people half to death.We are very short- Michael MacKellar rightly raised quality of life.To term thinkers. me, quality of life is always standard of living plus S. I do not believe that its the number of 20 years.We should never assume that quality of people that do ecological damage to a nation, but life is different from standard of life, it is only a time the type of people and the habits theyve got We difference. In other words, give Singapore 20 years had done more damage with 4 million by the turn of a high standard of living and you will find of the century than 100 million intelligent people Australia the most boring place on earth com- could ever do. Now we may have done it out of pared with Singapore, because they will have all sheer accident and lack of knowledge; but by the art works, the worlds greatest culture, the bringing in the rabbits and clear-felling and intro- greatest theatre, the greatest everything, so it will ducing salination, weve done a hell of a lot of be an extraordinarily powerful, fascinating state. wreckage with relatively few people—in fact. with Renaissance Italy was only possible because of the a population less than Melbournes today. So the immense wealth created and poured in to artists, argument about the number of people being sculptors, buildings etc., to make Italy famous. Phil Ruthven is the directly related to ecological damage I think is a Whilst I think immigration will be non- Executive Chairman of flawed argument negotiable by the middle of next century in terms IBIS Business Informa- 6.Just because we are a wasteful style country of numbers, I think it first behoves us to fix four tion and one of Austral- today, on quarter-acre blocks, it doesnt suggest we things that are important for any nation to do well, ias leading economic and social forecasters. are going to continue that lifestyle into the twenty- and which we havent got right yet first century. I think with the newer cities that are First is vision. We are the only nation in the emerging, like the Gold Coast, we are going to find Asia-Pacific without a fifteen-year long-term plan, a much friendlier society, when we havent got with five-year rolling plans. individual fortresses with six-foot high fences on Second, we have no thrift. We are the quarter-acre blocks, by having much higher-density second lowest-saving nation in the world and the level living with shared facilities. lowest in the Asia-Pacific. You need thrift for 7.Our obligation to immigrants will be in the capital expenditure, to be master of your own Asia-Pacific and not elsewhere: you begin in your destiny, and for dignified retirement.

Geneva Convention, and other humanitarian In 1995-96, over 60 per cent of the permanent entrants).The balance is made up of other (non- departures were overseas-born Australian residents. visaed) categories, including New Zealanders The majority of these were born in New Zealand entering Australia under the Trans-Tasman Travel and the UK, with Australian residents born in Hong agreement. Kong and China also well-represented among those New South Wales is the most popular State for leaving Australia permanently. settler arrivals, with nearly 45 per cent settling there. Twenty per cent of the overseas-born who left Tess Rod is an The reasons given for its popularity are location of Australia permanently in 1995-96 had been resident anthropologist and family and friends, and employment considerations. in Australia for less than 2 years. economist, formerly with the Bureau of Emigration Sources: Immigration Update—June Quarter f 996, Depart- Immigration and ment of Immigration and Multicultural Affairs, Canberra, Population Research. Since World War I!, settler arrivals have exceeded 1996; J. Murphy, Where Do Immigrants Live?—Explaining the permanent departures from Australia, resulting in net Initial Location Decisions of Immigrants, DIMA, Canbena. annual gains to Australias population from immigra- I996;T. Rod L S. Williams, Migration Intensification in the tion. In 1995-96, there were 28,670 permanent APEC Region, 1981 to 1994, in P.J. Lloyd L S. Williams (eds), International Trade and Migration in the APEC Region. 12 departures from Australia, leaving a net gain of Oxford University Press, Melbourne, f 996. ©00 ©© 70,469. MARCH 1997 Compiled by Tess Rod 15 THE IPAS IMMIGRATION DEBATE

Third, we are not as focused as Switzerland more fragile than somewhere else and can only and other successful countries. sustain a certain level of population compared Fourth, we havent got high enough produc- to somewhere else, is a big statement, and tivity to make a great nation yet: we are falling think you need a very significant set of argu- too far behind in world-best practice in most of ments to put such a proposal.The conserva- the key industries. tionists in Australia, paradoxically in many If you look at the I think all great nations were built on instances, fall down on the side of a lower level Rich 200 list today unskilled migrants and business migrants, they of migration on the grounds of their concern ... Ill show you first were never built on skilled migrants. If you look about the environment But, as a conservationist ((nil second genera- tion unskilled at the Rich 200 list today (Im not saying thats a with a world view, you might also have some migrants who have measure of total success, it is only a monetary concern about the environment in other come to Austrulia measure) Ill show you first and second genera- countries. this century tion unskilled migrants who have come to The set of arguments around preserving our Australia this century. low-density quality of life in Australia is also You build a nation on unskilled because they flawed.The truth about high density is that we dont threaten your skilled people; and you build have a very sophisticated infrastructure in the on business migrants. Im not saying you ban inner suburbs of Melbourne where we have skilled migrants but they will never do as much electricity, gas, water and everything else piped for a country as the first two.Thats what built in already and the cheapest way to increase our America, incidentally. population or to put people in this area, in dual If I really wanted to set the country alight occupancy, in higher density housing and so on. would be going for nearly 200,000. Right now Even from the point of view of quality of life, Ill happily settle for 75,000 until we get those there is a significant argument about what four basic platforms right: vision, thrift, focus and happens in the suburbs and the sort of social productivity. If that takes more than 10 years, problems that we are experiencing, particularly God help Australia! in the outer suburbs of Melbourne with a lack of infrastructure and facilities, compared to Theo Theophanous, MLC, opening statement: what we are able to achieve closer in to Quite often the public debate on immigration is Melbourne. So I think even in those arguments, reduced to a debate between the ignorant and you have to disentangle the code from what is the misinformed on the one hand, and on the being said and examine the facts and the social other hand it becomes a debate in code which reality. people who are sensitive to the hidden mes- My concern more broadly is that although sages are quite capable of understanding even we might argue about whether our policy is though they are never actually articulated during racially discriminatory or not, the debate which the course of the debate. When Pauline has never really been had in this country, is the Hanson says that we should cut out immigration one about do we want an elitist one.The truth The flon.Theo until all Australians have a job, well, this could be of the matter is that the skilled migration Theophanous is Opposition Leader in written off as an ignorant statement or as a programme is very much an elitist programme. Victoria s Legislative ridiculous statement with an obvious racist It actually excludes probably 99 per cent of the Council and the ALP undertone. But when other people talk about worlds population. It means that I and my member for Jika Jika. the role of migrants in the economy and parents would not have got to this country ft whether they assist the economy, this is a much means probably that Arvi Parbo and many more sophisticated set of questions and others also wouldnt have got to this country if consequently the code too is more sophisti- we applied the skilled migration programme cated. Quite often the debate about the that we currently have in place to them.There is economic effects of migration is presented as an argument that the children of migrants may the only relevant question. Questions about make a longer-term contribution than the humanitarian issues or what sort of society we migrants themselves and this seems never to be want to build are seen as secondary, as the considered in the debate. immigration debate will inevitably focus on this There is also a question of commitment to question of the economy because it is in the the country. as well as all sorts of other eco- economic arguments where the codes are nomic questions. For example, a lot of literature buried, most clearly understood and are most has been written on the benefits of unskilled effective. More migrants means less jobs for migration to Australian works by the creation of Australians can be expressed in the most a labour aristocracy. Indeed, it can be argued sophisticated of economic arguments. that one of the reasons that there was in some On the environment front, when people say respects less concern about migration in some that we have an ecologically fragile environ- circles back in the S0s and 60s was that ment and that this is a reason for migrants came in at the bottom of the social RIIE lull i 11E;1WJ reduced migration, my response is that the structure.The thing with skilled migration is that whole of the world is made up of an ecologi- they are actually coming in at a higher level in MARCH 1997 cally fragile environmentTo say that this one is the social structure and the tensions then come 16 THE IPAS IMMIGRATION DEBATE

at those levels, particularly in more competitive much more revenue than anywhere else labour markets. because of innovation and because of design (in However, it must be noted that, invariably, kangaroo leather too), But because we in what tends to happen during times of recession Australia say were no good at this, we cant is that the group that seems to have a higher compete with other nations and we proceed to unemployment level is not the existing Austral- define certain sections of industry as sunset and ,. ians, but the migrants.There is even some another section of industry as sunrise, we, by evidence to suggest that, if the buffer of mi- definition, consign them to the dustbin of grants wasnt there, it would be other Austral- history. ians who would suffer unemployment during I have a lot to do with manufacturing recession. industry in my industry portfolio responsibilities, The conservationists and I can tell you that a lot of in Australia. para- the migrants that are in there, doxical y in many are the innovators. Even though instances, fall down the government has said our on the side of a lower level of migration on vision is This is sunset, theyve the grounds of their saidWell, we dont accept that concern about the and we are actually going to try environment. But, as and build. And a lot of them a conservationist have actually done this. My with a world view, bottom line for migration levels? you might also have I think 100,000 to 120,000 is some concern about economically sustainable, the environment in certainly manageable, and that other countries secondly we have to look very closely at the criteria for discrimination that we use in determining that 120,000. I think that in the end the My argument is that we should aim to have government vision about sunset industries and a society which is compassionate, which is sunrise industries is incorrect. I actually think multicultural, which is welcoming and which is that people make their own vision and they unafraid of engagement with the world. In that come to this country as a result of a whole context we should have a migration policy range of factors. If we let them in theyll find which is larger than the one thats being pro- their own vision, and theyllmake their contribu- posed, and in terms of its composition, I think tion to this country—theres very few of them the overemphasis on skills and on English is not that actually dont. necessarily going to create a better Australian society—certainly not a more compassionate Dr Bob Birrell s opening statement: one, and perhaps not even an economically I agree with Michael McKellar that national better-off one or a more cohesive one. sovereignty has got to be the starting point with immigration policy.To his credit, during his [During the debate:] ministry, in 1978, of the nine principles enunci- I havent heard an economic argument which ated as guiding policy, the first was national establishes that if we aresupporting 75,000 sovereignty I also agree with other comments migrants per annum, then we couldnt support here that we cannot turn off the tap when it 100,000 or even 120,000 without much comes to immigration numbers. We have difficulty in Australia. And with respect to the manifold linkages with communities around the Dr Bob Birrell is the world so its more a matter of tighter manage- composition, the question is not whether there head of Monash is discrimination, but what are the criteria that ment of the programme than draconian Universitys Centre for are being used to discriminate or determine the reductions. Population and Urban composition. For example, I would say that I think in practice we lost an element of Research. there is too much emphasis on speaking English national sovereignty or control over the immi- rather than other criteria which we need to gration programme in the late 70s and early examine more fully. We also need to examine 80s.This leads me to agree with the perspec- industry sectors to see whether they have a tive of the current government that the rules future and whether migrants can contribute to governing entry, particularly for the family that future. In manufacturing, for example, the reunion programme, should be tightened. chief criteria of success are probably innovation, In the late 70s, early 80s the Liberal and design, technology and marketing.Take Italy, Labor governments basically responded to the which is one of the most successful textile pressure of ethnic communities to open up the Ra[E1►ViIIIIEAS+U,I producers in the world.There they are selling to family reunion programme so that controls over MARCH 1997 a certain segment of the market and getting spouses/parents were diminished and we D 17 THE IRAS IMMIGRATION DEBATE

opened up a major new avenue of entry via the As far as skilled migration is concerned, concessional programme (mainly brothers and there are real problems as to how it should be sisters). Although lobbied for by the Italian and managed. Weve just conducted a gigantic Greek communities in particular, these new experiment with an open-ended or non- opportunities were not taken by those commu- targeted skill programme.Through the late 80s nities, but rather, in the main, by the recently we were taking over 15,000 professionals arrived smaller Asian and other non-European annually, including 3,000 or 4,000 engineers. I think in practice communities. So through the 80s we developed Subsequently, with the recession, many of those we lost an element a series of bridgehead commu- of national aver- eignty or control nities which link back to over the irnmigra- societies with very powerful tion programme in migration push pressures and the late 70s any! strong family ties.This led to a curly 80s. This very substantial growth in the leads me to agree family reunion programme. with the perspec- Immediate family numbers have tive of the current more than doubled over the government that past decade to reach 48,000 in the rules governing entmy. particularly 1995-96, mainly from the small for the family rivulets started, in some cases reunion pro- through the family reunion grain me. should be programme itself (as with tightened Filipino brides). In addition, the Indo-Chinese refugee pro- grammes and more recently the Chinese asylum seekers, have subsequently led to substantial family reunion, people have been left high and dry, particularly such that they are now the largest sources of the engineers, because the number of engineers family reunion, along with Britain. employed today is actually about the same as it That in turn has led to serious welfare was in 91, and weve got 5,000 or 6,000 settlement problems. Our analysis shows that graduates of our own coming on to the market about a third of all those coming under the every year. If people argue for bigger growth in family reunion programme who were entering skilled migration, it behoves them to indicate the labour force require labour market pay- how they are going to select such persons, and ments in the first few years of settlement in where they fit in to an economy which is limited Australia. When it comes to parents, after the in its growth trajectory by balance-of-payments first two years of residence here about half and other constraints, receive some form of welfare assistance.This I think the direction the government is help lasts for life. Dependence levels are currently going toward—emphasising skilled Our analysis particularly high amongst the Indo-Chinese, the migration on temporary entry basis—is the way Shows that about Chinese and some of the other communities to go.There has been a major change in policy third of all those where the parents come from low income in this regard in the last year or so.The change coming under the societies, and do not bring portable pensions started when Senator Bolkus was Minister family reunion following the Roach Report on temporary programme who with them. were entering the The government is justified in seeking to entry, which " he commissioned.This 1995 labour force require control these flows. Last year there were 34,000 Report recommended a fundamental deregula- labour market spouses visaed, meaning that one in every four tion of the temporary entry selection process payment.~ in the marriages contracted by Australian citizens or for skilled migrants.These recommendations first few years of permanent residents in 1995-96 involved a were implemented by the Coalition Govern- settlement in migrant party. In the case of the Indo-Chinese, ment in August 1996. We now have an open- Australia Chinese, Lebanese and Turkish communities, the ended temporary entry procedure for skilled majority of marital eligibles are actually going migrants which requires no labour-market back home for a partner rather than choosing testing to ensure Australian residents are not from within their own community here or available, and no assessment of the sponsoring outside that communityThe direction of control employers as to their record in local training or ought to be to ensure that the Australian skill transfer. resident sponsor is indeed responsible for and The good part of that is that at least the has the resources necessary to provide for the sponsorship process requires the employer to welfare of the sponsored person in the first few identify a particular person who has got a skill years. At present, the rules governing spouse that is supposedly needed by the firm and [2©L0©© sponsorship are such that no matter what the therefore there is a position for that person resources of the sponsor are, he or she can still here.The other positive is that it doesnt lead to MARCH 1997 bring the marriage partner in. the subsequent family-reunion or long-term 18 THE IPAS IMMIGRATION DEBATE

settlement problems associated with the I disagree with Phil Ruthvens view that permanent resident stream. Australian elites have no vision forAustralia.To The negative side of it, which we are now me there is undoubtedly a clear-cut vision monitoring (we dont know the numbers or animating economic policy at the moment, and occupations involved yet because the process that is that Australia should be a successful has only begun) is that in a multinational world global trader.The core idea is that we do those I think the direc- tion the government in which many employers are overseas-owned things in Australia in which we can compete in is currently going and there is great pressure for just-in-time skills, the international market place.This basically toward—emphasis- the new temporary entry process will result in a means concentrating on rural and mineral ing skilled migra- substantial increase in the skilled migrant flow. In commodities or selling our attractive landscape tion on temporary the process, the flow may seriously impact on as a tourist resource. entry basis--is the the prospects for our own skilled people. Now, our comparative advantage in Aus- way to go tralia in such areas has to do with our relatively [During the debate:] favourable resource-to-population balance.The We are after all encouraging inflows of overseas only reason why we can export rural products students, tourists and working holiday-makers. or most of our mineral products is because we Likewise Australians are increasingly mobile.This have a small population. encourages social links with foreigners. So it is The implication is that it is actually in the inevitable that we will have a relatively high interests of Australians to keep their population family reunion process. I think that probably an relatively low if they wish to maximise per annual net migration intake of 50,000 is about capita economic advantage. We are rent- as low as we can contemplate. If we did sustain seekers, we are getting benefit from our a number like that, it at least has the merit that, favourable population-to-resource base. over a 30 or 40 year period, our population Likewise our lifestyle, including aspects of this would actually stabilise at around 23 million. country that most prize, like our easy access to That is because in about 30 years time the net recreation facilities and our relatively land- 50,000 will balance the excess of deaths over extensive suburban lifestyle, are built on our births within Australia. favourable population-to-resource ratio.

U120

Immigration and Unemployment: The Economic Evidence

JOHN FREEBAIRN

HERE is a large body of detailed a higher workforce participation rate and higher research evidence which shows that skills than native-born Australians. Over time, changes in the level of net migrat- however, i-t becomes more difficult to distinguish fl ion have had a negligible effect on the immigrants from other Australians.The the overall rate of unemployment. On the one frequently-expressed view that immigrants take hand, immigration adds new workers and a new the jobs of existing members of the workforce supply of goods and services. But on the other tells only half of the more complex story of the hand, immigrants also add demand for goods effects of immigration on employment and Professor John unemployment. and services, thus leading to the creation of Freebairn is Research new jobs. On average, over the last fifty years, Immigrants, just like other Australians, Director of the Full the increase in overall demand and new jobs demand goods and services, and increase Employment Project, a associated with immigration roughly equates demand in several ways. First, immigrants spend joint undertaking of the Institute of Public with the number of extra jobs sought by the on goods and services for household consump- Affairs and the Faculty immigrants. tion purposes, including food, housing, clothing, of Economics and In the period since World War II, immigra- and recreation. In fact, several studies find a Commerce, University tion has accounted for about one half of the higher average propensity to spend among of Melbourne. growth of the Australian work force. From 1950 immigrants than among other Australians. to 1996, the work force more than doubled— Second, governments provide services to o©oa©© from under 3.5 million people to 9.0 million immigrants along with the rest of the popula- MARCH 1997 people. Immigrants have tended initially to have tion—services such as housing, education ► 19 THE IPAS IMMIGRATION DEBATE

and infrastructure. Third, the employment of macroeconometric models and studies using additional Australians, whether immigrants or tests of causation. In general, native- native-born, requires complementary invest- Different sets of analysts have used the born workers are net ment in machinery, buildings and suchlike by Murphy. IMP and ORANI macroeconometric guiners in ernploy- business enterprises. And fourth, these first- models to assess the effects of different levels of ment, because of the round expenditure effects of a larger population immigration on a range of measures of eco- increases in aggre- then set off a series of second-round, or nomic performance.These models are widely gate demand and the multiplier. effects bringing further increases in used by government departments and agencies. extra jobs generated consumption, investment and government business organisations and by academics for the by immigration expenditure. analysis of policy options. Results from the The increase in overall demand for goods different models, and for different assumptions and services is translated into an increase in for a model, find that immigration adds about demand for labour, and other productive inputs, the same to demand for employment as it does to provide these goods and services. Some of to the supply of workers.That is, immigration the additional demand can be met by using has a negligible effect on both the real wage and existing resources better, from stocks, or from the aggregate level of unemployment. (All imports. But none of these avenues is large, and models simplify in order to be workable; and they are not sustainable over an extended their results are, of course, dependent on the simplifying assumptions.) Tests of causation between immigration and unemployment are based on actual outcomes, On average ... the increase in and are not constrained by the assumptions imbedded in the macroeconometric studies. overall demand and new jobs Using observed data on immigration and unemployment for the past fifty years, no associated with immigration evidence has been found linking changes in ughly equates with the Australias net immigration numbers and ro changes in the aggregate unemployment rate. number of extra jobs sought by There was some evidence that increases in Australian unemployment induced a fall in the the immigrants. future net immigration level. Overall, the empirical evidence strongly implies that immigration has had a negligible effect on the aggregate unemployment rate. period. Most of the increase in demand arising That is. immigrants—through their increase in from immigration then finds its way into an aggregate expenditure on goods and services— increase in demand for more jobs to provide have generated about the same number of the goods and services sought by households. additional jobs as the additional jobs they have businesses and governments. sought to fill. A key question for the discussion of the link The discussion so far has focused on the between immigration and unemployment is the links between immigration and aggregate or relative size of the effects of immigration on average unemploymentA more detailed Note: increasing either the demand for jobs or the analysis, by categories of people, finds that Much of the work is supply of jobs. If immigration adds more immigration has some compositional effects. In summarised in two workers than demand for new jobs, then it general, native-born workers are net gainers in studies: M. Wooden, causes pressures for a combination of a fall in employment, because of the increases in R. Bolton, G. Hugo real wages and an increase in unemployment. aggregate demand and the extra jobs generated anti J. Sloan, Aus- Conversely, if immigration adds more to by immigration. tralian Immigration: demand than it does to supply capacity, the Immigrants, and especially these with poor A Survey of the pressures are for an increase in real wages and English-speaking and -writing skills, are dispro- Issues, ALPS, Canberra. 1994; less unemployment. Should the two effects portionately represented in the unemployed. In and W. Foster, roughly balance, then immigration would have a part, their high unemployment reflects the fact Immigration and the negligible effect on real wages and overall that new entrants to the workforce experience Australian Economy, unemployment. Ultimately the answer to the relatively high unemployment rates. In part, too, Department of question is an empirical issue. it reflects real and perceived low skills, and these Immigration and Fortunately, considerable research analysing problems tend to decline with longer residence Multicultural Affairs, the effects of immigration on employment and in Australia. AGYS, Canberra, unemployment, and on other measures of The clear implication for policy-makers of 1996. economic performance, have been undertaken the large body of research on the links between in Australia. Quantitative studies of the links immigration and unemployment in Australia is rRlEIvI I EW between immigration and aggregate unemploy- that there is no causal link. ment summarised in the reports (see note in MARCH 1997 column) include studies using 20 uuU20 THE FUTURE OF HONG KONG Can Hong Kong Remain Free?—Scenarios for 1997

DAVID ARMSTRONG

N October 1992, a word went missing engine rooms of Hong Kongs economy—the stock 1,ate last year. the • from the Hong Kong political lexicon— exchange and the property market—are operating at IPA held a forum on co-operation. or near record revs. the future of Hong Kong. The guest of At that time, the last British Governor of The other is that, perversely, Hong Kong will honour was Martin return to Chinese sovereignty in a less democratic the Territory, Chris Patten, defied China by introducing Lee. Hong Kong a modest measure of extra democracyThis was form than would have been the case had Patten left lawyer anti the most something of a death-bed conversion to democracy everything alone. The reasoning goes like this: powerful advocate on Britains part, coming, as it did, after 150 years of Before Pattens arrival, the Legislative Council for democracy in British rule and less than five years before Britain was (Legco) was partly appointed, partly elected by Hong Kong. Mr Lees to take the unprecedented step of handing over a popular vote and partly elected on restricted visit to Australia was colony to another sovereign power. That hand-over franchise. China and Britain had agreed to this system, widely covered in the media at the time, so takes place on I July this year, when and it was understood that Legco members would be we (Io not reprint his the six million people of one of the speech here. fie richest capitalist societies come spoke eloquently not under the authoritarian rule of the only of the intrinsic Peoples Republic of China. value of democratic Beijings reaction to Pattens institutions, but of proposals was unmitigated outrage. the necessary rela- ft regarded the plan as a British plot tionship between to extend its influence beyond such institutions and 1997, presumably by arranging for Ilong Kongs pros7mr- ity—a theme underIy- its supporters to be elected to ing the valuable positions of power under its assessments of Hong electoral system. Further. China Kong fiiture made by was intensely suspicious of the our two other democratic aspirations of Hong ~pea kers. Kong people, if only because the Tiananmen Square protests of 1989 had been sustained by substantial financial and aboard athrough-train in I997.This understanding communications support from the Territory. Beijing was supported, but not guaranteed, by a 1990 had squashed one rebellious threat to its power on decision of the National Peoples Congress. Patten, the night of 4 June 1989: it did not want democratic while leaving substantial elements of the restricted ideas from Hong Kong, soon to be a part of China, franchise intact, widened the popular franchise. But his polluting the rest of the country. action led China to claim that Britain had breached While the ferocity of Chinas reaction could have their agreements and understandings, so all Legco been predicted, Patten and his advisers miscalculated bets were off. China has decided that the members of its longevityThe row has fundamentally rearranged the Patten-style Legco, elected last year will be sacked the 1997 political Iandscape.The best that can be said at midnight on 30 June.They will be replaced by a for this changed terrain is that ft is a lot rockier for Provisional Legco, elected by a Selection Committee those who want to maintain the freedoms that Hong of 400 members who were themselves picked by a Kongs people now enjoy. Beijing-appointed body, the Preparatory Committee, There were two broad criticisms of Pattens set up to make arrangements for the transition. We unilateral declaration of democracy. can blame China for over-reacting if we like, but the One is that the inevitable confrontation with effect is the same: as a result of Pattens reforms, a China produced enough uncertainty to damage Hong mainly-elected, if only partly-democratic, Legco will be Kongs lifeblood—that is, business. Given the initial replaced by a virtually appointed body, the members slump in the stock market and Chinas enhanced of which are ultimately beholden to Beijing. So here is political sensitivity to some proposals emanating from one political scenario for 1997: there is to be no Hong Kong, the criticism might be valid for some politics? Ra[E1►VIIIIE1 businesses. But. in general, the forecasts of gloom and This criticism of Patten has a certain formal MARCH 1997 doom have been misplaced: the machines in the validity, as long as we accept that China always 21 THE FUTURE OF HONG KONG

intended to follow the progress to democracy several reasons. One, China is wary of destabilising outlined in the Basic Law. But there are other less Hong Kong—of killing the goose that lays the golden formal ways in which the 1995 elections and Pattens egg. Moreover, the Basic Law, the Hong Kong advocacy may yet prove significant in shaping Hong constitution, offers local autonomy and the mainte- Kongs future. nance of traditional freedoms. ft is a Chinese docu- ment and has been the subject of too many reassur- LET DEMOCRACY BLOOM ing statements by Chinese leaders for them suddenly Looking ahead, we can rule out one scenario very to renege without immense loss of face internation- quickly since its chances are those of the proverbial ally That loss of face, and trust would be magnified by snowball in hell: the let democracy bloom scenario— the huge influx of international media into Hong David Armstrong is China will change its mind and decide to accept Kong.The international reaction, not least from the Editor-in-Chief, The Pattens reforms, shunt the through-train out of its United States, would be damaging. President Clinton Australian, and former Editor-in-Chief of the siding, yell all aboard to the existing Legco members, may have signalled a more pragmatic approach to South China Morning and send them off on a journey to the next sched- China in his address to our Federal Parliament last Post !long Kongs uled election. But the battle with Britain has been too November, but any Chinese outrages in Hong Kong principal daily intense for China to back away now. Moreover, China would arouse Congress to an anger he could not newspaper. seems satisfied with the way its arrangements for the ignore. hand-over are proceeding. Professor Joseph Cheng, a A variation of this scenario has been outlined by political scientist at the City University of Hong Kong, Professor Cheng; the delayed dictatorship scenario— recently wrote that Chinese authorities were More and more Hong Kong people believe that since particularly encouraged by the fact that 6,000 people Hong Kong in 1997 will be the focus of international applied to join the Selection Committee: With the media, and that Chinese leaders are most concerned exception of the pro-democracy camp, the applicants about face, all should be well in 1997. However, the covered the elites in all sectors of the community. Chinese Communist regimes inclination to control There may be no through-train, but there is a will be much less deterred by 2000: Indeed, part of bandwagon. the motivation for some of us who backed Beijings bid for the 2000 Olympics was to keep the interna- DICTATORSHIP tional spotlight on China for a further three years—to I hope we can also rule out its opposite, the dictator- buy time for Hong Kong. ship scenario: China will immediately impose a full- If there is no rush to impose Beijings authority in blooded authoritarian regime, with direct rule from 1997—whether through goodwill and common Beijing backed up by units of the Peoples Liberation sense on Chinas part or because of international Army patrolling up and down Connaught Road. concerns—the effect will be exactly that to buy time. In playing down this scenario, I refer to the rapid Time to put Deng Xiaopings concept ofone country, imposition of an authoritarian system of government two systems into practice and to try to make it work. I do not mean to minimise the risk of a crackdown on pin-democracy activists when China resumes THE THIRD TRANSITION Tart of the moti- sovereignty, of an attempt to suppress protests against This brings us to another scenario, which I believe on vation for some of us who backed the sacking of the elected Legco and the take-over of balance to be the most likely, at least in the short Iiejing s bid for government by a Provisional Legco which lacks term: the third transition or work-ft-out-as-we-go the 2000 Olympics popular legitimacy. I assume there will be protests, scenario. was to keep the that pro-democracy activists will not meekly accept Hong Kongs return to China involves three intonational the destruction of the gains they have made The distinct transitions. spotlight on China protests will present an immediate test to Beijing and The first has been going on for a decade or more for a further three Hong Kongs new rulers. In Chinese eyes, the return and will continue long after 1997: the Territorys years—to buy time of Hong Kong ends 150-odd years of shame. ft is one economic integration with the mainland, first with for Yong Kong of the most important events in modem Chinese southern China and later with Shanghai. history. Beijing will not be inclined to tolerate actions The second is the formal transition: the Territorys which might mar the celebration.The wise course return to Chinese sovereignty: the installation of a would be for the authorities to react calmly to any new government for the Hong Kong Special Adminis- demonstrations; red-blooded repression would send trative Region: the inheritance, on terms already negative signals to the world and to the people of thrashed out in often acrimonious negotiations, of the Hong Kong. It would belie the image of a benign responsibilities of governing—from building the new regime presented in the Basic Law and implied by the airport to running the legal system. concept ofone country, two systems. Importantly, it The third transition has begun and will continue would damage business confidence, a critical element well after 1997: this involves the leaders and people in the chemistry which makes Hong Kong work. of Hong Kong working out their relationship with China has learned from the international reaction to China—and vice versa. Some of the more thoughtful theTiananmen killings and would certainly want to people in the pro-China camp call it the real transi- avoid a crackdown on that scale of severity. But it may tion. It will be a process in which each side tries to R3VIM1y;l1E^W not be able to resist reacting to I July protests with discover what the other wants and expects and in cracked heads, arrests and imprisonment which each tries to work out the practical limits of its MARCH 1997 The dictatorship scenario, however, is unlikely for authority. Beijings approach will undoubtedly be 22 THE FUTURE OF HONG KONG characterised by a desire to control but also by lar in Hong Kong or Beijing, or both. caution against interfering too much, for if it damaged The third transition began, in a formal sense, early the spirit of Hong Kong it would also risk destroying in 1996, with the formation of the Preparatory its chance of showing the world it could run the city Committee, a group appointed by Beijing with a 50- just as well as the British. Hong Kongs approach 50 Hong Kong–China membership.The balancing act assuredly will be marked by acquiescence but also by began with a strong signal that Beijing was in charge some assertiveness in trying to preserve features of when the more moderate of Hong Kong members Hong Kong which are essential to its business lost an argument over the transparency of the operations and to its style of living and working.This committees deliberations. At Beijings insistence, the seems a lopsided relationship, for Beijing has all the committee adopted the principle of collective power. Hong Kongs leaders, however, have the responsibility—while committee members may advantage of a better understanding of what makes debate issues behind closed doors, no criticism will the city tick. be tolerated once a decision is taken. It is here, paradoxically, that Chris Patten be- The contest for the position of chief executive comes important has seen the balance swing a little more in Hong Pattens electoral reforms will soon be ditched in Kongs favour. Beijing was persuaded that it should not the dustbin of history. But the impact of the 1995 simply impose its choice, that the process of selection Hong Kongs busi- will should be semi-public, and that it would be better if Legco elections last much longer. For they had a nessmen tend to like profound effect on many pro-China political thinkers the chief executive-designate were someone what they regard as and, through them, on some pro-China business generally acceptable to theTerritory.This process had efficient govern- leaders. its limits.The clear popular choice was the Chief ment—government The elections saw Martin Lees Democratic Party Secretary, Mrs Anson Chan, but not having Beijings which makes neces- score a clear victory, winning some 60 per cent of the blessing, she withdrew from the contest. But Beijings sary decisions vote. Pro-China political thinkers did not need to read blessing alone was not enough. Another to withdraw quickly and then gets out of the way too many electoral tea leaves to see that majority from the contest was the hawkish pro-Beijing lawyer opinion favoured democratic values and the guaran- Mr LoTak-shing. He had thought he could win the tees they provide for peoples freedoms.The people post merely by lobbying Beijing, but his candidature also want representatives who will stand up for them was killed off by his vanishingly small acceptability in in dealing with the local administration and Beijing. Hong Kong. There is a paradox here, underscored by Martin Lees Although the chief executive was picked by the receiving a low rating as a potential chief executive of selection committee, the contest had some of the the Special Administrative Region while his party hallmarks of an election campaign. Serious contend- dominates the polls.The people do not want a leader ers held press conferences and issued manifestos; who confronts Beijing but they do want representa- some even hired public relations consultants to tives who will defend their interests. organise their campaigns—for public acceptance was Another point from the 1995 elections, not lost seen as important in winning. Following the first on some pro-Beijing figures, was that the backing the round of voting in the Selection Committee, the Chinese Government gave to pro-China political favourite—and now victor—was shipping magnate parties, through the Xinhua News Agency, the Tung Chee-hwa Following Mrs Chans withdrawal, unofficial embassy in the Territory, appeared to have Tung was the publics pick for the job, and also seen been counterproductive. as Beijings choice--although Foreign Minister Qian The election results intensified a debate within Qichen stated publicly that Beijing had no favourite. pro-China circles between those who believe the Tungs public statements might give some flavour incoming government can impose its wishes on the of post-1997 politics. He is a businessman, and Hong people, who would have no choice but to acquiesce, Kongs businessmen tend to like what they regard as and those who believe that the Preparatory Commit- efficient government—government which makes tee and the new government have to explain their necessary decisions quickly and then gets out of policies and bring the people along with them. Within Hong Kong, if not always in Beijing, the latter group seem to be winning the debate. The third transition will require Hong Kongs incoming leaders to perform an amazing balancing act. I believe at least one well-known pro-China figure decided not to contest the race to become the first chief executive because he thought he would fall from the high wire— FR1EiVi I IEn he could not do the job without MARCH 1997 making himself massively unpopu- 23 THE FUTURE OF HONG KONG

the way so that business people can get on with ft is often said that Hong Kong lacks democracy making money It is no surprise that in one South but it has freedom. At best, democracy faces an China Morning Post interview,Tung was not interested uncertain future. Lets fast-forward just a little—to in accelerating the introduction of full democracy. 1998, when the first post-hand-over Legco election is Politics is a means to an end, not the end itself. He due to be held, still on a mixed franchise. Preparatory wants a strong, but small, executive-led government, Committee members are working hard trying to dedicated to preserving... the rule of law, an devise a system of voting which will deliver what they is often said that It independent judiciary. conservative fiscal policy, low call the right result.The result is one where the party Hong Kong lacks tax structure, good civil service [and a] level playing which gets more than 50 per cent of the vote—the democracy but it has field. freedom. At best. Democrats—gets about a quarter of the seats, so democracy faces an Tung made much of the importance of stability. that their views are heard in Legco but they cannot uncertain future His difficulty will be to reconcile two different types of dominate.We can see the balancing act at work— stability.Theres the stability which comes from trying to meet the wishes of the Hong Kong people continuity from preserving Hong Kongs traditional and the Beijing leadership. Again, there are limits: freedoms and values.Then theres the stability which believe that Beijing long ago took a decision to bar comes from giving in to Beijings wishes. But he seems Martin Lee and one or two of his colleagues from willing to try.Tung, who described himself as cautious standing. All that remains to be decided is the and prudent, said he would stand by his principles but mechanism for keeping them out. would avoid open confrontation: To quietly negotiate Freedoms in Hong Kong have traditionally relied and look for solutions does not necessarily mean not on democracy but on the values of government weakness, There are many ways of getting things and of the people: on a determination to preserve done.This I think is the right way, a very Chinese way. the independence and incorruptibility of important The chief executive is no great fan of Chris institutions—such as the courts, the police force, the Patten. yet two of Hong Kongs characteristics he Independent Commission Against Corruption and the wants to preserve owe much to the outgoing Monetary Authority—and to retain the standard governors advocacy—another instance of Pattens democratic freedoms—freedom from arbitrary influence extending beyond 1997.These are the rule arrest freedom of association, speech and the press; of law and an independent judiciary. Both are novel freedom to travel; freedom to buy and sell private concepts in China and can be expected to be under property. Freedoms all underpinned by the rule of pressure after the hand-over. Patten (and Martin Lee) law. repeatedly stressed the importance of the rule of law The topic today is Can Hong Kong remain free? and the independence of the judiciary as essential for It can, if its leaders are willing to fight, however safeguarding Hong Kongs freedoms.They do not privately, for them and to continue to explain to necessarily guarantee freedom, but without them Beijing the importance of Hong Kongs freedoms in Can [long Kong remain free? It can. there is no chance. Hong Kongs business people do making the city and its economy work Continual if its leaden are not rate civil liberties issues very highly but, con- explanation is essential, for there is very little under- willing to fight. sciously or not. Pattens advocacy has struck a chord: standing in Beijing of how and why Hong Kong is however privately ... they understand the importance of the law in successful. Above all, Hong Kongs post- 1997 leaders and to continue to providing social stability, in laying down the rules in have to keep reminding Beijing of the importance of explain to Beijing the which businesses work in guaranteeing the sanctity of the assurances spelled out in the Basic Law and importance of (long contracts and in protecting against the kind of implicit in the concept of one country, two systems. Kong s freedoms in arbitrary arrest which can occur in China when deals A tougher question is WI! Hong Kong remain making the city anti free? If you were betting. you wouldnt want to put its economy work. with the powerful go awry. Continual explana- Hong Kong business people generally are plugged your house on it—or your life. But the words of a tion is essential, for into China so it is instructive to look at their post- leading pro-Beijing businessman, David Chu, are there is very little 1997 expectations.The Better Hong Kong Founda- relevant here. In the South China Morning Post understanding in tion, a well-funded business group set up to spread recently, Chu spelled out the qualities of the ideal Beijing of, how and the good word internationally about theTerritorys chief executive.The chief executive has to impress why (long Kong is economic prospects, recently polled 179 business upon his constituents that, one, he is not beholden to successful leaders.Two thirds expected economic growth to China; two, he is true to the letter and the spirit of continue at least at current levels and 70 per cent autonomy for Hong Kong three, he is not biased remained confident about the business environment. either against big business or the democrats; four, he Taxation, the economy, government economic policy presides over the civil service without undermining its and the police force were rated highly (that is, above morale with excessive, stifling control; five, he has the 50 per cent) as areas in which Hong Kong would interests of the whole society as his lode star retain a high degree of autonomy. In a phrase heard Views like these are common among members of often in Hong Kong these days, so far so good. But the Preparatory Committee who, no matter what they were less confident about the future of the legal their allegiance to Beijing, are Hong Kong people who system. immigration and the Government itself—and have to live there well after 1997.1f they are willing to much less so about human rights, the media and the stand up for these beliefs, freedom has a fighting

R tIE^I VI111llIE1I ZZI political system.They also were concerned about chance. But only that corruption. On all these counts, they are being MARCH 1997 realistic. IIILF I 24 THE FUTURE OF HONG KONG The Economic Implications of the Take-over

ALAN VI OXLE I

• ILL Shanghai eclipse Hong Kong as of law of all the Asian economies with the possible Chinas international finance centre, exception of Japan. +`. and will Beijing squash the free Hong Kongs other great asset is its human l° ! . market environment?These are the resources.This strength grew from its strategic two questions Ill seek to address in my comments placement, its history and politics, not least the to you. dynamic group who set up in Hong Kong after the We know that Hong Kong is a very successful communists took over in China, who provided economy, but it is interesting to reflect on what its entrepreneurial leadership and capital. For many fundamentals actually are. years, it also had a low-cost labour forte which If you asked me to list what are the fundamen- became the basis of a very dynamic light manufac- tals of its success, I would say, first, the harbour. turing industry. Its economy now has significantly That may seem an obvious fact; but Id make the shifted; Hong Kong today has changed—there is same comment in respect of Singapore: both very little manufacturing there—and is now a began as providing key entrepot trade infrastruc- classical case of a service economy which supports ture systems for larger economies. And that and manages manufacturing elsewhere, in this harbour on that coast is still of fundamental case, the Pearl River delta. importance. Hong Kong is Chinas international So what now is Hong Kongs essential eco- gateway, and Hong Kongs trade performance and nomic role? Again it needs to be seen in the Chinas trade performance are inseparable factors. context of being Chinas international business In that respect it has become, in fact, an gateway. ft has in fact served an important function integral part of a regional economy: when you as a capital recycling centre.This shows up in the look at Hong Kong you really do need as well to statistics for investment in China, statistics which look at the Pearl River Delta, at the economy of show some idiosyncrasies which need to be the Guangdong region. From the economic looked at quite closely. perspective, you have in fact got a very significant International business is still hesitating about tiger in the southern part of China—a tiger by moving into full-scale investment in China---not any of the normal indicators, whose economy is least because of uncertainty about the framework bound up with Hong Kongs. So Hong Kong is of law. Most of the development that we are now Chinas international financial gateway and a seeing in China is still basically taking advantage of very vibrant, healthy, sophisticated international low labour costs, and is still basically light D financial centre. Another key asset Alan Oxley is one of in Hong Kong is the Australias leading framework of law. authorities on international trade, We may overlook the particularly in the importance of this for Australia-Pacliec economic develop- Region. lie is former ment; but if you Australian ambassa- dor and chairman of examine economic GATT, presently success around the chairman of the world, the nations Australian APEC that are successful are Studies Centre at Monash University, those which provide and a regular a stable environment contributor to the for capital to do what national press on it has to do.The trade policy issues. framework of law cannot be under- rated, and Hong R^04eV1111IE^,W, Kong probably has MARCH 1997 the best framework 25 THE FUTURE OF HONG KONG

those three sub-economies in the Greater China, growth in Taiwan was the slowest----in about 1992 exports from China actually exceeded exports from Taiwan. fts worth remembering therefore how significantTaiwans exports had been—for the previous 20 years they had always been much greater than total exports from China. And weve seen average trend growth t ^ ^ Ian ie^ ^ II C^^ s ^ ¢ ^ over that period in exports from Hong Kong and China at about Shanghai: future rival to Hong Kong? 16 per cent that puts them up with the fastest in the region—with Malaysia and Thailand—and manufacturing: textiles, toys, sporting goods, and theres every reason to assume that this growth so on. And most of the capital thats being invested will continue, because of the low-cost labour in China is capital from Greater China—from dynamic which you are seeing in China Taiwan or from Hong Kong—or in fact is recycled So if that enlightened integration happened mainland capital.Where is this Chinese capital after 1997, we would see a new economic world coming from? Mainly from the state-owned power emerging, which would start to exert some International enterprises which, while going broke, are channel- business is still influence, with implications for the world trading hesitating about ling large amounts of money through Hong Kong system (WTO), which I will come back to later. moving into full- which is then going back into China into other What then about the Shanghai challenge? In scale investment in forms of investment particularly into areas where Shanghai, they talk bullishly about taking over as Chintz—not least investment is encouraged for manufacturing for Chinas international financial centre---and there is because of uncer- exports. some anxiety in Hong Kong about this. If you go tainty about the So if you look at the total investment picture, to Shanghai, you will be taken on a tour of framework of law including European and American capital, you will Pudong, a vast area adjacent to the city proper, find the great multinationals are still hesitating, still and proudly described by Shanghai officials as the sitting in the Shanghai Hilton wringing their hands new Hong Kong. Everywhere you look in Shang- and vacillating: these are long-term investments hai there are vast towers going up; it is littered that they are contemplating, where the rates of with cranes and tall buildings. I am told that most return are important, the stable business environ- of the finance for these buildings is from the state- ment is critical----and they just dont know. It is still owned enterprises, and that in fact Shanghai is on said that no major US or Japanese corporations the verge of the greatest property collapse that are making money out of their investments in weve seen in modem times.The amount of office China, and the high degree of uncertainty persists. space coming on stream vastly exceeds any So Hong Kong has played a critical role in being reasonable demand; and this is simply going to that financial recycling centre, being an integrated compound the debt problems of most of the To have a world part of the southern Chinese economic miracle in state-owned enterprises. financial centre you need a stable market, the Guangdong region. The truth is that it is simply not possible to a strong currency. ft would be interesting to speculate what might create an industrial park and say, we have a f ulI currency convert- happen if integration were peaceful, if Beijing had a world-class financial centre. if Shanghai is indeed to ibility, and no broad vision, and if economic growth continued. become a serious financial rival to Hong Kong, bounda ries between Some economists already talk about the there are a number of basic things that have to movements of greater Chinese economy; and if in fact you put happen. capital. All of that togetherTaiwan, Hong Kong and China you see To have a world financial centre you need a applies in h ong some pretty significant numbers. (I think this in stable market, a strong currency, full currency Kong: none of that part explains why we are starting to see a rather convertibility, and no boundaries between move- applies in Shanghai more aggressive approach from Beijing to intema- ments of capital. All of that applies in Hong Kong tional economic issues.) Let me give you a couple none of that applies in Shanghai. I do not believe

of illustrative numbers. In 1 989, of world exports that Shanghai can become a major global financial of about $296 billion, the three Chinas contrib- centre until such time as the Chinese currency is uted about $20b. Japans exports were $27b, the fully convertible, indeed, until the Chinese ASEANs only $12b, the US $36b, to give you economy is much more positive on a market

some perspective. Four years later, 1993, with system than is currently the case. So I think in that total world exports about $370 billion, United sense that Shanghai represents no threat to Hong States had gone up to $46b, the Chinas had gone Kong. ,R^ 1E11I1[E1,W, from $20b to $3 I b, a 50 per cent increase, the If, however, you look at the economic funda- ASEANs to $2 lb. and Japan to $36b. So you are mentals, there is something quite interesting and MARCH 1997 actually seeing a very sharp rate of growth; and of different about the Shanghai hinterland as op- 26 THE FUTURE OF HONG KONG posed to the Guangdong hinterland.To a large will be an economic mistake, because China is not degree the success in Guangdong has been a ready. But it will be a political decision: unfortu- creature of regulatory management in Beijing. nately Washington and Brussels have mismanaged Most exporters are given export rights by Beijing this issue to the point where they have created a and they are allowed to export if they earn foreign political problem which has to be solved by currency. This is a regulated system, which could Chinas entry be quite easily changed by the stroke of a pen. Why isnt China ready to go into the WTO? The issue is probably In Jiangsu and Zhejiang provinces, which are The WTO is a system which actually requires Iess Beijings unwill- key parts of the Shanghai hinterland, you also have economies to be able to demonstrate that they ingness to allow a seen significant growth in manufacturing but this is have, and can manage, a full market system. ft market economy in of quite a different sort.The growth that has taken requires nations to give undertakings to other Hong Kong than its place there has been without regulation; it is a countries that they will regulate their trade in a capacity to support function of the earlier phase of agricultural way which gives fair advantage, and that only one deregulation. Farmers have been able to trade works if they have a market system. Put simply, the more widely, have built up some capital, and have WTO says that the only way you can regulate become small entrepreneurs who are building trade is with a tariff, which is the tax on the price competitive businesses which arent dependent on of a good, and the price is determined by a regulation from Beijing. It is therefore a fundamen- market economy. If there is something else in your tally far stronger and far more durable economy, economy which determines the price of a good— and export growth out of those two provinces is like the quite arbitrary pricing decision of a factory at about the same speed as what we have seen manager in a state-controlled enterprise—then down in Guangdong. the ability of that government to honour its If you work on the principle that a strong undertaking in this respect in more or less healthy economy is what underpins a regional meaningless.WTO—like GATT—is essentially a area, you might say that in the longer run Shanghai system for market economies. Chinas economy is still mixed.The state- owned enterprise sector is its largest problem. Why isnt China ready Until they act on this, until they take a decision to go the next stage of reform, they will not be able to go into the WTO? to participate in the WTO.This takes us back to The WTO is a system which the importance of the market operating within the rule of law, as a structure which enables actually requires economies businesses to make proper assessment of risk and to be able to demonstrate that investment if China cant manage that, then how will it be able to understand what is necessary to they have, and can manage, enable Hong Kong itself to continue to function? I believe that it is not so much that they dont a full market system want to do it, but that they dont know how to do itThe number of Beijing officials who actually may have better prospects than possibly do understand what is really implied in the WTO Guangdong and Hong Kong.This is a long-term application is very small; and the officials in the The doubVul future perspective. other ministries who would have to manage the for the institutions In the end, the crucial factor in Shanghais consequences of introducing a market system in which make Hong challenge to Hong Kong is political influence. their agencies simply do not understand what it is Kong so dynamic and Hong Kong people are outsiders in Beijing, about underpin the inde- pendence of its people from Shanghai are insiders; and China is still So what will be the impact of 1997 on those economy means that basically a centrally-controlled economy. I think this fundamentals that form Hong Kongs basic we will see a steady must be the factor of greatest concern in Hong strengths? It will still have the harbour, and in fact it slowdown in growth Kong—whether or not regulatory favour will be will have the best functioning airport, and it will directed towards Shanghai. Regulation wont bring remain a trade service centre.There is a longer- a better economic result, but the bias lying behind term issue as to whether the Pearl River delta will it is probably Hong Kongs biggest problem. Even be economically stronger than the Yangtze delta. then, I think the problem is less to do with the Hong Kongs rights to maintain an independent economic challenge from Shanghai than with the economy (which it has in international law—it is political challenge from Beijing.The issue is an independent member of the WTO, as indeed is probably less Beijings unwillingness to allow a Macau) will in the end count for very little in the market economy in Hong Kong than its capacity to face of political control of policy by Beijing. support one. My judgementis that I dont think that we will That brings me to the issues that have been see any overnight change, but the doubtful future canvassed about Chinas accession to the World for the institutions which make Hong Kong so Trade Organisation. Probably early this year there dynamic and underpin the independence of its 0©k0©© will be a decision, led by a change of position in economy means that we will see a steady MARCH 1997 slowdown in growth. Washington, to bring China into the WTO.That 000 27 Tl THE FUTURE OF HONG KONG China—How Stable is the Monolith?

MICHAEL OCONNOR

ROM I July 1997, ownership of the British Crown Colony of Hong Kong will revert to China. And with it will go the ownership of its six million inhabitants—for the Peoples Republic of China regards people as its chattels rather than its owners. Ownership of China and its assets is vested in the Communist Party of China which then determines which of its people may share in those assets and to what extent. China cannot afford Despite promises to respect the real political to allow Hong Kong a freedoms which exist in Hong Kong, China special political cannot afford to allow Hong Kong a special status bused on its political status based on those freedoms.To do real political so would be to release a fatal virus into an freedoms. To do so already debilitated Chinese body politic. would be to release a fatal virus into an China may, in fact, be experiencing one of its already debilitated regular cycles of dynastic collapse, as the Com- Chinese body politic munist Party leadership struggles to sustain its power and authority.The last collapse, that of the Ching dynasty, extended over half a century or more and led to a century of chaos which is yet to be overcome. Despite the economic reforms in the PRC, Nationalist government of the mainland in 1949, there exists a fundamental contradiction be- has become one of the great success stories of tween rapid economic development on the free modem Asia. With a per capita GDP four times market model and a centralised and dictatorial and inflation one-fifth that of the mainland, and political regime.The contradictions are exacer- with foreign exchange holdings roughly equiva- bated by Chinas immense size. lent to the mainlands foreign debt of $140 China has attracted world attention for the billion,Taiwan is showing how a Chinese commu- immensity of its economic growth. Based upon nity can modernise economically and as a straight-line projections, this promises that China democratic polity. will have the worlds largest economy by the Despite its size, China is also militarily year 2020. With an almost bottomless supply of impotent compared with Taiwan. Despite its labour unprotected by either government or any confrontation with off-shore missile firings early genuine labour movement, China has become last year,Taiwans smaller but much more the Mecca for foreign investment, much of it modem armed forces could have defeated any from Japan and Taiwan. Chinese threat except a self-defeating nuclear On the other hand, economic growth is attack.The prompt American intervention then restricted mainly to eastern and southern was politically valuable but militarily unnecessary. regions of China, with their ready access to Napoleon Bonaparte once warned against Michael OConnor is export markets. Elsewhere, the failure to invest awakening the sleeping giant of China. China is Executive Director of in modem agricultural technology, coupled with awake but, like Rip van Winkle, is finding adjust- the Australian the migration of 100 million peasants to the ment to the modem world threatening. Chinas Defence Association cities in search of work and a decline in available success depends upon developing a genuinely agricultural land, actually threatens famine before democratic system which, given the countrys the magical year 2020. An increase in food prices size, may require a genuine federal system. at the farm gate could reverse that process, but J IE1►Vi111[ElW, the party leadership cannot afford the alienation MARCH 1997 of the cities that would result. 28 Taiwan, originally the refuge of the defeated ®om Renovating Civil Society

PATRICK MORGAN

Commentators of all political colours seem to agree now that civil society is under threat. But what is civil society, and how do we set about saving it? Patrick Morgan provides some answers.

HERE are three levels in organizations—this is the key link in our normal values; objectivity is denied; any state: government, in- a properly working society. controversial notions are sprung on us termediate organisations, to destabilize us further; role-reversal and the private sphere of CHANGING ATTITUDES TO and victim status moves are played; and individuals and families. Our civil so- INSTITUTIONS language games using convoluted terms ciety is distorted because we allow gov- Change came about with the ` me dec- are employed. As a result, a frenetic at- ernment and middle-level organizations ade, when institutions were no longer mosphere is induced. This destabilizing to form alliances which can threaten treated with deference, but could be activity is often carried out by an alli- the room to manoeuvre of ordinary citi- ransacked in the interests of ones own ance of media commentators, public zens. At the same time, too little em- gratification and career path. Institu- opinion-formers and academics, which phasis is placed on the absorption of pri- tions were also deflected from their creates a false national conversation. vate activities into the middle sphere. stated purpose by the adversary cul- Carrying out the behests of the govern- Many people have no local, small-scale ture, whose attitude to institutions ment–quango nexus, it acts as a diver- community groups to relate to. A strong was to corrode their authority systems sionary rather than a transmission middle realm of voluntary communal by ridicule, entrism, power-seeking mechanism in the middle realm. As a groups acts as a transmission belt, and and other Leninist tactics. Our role, result the state cannot hear its own citi- also as a cushion between rulers and zens. This can be seen in the frenzied, citizens. Societies with high levels of in- overheated atmosphere created in the volvement in voluntary groups have Garner, Hindmarsh, Easton, Paxton, greater social cohesion, and fewer prob- Demidenko and Hanson controversies. lems such as crime. This has economic benefits, because it prevents social THE FAMILY CONVERSATION breakdown, and so its known as social The national conversation is increas- capital. ingly out of touch with the family con- versation, which is about quite differ- DISTORTION ent things—worries about job security, In addition, the composition of the family stability, parents worried about middle layer has changed: voluntary passing on their values, about the community organizations have de- younger generation finding its way into clined, to be replaced by large, gov- society, but with the extra burden of ernment-funded top-down ones— greater financial strain. The young are quangos like universities, welfare more likely to turn to the government agencies and semi-government tribu- quangos for handouts in their bleaker nals. This has distorted our civic cul- economic situation. Often social prob- ture, and weakened the mediating lems become visible only when they function of the middle sphere. The detonate, like Port Arthur, suicide, di- middle realm, far from being a cush- vorce, drugs, but endemic problems ion protecting citizens from the state, we thought, was to criticize and dis- have to be recognized as existing can itself become a mechanism of mantle authoritarian structures and to chronically, below the level of tragedy. control by governments, rendering embrace the new. But the contempo- There is a large private breakdown ordinary people societally mute. This rary world lacks structure and beliefs, in many families today—depression, is a form of corporate state—a cosy so applying liberal solvents, appropri- schizophrenia, health problems, alliance of the powerful. People with ate to a rigid world already gone, ex- unfocused anxieties, low-level worry, problems cant effectively seek relief acerbated existing trends toward dis- personal fragility, and so on. If natural from the sphere above them, if that integration. outlets into the wider community are realm is facing towards the govern- Institutions, emptied of their former not available, individuals are forced ment and acting against their inter- content, structures and beliefs, are now back on themselves, and the family be- ests. The public focus has to be shifted being filled up by the new wave of po- comes a beleaguered haven in a heart- toward the links between private in- litical correctness. Destabilizing cam- less world. It cant work in isolation. dividuals and voluntary community paigns are waged to disorient us from There is a type of young male who never

0©I Hh1 MARCH 1997 29 finds a pathway into society, much less employment, and has no structure in his life. Those in our society who success- fully move into employment and society are derided by the use of desig- nations like `yuppie and `young fogy. Overseas spending by Australias top mining companies There is no word or role-model which advocates a beneficial moving into so- 500 45, ciety. 450 40 SOLUTIONS 400 35 350 When tragedy occurs, families today 30 have to deal with large, impersonal 300 quangos, which are less likely to solve 25 250 their problems than privately-based, 20 $ self-help welfare groups, which are more 15 effective and efficient. With high so- 150 cial capital, there is less likely to be trag- 10 100 edy, and when it occurs, it can be bet- "E 5 ter handled. Below the level of tragedy, so 0 0 we need release from constantly living inside our own minds, we need release in11ñàflftI1988 1989 1990 1991 1992 1993 1994 1995 1996 into communal activity where we are Year ended June part of a larger venture, and the bounda- I Australia (Ihs) Overseas (Ihs) Overseas ries of our egos begin to dissolve. We proportion of total cant exist by ourselves. Its a healthy spending (rhs) relationship to community organiza- tions which keeps us going. In the social sphere, devolution means renovating voluntary intermedi- Its no secret that Australias mining com- the risks arising from land claims, miners ate institutions, and working through panies, both big and small, are increas- rated Australia as one of the riskiest in a them. This is a thing we do ourselves, ingly investing overseas. Figure 1 shows wide range of prospective countries. not governments, and it gives meaning that while investing in Australia contin- The figures come from an excellent back to our lives. Governments ues to rise, so does overseas spending— survey conducted by Mining Monthly shouldnt tell us how to live. Once which now accounts for 40 per cent of magazine, and published in their Febru- transmission of community and family the total. ary issue—required reading for policy- values has broken down, it may not There are many reasons for this; Fig- makers and anyone concerned with the naturally heal itself. A community may ure 2 shows one of them. Asked to assess investment climate of Australia. have to be consciously set up to replace the natural one that has partly gone— this is the communitarian ideal, and governments, paradoxically, may have Mining industrys World Risk Survey—Land claims category to help in this. 2 4

3.5

3

2.5

2

1.5 m ^:

0 InIIPIIRJ e E Patrick Morgan is a Senior Lecturer in English at 2 m E fL the Gippsland Campus, Monash University. V u^i `0 m 4 a 2 w G` 4 ^ g R a The foregoing is a much abbreviated version of a paper given at an IPA Seminar on 8 August I996, County and which we hope to publish in full later this year.

noo L1©0il©© 30 MARCH 1997

Figure 3 shows real effective tax rates on savings and investment income for individual investors on average personal marginal tax rates. Compared with our Asian neighbours, we are a high-tax country—no surprise, perhaps—but we perform badly even by comparison with our OECD colleagues. A figure worth beating in mind when we ponder our national savings problem.

If any single picture begins to explain Average real dollar and % gains in equivalent disposable the phenomenon of John Howardsbat- D income, 1982-94, by decile of household equivalent income tlers, Figure 4 is it. Compiled by Anne Harding, of the National Centre for 35 --9 Social and Economic Modelling, it 25 7 shows the decline in the fortunes of 5 Australias middle classes. Both in dol- 15 3 lar and percentage terms, the disposable d incomes of roughly the middle half of 1 u Australias population fell over the 6 5 a 1 .5 Hawke-Keating years.

-15

1 2 3 4 5 6 7 8 9 10 Docile of before-housing equivalent disposable Income

$ % change

From the outraged protests which ap- Executive pay, 1996 pear in the media from time to time, you 5. might think that Australias top corpo- 900 rate executives were grossly overpaid. Soo Not so, according to Figure 5 which is 700 based on a chart from The Economist 600 magazine (16 November, 1996). Levels 500 of executive pay in Australia fall very 0 - . I - I- N 400 —I r much in the middle of the ranking of 300 r0. comparable countries. 200 >^ 1004 0 w m 1 c E s c H ^ Ch c m

q Variable El Foxed

©©0U©© MARCH 1997 31 TheR Files

ALAN MORAN

THE VICTORIAN REFORMS Electrifying AND PRIVATISATIONS The Victorian electricity supply industry Changes On-Line was the ideal candidate for the first reform process. The generation part of the business had become severely degraded: political HE changes under way in the interference, poor management and acqui- Australian electricity indus- escence in a union `workfare approach had try are surpassed only by severely tarnished the jewel built by Sir John those being seen in telecom- Monash and his successors. Two salient in- munications. The integrated State- dicators demonstrate this. From the time of owned electricity suppliers such as Vic- serious reform—which actually started un- torias SEC—known to its workers as der the Kimer Government—to 1995, the Slow, Easy and Comfortable—have number employed in generation was re- been or are being dismantled. duced from 9,000 to a little over 2,000 (plus In the last three or four years, static power companies to transmit independent about 1,000 equivalent contracted-out em- monopoly structures, owned by govern- producers power across their lines at a price ployees). And during that period, the sys- ments but ruled to a large degree by trade which reflects cost. tem actually improved; in terms of the avail- unions, have been transforming themselves Great impetus to these, mainly US, de- ability of stations to run—a global measure into hubs of enterprise. Marketing and fi- velopments was provided by the Thatcher of electricity performance—there was an nance staff now share the management with Governments disaggregation of the Eng- increase from a dismal 78 per cent to over engineers, who traditionally have domi- land and Wales electricity industry, its pri- 90 per cent. nated managerial functions. Costs and vatisation and the introduction of a mar- Even so, during its final year under gov- prices are falling. Service is improving. Gov- ket pool system. Under the pool system, al- ernment ownership, the industry returned ernments around the world are cashing in most all electricity is bought and sold on an effective dividend to the government of by exchanging the low returns that have the basis of price bids offered to the market only $400 million. This was on assets which, characterised the state-owned electricity in- by generators, with `negative bids by some in the light of subsequent sales proceeds, dustry for sums large enough to impress even users who can elect to disconnect where the have a market worth of well in excess of the most vehement critics of privatisation. price is high. Though successful in bring- $20 billion. The transformation was made possible ing lower costs, the UK reforms had a dis- The reform process divided the indus- by progress in technology and new ways of appointing effect on customer prices since try into five generation businesses, five dis- thinking about management. Economists generation was largely left in the hands of tribution/retail businesses, a transmission played a key role in sanctifying, theorising only two firms, which were able to raise business and a system operating business. about and popularising the potential gains prices safe in the knowledge that they would All five distribution/retail businesses have from incorporating electricity into a mar- not be squeezed out of the market. been sold; one generator has also been sold ket framework. Within Australia, many have contrib- and another is undergoing the sale process. Technological progress enabled a low- uted to devising the market system that is All of the distributors were sold to firms ering of the price of electricity generated now in its infancy. Pioneering work on cre- that are fully or partly American-owned. from smaller power units, thereby reducing ating electricity markets was undertaken 15 The sum realised from the sale of these busi- the advantage in economies of scale that years ago at Monash Universitys Centre of nesses, $10.4 billion, was several billion very large units enjoyed. At the same time, Policy Studies; a major stimulus was pro- dollars higher than the Government and there was an increasing awareness that the vided by two Industry Commission reports its advisers had expected. The generator sale risk of system collapse, when a unit breaks on the matter in 1988 and 1991; a joint was to one of the UK generation compa- down, is higher when depending on a few Tasman lnstitute/IPA study for Project Vic- nies for $2.4 billion. large power plants than when relying on toria fleshed out a specific approach for Vic- The high prices paid for the distribu- numerous small plants. In the United toria in 1991; whilst Treasurer Stockdale in tion businesses, where perhaps 90 per cent States, this awareness was accompanied by Opposition had developed his own outline of revenue is derived from charges on the regulatory measures, embodied in the Pub- of the reform process. monopoly electricity lines, is not due to the lic Utilities Regulatory Policies Act, which The finishing touches were developed purchasers seeing an opportunity to milk the specify that integrated electricity firms buy by the consultants under Peter Troughton assets by allowing them to be run down. The power from small producers and co-genera- within the Victorian Electricity Reform sale conditions require the businesses to tors. Unit. Though the Hilmer report on com- maintain the pre-existing service levels. With the existence of numerous pro- petition policy was released in 1993, the Clearly, the purchasers saw value in the sta- ducers, electricity users had the opportunity reform process in Victoria was already un- bility of earnings from electricity, the possi- to shop around for power contracts. This der way by then, and the seeds of a national bility of implementing further cost reduc- was further facilitated by obliging integrated reform process had been planted. tions, and in using the Victorian businesses

0©L!A0©©

32 MARCH 1997 as a base to win business elsewhere in Aus- poles causing outages, excessive zeal in dis- that requires retailers to demonstrate plans tralia. In addition, the premium prices in- connecting customers who dont pay their to reduce their greenhouse gas emitting clude a factor for captive customers, whose hills, neglect of community service obliga- energy sources—a measure that Victorian prices, though set to reduce by between 9 tions and, above all, power outages. concerns see as targeting Victorian brown and 22 per cent in real terms, are clearly in These claims have been carefully ana- coal energy generation which has intrinsi- excess of what is achievable in a fully con- lysed by the ORG and found to be ground- cally higher carbon dioxide emissions. testable market. less. For the second half of 1995 ORG The NSW government is also ideologi- reported that `overall disconnection levels for cally opposed to privatisation, and it is un- PERFORMANCE OF non-payment fell; guaranteed service levels were likely that its industry will therefore achieve VICTORIAN DISTRIBUTION maintained; and delivery of community serv- the considerable added efficiency gains that The strong light of public scrutiny was ice obligations such as concessions and crisis as- Victoria is reaping. mainly focused on the distribution part of sistance has been maintained and in some ar- Queensland has a highly efficient gen- the industry. This was because new compa- eas there is an indication of improved access. erating industry and its main distribution nies with a direct customer interface were In the case of unplanned outages, the business had moved at an early stage to pre- established and privatised. ORG stressed the difficulty of assembling vent over-manning. Nonetheless, its system At the present time about 40 per cent comparable measurements due to ad hoc fac- remains centrally planned; and the aban- of the electricity sales are open to competi- tors. Data were not available for one part of donment of the proposed Eastlink connec- tive retailers. The distribution businesses one distribution business territory which tion with NSW indicates that it does not charge a regulated price for transport of had been inherited from municipal electric- wish to take its chances with competition power, but have no lien on the customers ity undertakings. Subject to this, the ORG from the south. within their territories, a great many of found no evidence of an increasing trend in South Australia suffers from an intrin- whom have switched suppliers. Price com- the number of unplanned outages since the sically uncompetitive generation base; it petition has been fierce, except for the very disaggregation of the SEC. already imports some 12 per cent of its elec- largest customers who had previously ne- tricity from Victoria and has announced got iated abnormally low prices. For the rest, plans to explore a further link with NSW. prices have fallen by an amount which It has been reluctant to open its retail mar- anecdotal evidence puts at between 5-10 ket, partly because it sees opportunities for per cent. exercising monopoly purchasing leverage The competition has also included with a single retailer and partly because it about 10 new firms (mainly interstate re- considers compensation is due to it for build- tailers), who can readily obtain retail li- ing the link with Victoria. cences in a process overseen by the inde- Neither Tasmania nor Western Aus- pendent Office of the Regulator General tralia is likely to be connected to the na- (ORG). Naturally, the Victorian businesses tional grid in the near future. Western Aus- are irked at the slow progress of other States tralia has announced draft proposals for in opening up their own markets. opening up its retail market. Victorian distribution activities, at least The turmoil in Australian electricity is those of the SEC (about 15 per cent of dis- likely to continue. Technology advances tribution was controlled by local govern- will allow much better measuring of usage ments in Melbourne), had been rather less down to the household level and allow a inefficient than those of most other Aus- plethora of tariffs geared to customer pref- tralian distribution businesses. Customer-to- erences for the quality of supply, measures staff ratios, for example, at 360 in 1993-94 like opting to be disconnected when the were higher than in all States other than spot price is high and receiving a discount Western Australia and had shown a one- in return. Such measures will allow a much third improvement since 1989-90. By THE FUTURE OF DISTRIBUTION better matching of supply with demand, and 1992--93, distribution costs were equivalent AND RETAILING reduce the need for expensive reserve gen- to those in South-East Queensland, for long The Victorian reforms have set the pattern eration. They will also make it difficult to the most efficient Australian distribution for other States. The reform process has cre- compare prices in the future, since custom- business. Even so, overseas comparisons ated very lean and customer-focused firms, ers will have options in price/quality illustrated that further economies were pos- massive amounts of State debt have been trade-offs. sible. retired, and the market liberalisation is al- In addition, electricity distribution and During 1995, when for most of the ready paying dividends in lower prices. transmission, with its dedicated wires and period most of the industry was privatised, All States are obliged to open up their metering systems, is likely to play a role in all the distribution businesses continued to markets over the next few years under the telecommunications in the future. Privati- implement cost reduction exercises. These national competition policy reforms. sation is essential to this process since novel have included further employee downsizing, NSW has announced a timetable for departures from the traditional business, of about 12 per cent. opening up of its market which it plans to with the risks they imply, make it unlikely There have been some highly publicised complete earlier than Victoria. The NSW that State-owned businesses will be allowed developments that are claimed to demon- reforms have, however, created two very to experiment and seek out entrepreneurial strate the systems demise (the latest of large distribution companies—one of which gains. which was a blackout, caused by a traffic approaches the size of the entire Victorian Dr Alan Moran is Director of the Deregulation accident, which forced the abandonment market—and has left a duopoly in genera- Unit within the IPA in Melbourne. of the most sacred Victorian pastime). tion. The market opening appears, however, These have included claims of neglect of to be accompanied by some green baggage ©120

Effl©0il©© MARCH 1997 33 The Pyrrhonist

Perceptions of Innocuous enough perhaps. Indeed, it looks very much like a moral imperative: Sustainable no rational person could advocate deliber- ate environmental degradation, and ideally Development we should leave the world a better place for human habitation than when we en- RONOUNCEMENTS from tered it. • government sources in most But things are not that simple. In a countries characteristically highly interactive society there are com- contain two types of exhorta- peting moral imperatives, or at least desired tion that sit uneasily together. On the one objectives—including issues like the rights hand, we are urged to pursue economic to life, food and comfort, and international growth to provide both more employment and intergenerational equity. While some and the wealth required for social objec- of these suffer from the perspective of moral tives. On the other hand, almost as a form values fashioned in a past era, when scope of penance, we are counselled to mend our cept in terms of votes. Where the political for expansion was conceived as infinite, the profligate ways in order to ensure ecologi- climate has fostered the profile of special conflicts are no less real. Yet in achieving cal sustainability. Indeed, the use of the interest groups this has given the environ- our objectives, boldness has paradoxically word sustainable has become hackneyed, mental movement unprecedented influ- been replaced by timidity. and with it the appealing ideal of sustain- ence. Unfortunately cant and self-delusion In his thought-provoking monograph able development. are endemic to much of modem environ- Dont Panic, Panic: The use and abuse of sci- Throughout modem history, people mentalism. Cant, because words and argu- ence to create fear, the late John Farrands have wanted to believe that a better soci- ments are often used for effect rather than begins: In our time we have created the ety and organisation can exist and be cre- meaning; and self-delusion, because for most unnecessarily fearful generation of ated. Betterment now means not only that every problem it is assumed that a solution humankind ever to have populated the the socio-economic system could be more exists—and is obvious to those with acu- earth. He didnt cite the Precautionary equitable, hut also that it should be able to men. Principle; yet he might have done because resolve the problem of an increasingly Over the past two decades, emerging it appears to reflect a fear for the future and wealthy society and a deteriorating envi- awareness of the sustainable development a timorous view of the relationship between ronment. Quality of life is what we are all problem has placed it high on the political humanity and the environment. It implies concerned about. agenda in many countries. This has had the that almost any developmental activity af- Yet the idea that all is for the best in effect of giving the environment a relatively fecting the environment has a latent ten- the best of possible worlds begs the ques- higher priority than before in the alloca- dency to do more harm than good, and that tion of what is possible. As an imprecise tion of government funding. Unfortunately societal benefit can no longer justify fur- ambition, sustainable development provides it has also meant that truth, rather than ther environmental alteration. fertile ground for idealists and well-mean- according with fact or rational analysis of The principle is often associated with ing evangelists who seek to impose or en- the situation, has become what people can the maxim lack of scientific certainty courage ethical changes in the way of the be persuaded to believe by constant repeti- should not be used as a reason for taking world. tion from various environmental pressure no action; yet this is a redundant statement It is now well known that sustainable groups. For many, environmental inviola- given the rationally sceptical perspective development was coined in the 1987 bility has become the new religion, where that certainty of knowledge is unattainable. Brundtland Report, Our Common Future, faith is more powerful than fact. Perhaps somewhat ironically, it was the and defined as development that meets the A major plank in the platforms of those nineteenth-century anarchist Michael needs of the present without compromis- inclined to this view is the Precautionary Bakunin who expressed concern about the ing the ability of future generations to meet Principle as a means to help stop the rot of tyranny of the minority over the majority their own needs. But the possible, even environmental degradation. This principle in the name of the many and the supreme likely, mutual inconsistency of the two parts advocates that, when faced with any agri- wisdom cif the few; yet this is the direction of this definition seems to have escaped cultural, industrial, mining or tourist in which the more volatile environmen- those who drafted it. development proposal, regulators should talists might take us. Rational criticism of the concept has anticipate environmental harm and act to In 1992, the monograph Beyond the been swamped by the powerful and grow- ensure that such harm doesnt occur. Thus Limits was published. This is the 20-year ing awareness of an increasingly obvious the onus of proof is shifted on to develop- sequel to the original Limits to Growth, deterioration in our physical and biological ers who, so the principle demands, must sponsored by The Club of Rome. It is a environment and an awareness, too, be- show that their projects will not cause any document likely to induce mixed feelings cause people are becoming a little fright- harm to the environment before they are in the reader. None of us could do other ened, of the political potency of the con- allowed to proceed. than laud the moral principles upon which

RIEIVIIIEj

34 MARCH 1997 their recipe for meeting the needs of the pect that this is not as important as the con- ing or even abandoning further develop- poor, for equity and for sustainable devel- sequences of such a policy on employment ment in order to achieve a sustainable opment is based. They emphasise the need and wealth: commerce and industry on lifestyle or to justify a doctrinaire social for compassionate policies effectively di- which these depend rely upon the demands objective. A more realistic approach would rected at transferring wealth from rich to of an expanding society. begin by posing the question: Is it wise pre- poor nations, and a comprehensive revi- However desirable ecologically they maturely to compromise national develop- sion of policies and practices that perpetu- may be, the prospects of any significant ment and quality of life, won by means of ate growth in material consumption and medium-term change in population trends diligent mental and physical effort, in population. In fact, social scientists appear are not large. Nationally this is illustrated favour of what could be a vain and unreal- to have annexed the environmental com- by a recent call for action by the ALP to istic attempt to achieve the unachievable? ponent of sustainable development and develop a population policy for Australia; As a society, we should focus on environ- incorporated it into a broad moral crusade. but at the same time, the adverse social mental damage control and develop a triage But the likelihood of such an ethical consequences of containing population are policy: to assess what can be done, easily; transformation in the way of the world is given more weight than the adverse envi- what might be done, affordably; and what not great. The balance between altruism ronmental consequences of not doing so. is unrealistic and would be wasteful to at- and selfishness in the statistics of human Internationally, it would be naive to believe tempt. behaviour, as distinct from individual com- that carrying capacity is high on the prior- Requirements for the full sustainable passion and personal character, is not likely ity list of the many underprivileged and war- development ambition have been mas- to change. One does not have to be a mis- ring factions already actively engaged in sively underestimated, yet several useful anthrope to recognise that average human survival activities that degrade the envi- actions appear profitable: behaviour on a one-to-one basis accords ronment in one way or another. For such • seek to understand the complex proc- with a different standard of morality than groups, maintaining current existence is esses at work shaping our society, it does on a tribe-to-tribe or a nation-to- more urgent than any thoughts of the anticipate broad aspects of the future nation basis. Clearly it is relevant to ask viability of future generations. as best as we are able, and formulate a whether a truly equitable readjustment can Realism has been defined as the appli- policy which combines adaptation and be achieved without a vast reduction in the cation of thinking to wishing. When plan- damage control; quality of life for many and without the • refuse to be stampeded by emotional emergence of internecine conflict of the concerns and media hyperbole to chase type which is now afflicting the republics non-existent solutions that might com- of the old socialist union and many other promise our own development and nations. quality of life to no good effect; The advocacy of sustainable develop- • promote the development of a sound ment is occurring at a time of more rapid economy to provide the source of escalation in human numbers than ever wealth required to minimise environ- before, when it is at last being appreciated mental degradation; that there is a limit to many available re- • take steps to assess the carrying capac- sources, and when a decline in disposable ity of Australia and to develop an wealth in most developed countries has appropriate immigration policy—and been obvious for a decade or more. in doing this we should not allow os- Realistic attempts to address national tentatious moralising to persuade us to aspects of the problem were considered at adopt an agenda devised for other pur- the Australian Academy of Science Sym- poses; posium `Population 2040: Australias • and above all, change from wishful Choice, held in April 1994. There, par- thinking to realism when planning for ticular concern was expressed about the ping for the future it is clearly necessary for the future. possible doubling or tripling of the size of these plans to be based on realism—not The term (ecologically) sustainable Melbourne and Sydney, the need to serv- wishful thinking. In any case, it would be development is not only an oxymoron, its ice them, and their impact on surrounding more honest to admit that until world popu- current use is hypocritical because it im- regions. The full complexity was consid- lation and associated expectations stabilise, plies what it cannot mean. It hints at a ered in Australias population carrying capac- environmental damage control is a more real- solution that doesnt exist and is close to ity, the 1994 Report of the House of Rep- istic aim than ecologically sustainable de- becoming the modem version of `the opium resentatives Standing Committee for Long velopment (ESD). Indeed, on the national of the people, an anodyne to assuage rec- Term Strategies. The political difficulties scene, if Australias population is not -to be ognition of the inevitable consequences of are indicated by what Doug Cocks, in his stabilised in the medium term, environ- humanity. Even if interpreted to mean a book People Policy calls the Committees mental damage control, together with stabilised socio-economic-environmental somewhat confused report which manages improved efficiency and conservation of world system, all evidence suggests that this to avoid making any recommendations. resources, is the main thrust of the princi- is impossible for at least 150 years, if then. Cocks himself argues that a much better ples set out in 1992 by the nine govern- Nevertheless it has some value as a con- case exists for a policy aimed at stabilising ment-sponsored ESD working groups. cept advocating planned damage control Australias population in a generation or The internal contradiction in the term and adaptation in a world changing because so than for the current tacit policy of sustainable development is so rarely men- of our own existence. doubling the size within a few generations. tioned that one wonders if even to point Urban quality of life emerges from his to it might be heresy. Sometimes the possi- Dr Brian Tucker is a Senior Fellow of the IPA and analysis as the single most important issue bility is used as a prelude to a moralistic Director of its Environment Unit in the population debate—although 1 sus- but nebulous argument in favour of limit- U130

0©L!1H©© MARCH 1997 35 We are all now supposed to be travel- So, what did she say? Town Hall believes our commu- lers along the `Information Super A trip to the library to wade nity is of value. An interactive, Highway. As a frequent user of the through Hansard did not seem attrac- open and honest debate of the is- Internet myself, I can tell you that the tive. So I searched the Internet. What sues within the conservative corn- Super Highway is rather more like a did I find, but Australian Hansard on munity will help us all in the fight pot-hole strewn road. Or, rather, sev- line! Look at: against those who would sacri- eral million of them, intersecting fice the individual and freedom http:!lhan sard.aph.gov.au randomly, with only a few uncertain for political gain and big govern- signposts to guide the way. From this address you can click ment. But at the end of many of those your way to both Senate and House As with most things on the roads are treasure-chests of informa- of Representatives Hansard. Not only Internet, and as you can see from the tion, especially for people who look are the weighty utterances of all par- spelling, its heavily biased towards to free enterprise to solve problems liamentary sittings recorded, but most United States users and organisa- rather than to the Nanny State. of the various Committee sessions as tions. Some of the organisations rep- This is the first in a series of col- well. A means is provided for search- resented include, in addition to the umns devoted to helping IPA Review ing the data to find the nuggets you founding ones, the Media Research readers find some of those treasures. seek. It took a little working out, but Center, Citizens Against Govern- In future columns, Ill point to text- in only a few minutes I had ment Waste, the Center for Indi- based information sources: Usenet all of Pauline Hansons par- news groups and mailing lists. In this liamentary speeches loaded issue, let us stick to what many think onto my PC. is the Internet: the World Wide Web. So what did she say? Go a, So, to give a taste of whats out and have a look yourself. P there, Ill point you to two different Hint: search for `Hanson American sites, and a challenging using the section marked study relating to the current firearms Speaker in the House of debate. But let us start locally. Representatives. ^^. .

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HANSARD TOWN HALL

Listening to yet another routine de- This is not so much a treas- M1:" Val silt f¢1, V arr. - nunciation of Pauline Hanson MHR ure at the end of a rutted on the ABC the other day, it occurred road, but a node and a to me that I didnt really know what meeting place. The treasures them- vidual Rights, the Progress and Free- it was that she had said that was so selves are near. dom Council, the Foundation for offensive. After all, my knowledge Town Hall is a gathering place for Research on Economics and the En- was limited to what the newspapers a number of conservative US organi- vironment, the American Associa- had chosen to print, what the radio sations. It was originally set up by tion of Christian Schools, and twenty and TV had decided to report. And William E Buckley Jrs National Re- others. Town Hall offers direct links almost all of this was buried under view and the prestigious Heritage to the Web sites of each of these or- (negative) opinion anyway. Foundation, but now has many mem- ganisations. ber organisations. It is A number of the organisations intended to provide a offer publications, or at least samples. $^^ .as place for conservative For example, the current issue of the ^P E e public policy organisa- Heritage Foundations Policy Review tions to be easily acces- is available, with the full text of sible to the public. To almost all of the articles. In the No- quote from its introduc- vember/December 1996 issue these tion: included `Free At Last—Black . . The organizations that Americans sign up for school choice have chosen to become by Nina Shokraii, a discussion on citizens of Town Hall education vouchers by Douglas D. do not agree on every Dewey, and `Three Cheers for Three issue, yet that is why Strikes by Dan Lungren. This last is

0©1NUM 36 MARCH 1997 an analysis of the significant drop in CRIME, DETERRENCE, AND William A Niskanen,Trade and Hu- crime rates-8 per cent in the last RIGHT-TO-CARRY man Rights: The Case of China by year—in California, following 1994 CONCEALED HANDGUNS James A. Dorn, and Bureaucratic legislation requiring life sentences for And now a fully self-contained treas- Corruption in Africa: The Futility of persons convicted of three felonies. ure. Cleanups by John Mukum Mbaku. The National Review link takes the You may have read of a recent US Significant speeches include one Internet surfer to that magazines study that challenges some of the con- on the way Chiles state pension sys- home page. This does not provide the ventional wisdoms relating to firearms tem was privatised, made by Jose full text of the magazine, but usually controls. The study, by two academ- Pinera, the then Minister for Labour, several of the regular columns and one ics at the University of Chicago— and by Nathaniel Branden on The or two feature articles. John R Lott of the School of Law Likewise, the Social Critic offers and David B Mustard of the De- two of the five feature articles on line. partment of Economics—suggests One of the viewable documents is de- that those US States that have !IAA:,: 1.,r;. Ilia .h,nMd. lightfully titled The Ghouls of Gram- passed laws requiring local jurisdic- matical Egalitarianism while one that tions to issue a permit to carry a cant be viewed actually concerns our concealed firearm to all non-crimi- end of the world: Deregulation of the nal applicants have seen signifi- ► h>st L4 New Zealand Labor Market: Things cantly reduced crime rates. AbWtthe 1e Sj reors Pral^am Done and Left Undone by Charles Crime, Deterrence, and Right- Tax Cut ►Nerr at Cato Balanced Baird. to-Carry Concealed Handguns ftdgos. ►Cab Calendar Town Hall directly offers several will be available for perusal in the _. LL. ef,xo RealAóoAives items beyond those provided by the United StatesJournal of Legal Stud- tomu , member organisations. For example, ies in January 1997. But its avail- aYnFl there is on-line access to the col- able—at no cost—from the au- umns—on the same day they are pub- thors at: lished—of fifteen well-known con- Foundations of a Free Society. These http://Iaw.lib.uchicago.edu/ servative writers, including Thomas can be down-loaded or read as text. faculty/lottlguns.html Sowell, William Buckley, Robert But interestingly, the Institute pro- Novak and Dan Quayle. I cant com- It is provided in several different vides RealAudio recordings of them ment on the quality of these— word processor formats. so that one can listen to the speeches although their reputations would sug- as given. Another speech in this cat- gest that they are very worthwhile— egory was given by John Lott, the co- as access costs $US25 for six months, THE CATO INSTITUTE author of the firearms report, along and I simply do not have time to keep While Town Halls focus is essentially with rejoinders by some critics. up with the high quality free material conservative, the Cato Institute has a The Cato Institute may be found on the Internet! sharper free-enterprise, small-govern- at: http://www.cato.org If you prefer to communicate two ment edge. One example of this is the ways rather than just passively read, Institutes boast that In order to main- there are also two bulletin boards and tain an independent posture, the Cato A SHORTCUT achat feature. Chats are several us- Institute accepts no government fund- I shall make it a practice to place links ers engaging in direct conversation ing. on my own personal web page to all with each other, but via keyboard The Institute gives congressional the addresses mentioned in these col- rather than mouth. Netscape Navi- testimony, hosts addresses by guest umns. Go to: gator 3.0 is needed to use this feature speakers, commissions and publishes in Town Hall. studies and issues a journal. In short, http:llwww.ozemail.com.au/ Finally, Town Hall features a it has many similarities with the In- —scdawson graphical map and a search facility to stitute of Public Affairs, both in man- and from there you can reach any of help you find what you are after. ner of operation and courage to pro- the above with a simple click of the The address of Town Hall is: ceed against the stream. mouse. I may be contacted on The full text of the latest issue of http:I/www.heritage.orgl scdawson @ozemail.com.au and is available on line. townhall The Cato Journal would welcome advice from readers This includes such articles as Welfare on any other treasures they have and the Culture of Poverty by found.

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MARCH 1997 37 MythsAbout the MinimumWage

PHILIP LEWIS

The effects of imposing a minimum wage are one of the most emotive and yet least understood issues in economic and labour market debates. Given the importance of this issue, particularly in the context of the currentACTU `Living Wage Case, it is timely to provide a reasoned analysis of the impacts of minimum wages.

HE clue to understanding the there is a great deal of substitutability be- There is a small fall in total employment, minimum wage debate is the tween workers. For instance, at various since average labour costs are higher. But nature of the labour mar- times, relatively junior doctors can per- there is a large fall in employment of ket.The concept of the labour form duties of specialists, registered nurses workers who could otherwise have earned market is an abstract one, but is never- often perform duties which would well be below the minimum wage. theless useful for analysing issues such as the domain of doctors. TAFE-trained In summary, the impact of the mini- the overall level of employment and un- enrolled nurses can be substituted for uni- mum wage on total employment and un- employment. versity-trained registered nurses and, in- employment is minimal; but the impact There is considerable empirical re- creasingly (particularly in aged care), rela- on low-skilled, low-paid workers is very search on the labour market in Australia tively unqualified carers perform duties great. and the effect on employment of rises in which were once the province of nurses. Interestingly, this logic also applies to average wages. This research indicates Most empirical studies of individual the analysis of wage subsidies. Whereas that a 10 per cent increase in average labour markets point to the high degree minimum wages increase the cost of em- wages reduces employment by about 8 per of substitutability, with respect to demand, ploying low-skilled workers, wage subsi- cent. Thus, moderation in average wages between types of labour. There is also dies reduce the cost of employing them. increases employment; so, with the usual strong evidence that, given the degree of Wage subsidies should therefore increase caveat that all other things are equal, substitutability, the demand for labour in employment of low-skilled workers, such unemployment will fall. these more narrowly defined labour mar- as the long-term unemployed—but at the It is tempting to use this evidence to kets is highly responsive to relative wages. expense of other workers. Employment suggest that imposing a minimum wage Also, generally, the lower-skilled the effects operate through substitution of one above the market rate will reduce employ- worker, then the more responsive is de- group of workers for another, with total ment and increase unemployment. Since mand to relative wages. In addition to employment largely unaffected. most workers, however, would in any case demand being highly responsive to rela- From the viewpoint of an economist, obtain a wage higher than the minimum, tive wages, research shows that labour it is somewhat amusing to observe the the effect of imposing a minimum wage supply is also responsive to relative wages. seemingly opposite views of those on the increases the wages only of those who Given the above framework it is rela- right and left of politics debating these would otherwise receive the lowest wages. tively easy to understand the impact of issues. The right dismiss wage subsidies The effect on the average wage is small minimum wages on employment and un- as having no effects, but minimum wages and, thus, the impact on employment and employment. The imposition of mini- having dramatic effects on employment unemployment is also small. This theo- mum wages affects only those in low- and unemployment; whereas the left retical argument is supported by empiri- skilled, low-paid jobs. These individuals adopt the opposite view. Yet clearly, both cal evidence which shows that the are, generally, very poor substitutes for the views are mistaken. The impacts on to- impacts of minimum wages on total em- majority of the workforce and, therefore, tal employment are small but very signifi- ployment and unemployment are small. minimum wages have little impact on the cant for workers directly affected by the To get to grips with the effects of a wages and employment of most workers. policy. minimum wage it is necessary to dig But those workers earning just above the So what are the policy implications deeper into the operations of the labour minimum wage are highly substitutable of all this? The overview given here sug- market. In reality, there is no such thing for those who would otherwise earn be- gests very clearly that rather than seek- as a single labour market but rather there low the minimum. This is because al- ing to help low-income workers by adopt- are very many labour markets each with though there is still a skill differential ing minimum wages, it is better to help their own supply and demand. For in- between them, the jobs are still, relatively, them through the social security system stance, employment in a hospital will be unskilled. or some form of negative income tax. The determined by markets for specialists, The impact of the imposition of a cost to the government is also likely to doctors, nurses, clerks, cleaners, etc., each minimum wage is for employers no longer be less than the unemployment benefits with different amounts of required skills to employ those who would have earned which would need to be paid to them if and characteristics resulting in different below the minimum wage and, therefore, they cannot find employment at the wages. An important characteristic of the unemployment among this group rises. minimum wage. multitude of labour markets is substitut- These workers, however, are substituted Professor Philip Lewis is a research associate of the ability. Although it is common, particu- by more workers earning just above the Centre for Labour Market Research, Murdoch larly in the professions, to think of occu- minimum wage. Thus, the net effect on Universi ty in Perth. Ofl pations being rigidly defined, in practice employment and unemployment is small. II DRINU © 38 MARCH 1997 Book Reviews

Hindmarsh Heresies sections of the quality media, whose likes of Pauline Hanson. If Devine is investigative skills stopped well short of correct, it would point to a simplistic and Ron Brunton reviews any attempts to discover the real rea- denigrating attitude towards Aborigines sons behind Mileras retraction. held by much of the media, one in which Womens Business Kenny was completely vindicated by Aborigines have to be assigned to a lim- the Hindmarsh Island Bridge Royal iting handful of stereotypes in the sup- by Chris Kenny Commission. But many of his colleagues posed interests of reconciliation. In fact, Duffy Snellgrove, $19.95 seem not to have forgiven him. Despite Kenny makes it clear that the real he- its obvious newsworthiness, Ian roes of the story were Aboriginal An anecdote in Chris Kennys hook McLachlans launch of the book went women; the dissidents who stood to gain epitomises the blather that passes for virtually unreported by the `quality nothing from the construction of the spirituality amongst those who took the media, and the speaking tour of south- bridge, and who acted out of a deep sense Hindmarsh Island `womens business eastern capitals that Kennys publisher of integrity. Prominent Aborigines such seriously. Sarah Milera, an important had organised had to be cancelled. The as Mick Dodson and Marcia Langton Ngarrindjeri figure in the fight against could have made a major contribution the bridge, was sitting with a white ac- toward allaying public suspicions about tivist on a riverbank. Picking up a stone, heritage and land claims by celebrating she said, `I didnt take this stone from Kenny makes it clear the dissidents as an example of Aborigi- the earth. The earth gave it to me. that the real heroes nal commitment to the truthful repre- When Im finished, I dont drop it. The sentation of the past. Instead, they earth accepts it back. of the story were backed the fabricators. Such sentiments have little to do Womens Business is an informative with any traditional Aboriginal ideas. Aboriginal women; and most readable account of one of the Rather, they represent the triumph of more scandalous episodes in Australias what might be called the new the dissidents who recent history. Kenny has supplemented assimilationism, the willingness of some the evidence presented to the Royal Aboriginal people to misrepresent their stood to gain Commission with interviews with many culture in conformity with white Aus- of the key people—although it is clear tralian fantasies about indigenous nothing from the that he was unable to speak with any of cultures. As Kenny shows, womens the proponent women. This was one of business was a similar response to white construction- of the the costs he had to bear for his own role desires—in this case the need of an un- in helping to expose the fraud. Part isan- likely coalition of wealthy property own- bridge, and who ship on the side of truth is no vice, but ers, greens and unionists to produce a the book is fair. It certainly deserves a decisive reason for preventing the con- acted out of a deep very wide audience, and I strongly rec- struction of the Hindmarsh Island ommend it. Bridge. Up until September 1993, there sense of integrity had been no Aboriginal objections to the bridge, even though Ngarrindjeri leaders were fully aware of the proposal, launch was at Parliament House on 6 and had had previous consultations with November, a few hours after debate had Are We Only Half the developers. begun on the Hindmarsh Island Bill in Chris Kenny was himself a major the House of Representatives. Dorothy the Men We Used player in the Hindmarsh Island affair. Wilson, Dulcie Wilson and Jenny He is the Channel 10 newsman to Grace, three of the fourteen to Be? whom one of the leading Ngarrindjeri Ngarrindjeri women whose testimony anti-bridge campaigners, Doug Milera played such a crucial role in exposing Roger Bate reviews (Sarahs husband), confessed his insid- the fraud, spoke at the launch. Dorothy Our Stolen Future ers knowledge of the fabrication of Wilson almost broke down in tears as `womens business, only to recant a few she recalled how her decision to speak by Theo Colborn, John Myers and weeks later after being subjected to enor- out had destroyed many of the close Diane Dunuznoski mous pressure. A whole episode of the friendships she had enjoyed with other ABCs Media Watch was devoted to Ngarrindjeri. As the rust settles on the Brent Spar oil an attack on Kenny, unjustly accusing Frank Devine has suggested an al- platform and the memory of him of having created the fabrication ternative reason for the media silence: Greenpeaces manipulation of the me- story by thoroughly unethical means. He the fear that any publicity for the book dia fades, environmental alarmists are also faced strong criticism from other might provide aid and comfort to the already back in force. Our Stolen Future

[RIEJv1IIEIWI MARCH 1997 39 by Theo Colborn, John Myers and ple is provided. It is difficult to ensure Tolman lists 43 plants and foods in the Diane Dumanoski was released in Brit- identical procedures within experi- human diet that have been shown to ain last year, after the 25,000-copy first ments, an art form to compare one study be oestrogenically active. The list in- run in the U.S. sold out within a month. with another. It is also remarkable how cludes carrots, coffee, garlic, lime, po- It has already been compared with sperm counts seem to vary by geographi- tatoes and wheat. Hardly a rare collec- Rachel Carsons famous Silent Spring, cal location: according to Mr Frisch, tion. which warned about the effects of the New Yorkers are nearly twice as potent After drawing on many medical and pesticide DDT on wildlife. In fact, the as men from Los Angeles. veterinarian studies, Mr Tolman con- U.S. National Academy of Sciences has The authors strongest specific exam- cludes that.. .the estimated oestrogenic already convened a panel on the issue ple of a damaging synthetic disruptor is effects from (naturally occurring oestro- it highlights and the Environmental the case of diethylstilboestrol (DES). gens in food) are 40 million times Protection Agency is about to announce Mothers were directly fed high doses of greater than those from synthetic new regulations in accord with the it in hopes of preventing miscarriages. chemicals, but it is questionable that books recommendations. Reproductive effects were supposedly either is impacting on human health. All the concern is about supposedly significant, particularly in male off- The authors of Our Stolen Future be- falling sperm counts and declining fer- spring. This incident is the primary lieve that an across-the-board ban is the tility, purportedly caused by synthetic model for the books conclusion: We are only fail-safe strategy for ridding the chlorine-based chemicals in the envi- certain of the following: The effects of world of hazards still unknown. How- ronment. The chemicals mimic natural DES ... are oestrogenic. Both sons and ever, as the journal Nature states in its oestrogen (female) hormones and could daughters exposed in utero experience ... article Masculinity at Risk,... this will disrupt human development at critical reduced fertility. not be the first occasion when a pre- periods, particularly in utero. sumed link between an environmental Like many environmental activists, contaminant and a risk to health has the books authors invoke the precaudon- melted away on close investigation. ary principle. They conclude that these The fact is that Our Based on such thin evidence, it con- chemicals should be assumed guilty un- cludes, it would be self-defeating to push til proven innocent: since sperm counts Stolen Futu re is for an outright ban of an oestrogen-dis- are falling, we should ban the use of rupting pesticide like DDT when we hormone disruptors. simply unconvincing know for sure that many people are dy- But such a move would be rash con- ing from mosquito-induced malaria. sidering that the study providing the because it ignores Many science researchers will nev- principal evidence for declining sperm ertheless be delighted by Our Stolen counts is seriously flawed. Author Niels contradictory scien- Future. Britains Medical Research Skakkehack did a meta-analysis of 61 Council recently published a report on studies conducted between 1938 and tific evidence and male fertility which also conveniently ignored the findings of the New Eng- 1990. But some experts say that Mr pays no attention to Skakkebacks data from the early years land Journal of Medicine. As James Le are minimal and haphazardly collected. the role of natural Fanu, the Daily Telegraphs health col- Evidently, men with low sperm counts umnist, remarked recently: The MRC were excluded from the early data sets. hormone disruptors did not include this information—pre- According to Richard Sherins of the sumably because to do so would make it U.S. Genetics and IVF Institute, re- in the environment more difficult to apply for the grants analysis of the data from the best 48 of they were seeking to do further research those studies actually reveals a statisti- on the matter. cally-significant increase in sperm con- The fact is that Our Stolen Future is centrations over the past two decades. But the definitive study on DES, simply unconvincing because it ignores The British Medical Research Coun- which appeared in the New England contradictory scientific evidence and cils reproductive biology unit also Journal of Medicine, clearly states that pays no attention to the role of natural warned recently that male potency was men exposed to DES `...were nonethe- hormone disruptors in the environment. declining so fast that if the trend con- less as fertile as other men.... It could also suggest banning hot baths tinued, most men would be infertile by Diethylstilboestrol-exposed men had no and tight underpants, which have also the middle of the next century. But a impairment of sexual function, as indi- been blamed for declining fertility lev- recent study by Harry Frisch of the Co- cated, for example, by the frequency of els, but presumably that wouldnt jus- lumbia Medical Center in New York intercourse or reported episodes of de- tify the wholesale indictment of indus- shows an increase in sperm counts over creased libido. Conclusions: High doses trial society that the authors seem to be the past 25 years. Another study, by C. of DES did not lead to impairment of seeking. Alvin Paulsen, of the University of fertility or sexual function in adult men Washington found no decline in sperm who had been exposed to the drug in

counts or semen quality over the same utero. Reproduced with the perfnission of the Wall Street period. A paper by Jonathan Tolman, re- Journal. You can visit their website on hup:ll The reason for such disagreement is leased by the European Science and www.wsj.corn that analytical techniques and data Environment Forum, puts the whole measurement are so variable. Sperm hormone disruptor issue into perspec- counts vary with factors like age and tive. Apparently, nature provides a duration of abstinence before the sam- panoply of hormone disruptors. Mr UQ0

12 ©00©© 40 MARCH 1997 Recent I PA Publications

Restoring the Balance: Tax Reform for the Aus- tralian Federation by Jeff Petchey, Tony Rutherford and Mike Nahan Accepting the widely-held view that Austral- ias taxation system is in utter disrepair, the authors argue that tax reform cannot he newsletter (In Touch). membership card divorced from the reform of Federal–State fis- and notice of IPA events. (7 cal relations. On one hand, the Common- q wealths dominance over most tax bases Premier Member L^nuallyl,$11190 creates a tax cartel; on the other, the States Entitlements :All IPA publications (i`e. are forced to rely on unsatisfactory and ineffi- IPA Review, Current Iss , e^ "^ , cient bases for their tax needs. This book— the first in a new and important series---gives compelling reasons for allowing the States back into income or consumption taxes, and demonstrates the benefits this would bring. Current Issues (Tax Reform Project), Septem- ber 1996, $16.95.

Black Suffering, White Guilt?: Aboriginal Dis- lry Ron Brunton advantage and the Royal Commission into Deaths -: Postcode The UN Draft Declaration on Indigenous in Custody by Ron Brunton Rights could have enormous implications for A critical examination of the currently fash- Australia. This Backgrounder argues that the ionable explanations of Aboriginal disadvan- fundamental idea of indigenous rights is dan- tage that were given legitimacy by the Royal .;erous and misguided, and is likely to under- Commission into Aboriginal Deaths in Cus- mine the most powerful moral arguments that tody. It is particularly critical of explanations can be used to defend equity and tolerance. that attribute Aboriginal disadvantage to the IPA Backgrounder, February 1997, $8.00. institutional racism of Australian society. It made payable to the, "0 1 argues that the ideas that underpin current `ff Institute of Public Affairs approaches to Aboriginal policies are coun- Soaking The Poor: Discriminatory Taxation terproductive. fi q Charge my credit card $ q of Tobacco, Alcohol and Gambling Current Issues (first published February 1993, • I n q q;Bank^card Masterrd D]VISAI by Alan Moran now re-issued in electronic farm only, Win- AMEX .i0 Diners Club Governments—in particular, State Govern- dows-based), $15.00. ments—are heavily dependent upon the rev- I enues generated by taxes on alcohol, tobacco and gambling. consumption of these goods States Rights and Human Rights by Charles and services represents a high share of the in- Richardson .._ t p.ry Dace come of the less well-off, but only a modest Examines the recent history of Australian share of the more affluent. Because the tax human rights legislation: in particular, the rates are high, as a title Soaking the Poor viv- tension arising from the standard centralist idly describes their punishing effects on low- and States Rights positions, with solutions 1 income earners. This paper critically exam- based kin US experience. Sgnatur ines the incidence and effects of these taxes Current Issues (Federalism Project), Novem- and concludes that they need to be radically ber 1995, $6.95. 1 reformed, as part of a general reform of the Return this form andpayment to: tax system. t1 tafr3------• -f Public Afl 7 IPA Backgrounder (Tax Reform Project), I 128 Jolimont. Road, December 1996, $10.00. Jolimont,VIC 3002 U12M • Telephone: (03) 9654 7499 Facsimile:(03) 9650 7627 oil Email: ipahayekozo line.com.au a

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