A Matter of Choice
Restoring Full Employment
Lyndon G. Rowe
I would like to thank The H. R. Nicholls Society for
the opportunity to participate. The theme of the conference
is a "Matter of Choice", which comes from the words
uttered by the Secretary of the Commonwealth Treasury,
Ted Evans, in November last year, when he spoke about
unemployment being a matter of choice.
I have adapted the theme and, as a starting point,
have rephrased it to "A Matter of Rational Choices".
As I have often said, I am one who is happy to wear
the title of a Rational Economist. I am very firmly
in agreement with the views of the United States economist
Allan Blinder1, who emphasises the need to bring both
a hard head and a warm heart to social problems.
If we are to deal with Australia's number one social
problem, unemployment, then we must start to address
it from an understanding of where we are currently.
And on the basis of a rational discussion of the economic
implications of policy changes. This is not to underplay
the social consequences; quite the contrary, it is
because of the concerns about the social effects of
unemployment that we must look rationally at the economic
consequences of policy changes.
The alternative, to base policy decisions on what
we hope might be the case or on the basis of what we
wish to achieve as a desired outcome, or on the basis
of feelings rather than facts, has the potential to
be counter-productive. There are many examples of this
and I will deal with some of them later, but I must
admit that in looking at many suggestions to deal with
unemployment, I am constantly reminded of Al Capp's
description of abstract art which, if I substitute
the words 'employment policy' for 'abstract art' seems
to be very appropriate. Rephrased it reads:
- Employment policies are a product of the untalented,
sold by the unprincipled to the utterly bewildered.
It is to be hoped that there is not too much of this
abstract policy art form in the soon-to-be-released
employment white paper.
Given my prejudices then, the title I have chosen
for my address is : "Restoring Full Employment ¾ A
Matter of Rational Economic Choices to Address More
Serious Social Concerns".
I hope all will appreciate that the emphasis on rational
economic choices is a means to an end, not an end in
itself. Rational economists must have hard heads but
they can and must also have warm hearts.
As the first speaker in the first session of this
conference, I thought it might be appropriate if I
try to put the issue in an overall economic context.
I shall start by looking at some recent economic trends,
then I will look at some of the issues that arise out
of those trends and finally, recognising that the real
solution to unemployment lies in economic growth, deal
with some of the issues that need to be addressed in
order to achieve that economic growth. Finally, I will
try to draw some concluding comments. I should add
that my address draws very heavily on the Chamber of
Commerce and Industry of Western Australia's submission
to the Prime Minister's Task Force on Employment Opportunities2.
That submission, in turn, draws heavily on the work
of the Chamber's Chief Economist, Nicky Cusworth.
Recent Economic Trends
Let me turn firstly to trends in unemployment. The
recent recession has generated the worst unemployment
in Australia since the 1930s. This unemployment burden
has hit some sections of the community much harder
than others : the relatively young and relatively old
in the labour force, the unskilled and those needing
full-time employment who have tended to suffer the
The underlying trend in Australia's unemployment rate
has been on the increase for almost three decades.
This is shown in Graph 1 which shows the cyclical unemployment
rate against its longer term trend.
In the 1960s Australia's unemployment rate fluctuated
around the long term norm of under 2 per cent. But
since then, underlying unemployment has been on a virtually
continuous upward climb. Successive peaks and troughs
in unemployment have occurred at ever higher unemployment
Australia's tentative economic recovery has at last
started to generate some employment growth, which may
ease Australia's aggregate unemployment problem a little.
But while total unemployment may start to fall, there
is a real danger that recovery will leave behind a
substantial remnant of long term unemployed and marginally
employed people who will remain severely disadvantaged
over the course of the economic recovery and form the
core of a still greater pool of unemployed when the
next recession hits.
It is important to understand that Australia's unemployment
problem is far more complex than simply an abnormally
bad example of a normal business cycle. This concern
is emphasised when one looks at Graph 2 (attached)
showing the percentage of unemployed people who have
been unemployed for a year or more.
Demand, Savings, Investment and Overseas Debt
Let me now turn to the crucial issue of demand and
It is sometimes argued that the appropriate response
to Australia's unemployment problem is higher Government
spending to stimulate higher demand. Whatever the general
merits of this Keynesian analysis, it is not relevant
to Australia's current circumstances. Lack of demand
and especially under-consumption or over-saving are
clearly not features of Australia's economy. This is
shown in Graph 3 which shows total consumption as a
percentage of national income.
Public consumption has risen steadily as a percentage
of national income since the early 1960s from 13 per
cent in 1959-60 to over 23 per cent by 1992-93. In
the early 1990s, private consumption, as a percentage
of national income, was significantly above its previous
peaks in the 1960s and had reached over 75 per cent
of national income. Taken in combination, these rising
trends in private and public consumption meant that,
by 1992-93, 99 per cent of national income was absorbed
This rising trend in consumption is, of course, the
flip side of Australia's falling investment and especially
its falling savings.
As consumption has risen as a percentage of national
income, savings have fallen. As consumption reached
99 per cent of national income, this left just 1 per
cent of national income as savings in 1992-93. That
is private sector savings of under $20 billion was
virtually wiped out by the public deficit (dissaving)
of $16 billion leaving net national savings of under
$4 billion. Virtually all net new investment was financed
by overseas borrowings.
As a result of this Australia has run a yearly current
account deficit since 1972-73. This has generated a
steady accumulation of net foreign liabilities which
is now well in excess of 50 per cent of GDP. These
issues have been described in the FitzGerald Report3
and need not be further explored here.
However, suffice to say that whatever the cause of
Australia's high unemployment, it is patently not excessive
savings. Rather, lack of domestic savings threatens
to undermine Australia's ability to sustain investment.
Investment is crucial to sustaining the strong economic
growth which is the only way of increasing employment
in the medium and longer terms. Further increases in
Government or private consumption relative to GDP or
national income will squeeze domestic savings available
for investment further resulting either in still lower
investment or even faster accumulation of foreign debt.
Far from easing unemployment, higher Government spending
is more likely to make it worse, at least in the medium
Slow Earnings Growth
A further manifestation of Australia's economic performance,
especially in the labour market, is the stagnation
of living standards. I do not accept the arguments
of some academics that high unemployment in Australia
has been caused by excessive real wage growth, either
recently or over the longer term. By international
standards, real wage growth in Australia has been low
for at least twenty years. The key reason for Australia's
historically weak earnings growth is its poor productivity
Over the longer term, OECD and other data, point to
a consistent picture of Australia under-performing
relative to other industrial countries for at least
twenty years with Australia falling to the bottom position
of all OECD members in terms of productivity growth
from 1983 (when the Accord was introduced) to 1991,
before it experienced a modest upturn, recently, which
is largely cyclical as output was growing very weakly
while employment was still falling. This is shown on
Over a long time period, the relationship between
productivity and earnings growth is clear. Graph 5
shows growth in productivity and growth in real total
consumption per employee over the twenty years from
1970 to 1990 for twenty two of the twenty four OECD
countries. Two things stand out in the graph. Firstly,
there is a very close correlation between the level
of productivity growth and real earnings growth within
countries. Secondly, and largely as a result, there
is also a close correlation between the relative performance
of OECD countries on productivity and earnings. Those
countries which enjoyed the fastest productivity growth
relative to other OECD members also tended to experience
the fastest growth in real total consumption per employee,
and vice versa.
The data suggests strongly that there is a close relationship
between the productivity increases a country can achieve
and the real wage growth of its employees. This would
imply that the underlying cause of Australia's slow
real earnings growth, both in recent years and over
the longer term, is its poor productivity growth.
Why then has productivity growth been so poor?
There is a common perception that Australia's productivity
performance is poor because we don't work as hard as
other nations. This is unfortunate in two respects.
First, it equates productivity with exertion whether
in terms of hours worked or effort but the key to improving
productivity is usually not to work harder or longer
but to work more effectively. Second, it is not true.
Recent research by the Institute for Research into
International Competitiveness4 shows that Australian's
weekly hours are relatively high by OECD standards
and paid leave entitlement is relatively low.
Furthermore, Australians are working longer than ever;
for example, average hours per---full time male
employee are at their highest level since the 1960s.
In the past fifteen years the proportion of full timers
working over forty five hours a week has risen by over
50 per cent, although standard hours have fallen, and
it is not paid overtime, which is at historically low
If some sections of the community mistakenly blame
employees' idleness for Australia's poor labour productivity
record, others are inclined to blame the lack of investment.
This is understandable. Economic theory (and a solid
body of evidence) suggests that the single key determinant
of employees' productivity is the volume and quality
of the capital stock they have to work with. Yet by
international standards Australia's historical investment
record was not bad. From 1970 to 1990 Australia ranked
tenth out of the twenty four OECD countries in gross
investment as a percentage of GDP. This is shown on
If an average level of investment has caused below
average productivity growth over the past two decades,
then Australia's current investment levels are extremely
worrying. This is shown in Graph 7. Investment as a
percentage of GDP is at its lowest level in over forty
years. If Australia's productivity performance was
weak when it invested over 24 per cent of GDP, prospects
are even bleaker now that investment is less than 20
per cent of GDP.
Neither a lack of effort nor lack of investment seem
to provide a fully satisfactory explanation for Australia's
poor productivity growth. Rigid industrial relations
structures and the award system are almost certainly
to blame for much of Australia's poor productivity
record but other factors may also be at work.
Poor productivity may be linked to wider changes in
the workforce. The stagnation of productivity growth
may have at least partly been caused by the switch
in composition of employment from middle paid/middle
productivity jobs and industries (and more recently
high paid/high productivity ones) to low paid/low productivity
jobs and industries.
This change in composition of the workforce has been
described by R. G. Gregory5 as "the disappearing middle";
job growth has concentrated in either high paid or
low paid occupations, and is shown in Graph 8. Employment
in middle paid occupations, notably of skilled trades
people, has fallen. This effect has been especially
pronounced for full-time and male employment. More
recently this imbalance has skewed more heavily in
favour of low paid jobs which are now the fastest growing
Gregory has observed that as the disappearing middle
was displaced from its traditional occupations it competed
for lower paid jobs that were previously the preserve
of the unskilled and semi---skilled, and these are
the real victims of labour market change (a higher
proportion of low skilled people are unemployed) but
many of their problems arise from competition in their
traditional labour markets where employment numbers
have actually grown.
These changes, in turn, reflect the relative fortunes
of industry sectors. With the exception of construction,
which is recovering quite quickly from a very severe
downturn, employment has fallen over the past six years
in all of the production industries. In contrast, all
of the broad service industries have sustained employment
growth in medium and longer terms, with the fastest
growth in the past few years recorded in recreational,
personal and other services (also the sector with the
lowest labour productivity and the lowest average earnings).
Of significance then, is the concentration of employment
growth in industries where the level of productivity
is below the all industries average. This is shown
in the following Graph 9. Sectors which experienced
above average employment growth are almost universally
those in which productivity is low. Our weak productivity
performance may be at least partly caused by the growing
concentration of employment in relatively low paid,
low productivity industries and occupations.
This structural change and "disappearing middle" may
be at least part of the explanation for:
- The stagnation of living standards of many Australians;
- The fact that the source of growing inequality across
the paid labour force is not so much the relative earnings
of high paid, low paid and comfortably off, but the
- The high and rising trend in Australia's underlying
unemployment which cannot be regarded as "natural"
even by the most cold-hearted economist, and cannot
be explained by excessive savings.
This analysis indicates that changes in the labour
market have caused wider social and economic effects
than the level of unemployment alone suggests.
Australia is not only failing to fully employ up to
1.8 million of its citizens ¾ counting discouraged
job-seekers and part-timers wanting longer hours as
well as the unemployed, it is also failing to make
the most effective use of the human resources it does
employ, as some of the "disappearing middle" moves
to less productive and therefore less financially rewarding
jobs than they are capable of, and presumably want.
Changes in employment patterns have met neither the
needs of the economy nor the legitimate aspirations
and potential of the labour force. They have created
a mis-match between demand and supply in the labour
market which probably accounts for some, and possibly
most, of the increase in underlying, rather than cyclical,
unemployment over the last fifteen years.
Let me now turn to deal with three quite prominent
issues in the debates that arise out of these recent
Equity and the Unemployed
The current frameworks for social security and unemployment
benefits, labour and wages regulation evolved in the
1960s and early 1970s although their foundations were
often made far earlier.
This was a period in which the unemployment rate was
typically around 2 per cent and much of that unemployment
could be characterised as either transitional (that
is people who are temporarily unemployed between jobs)
or voluntary (that is a small minority of unemployed
who are better off on benefits than working or who
are simply prepared not to work).
When much unemployment is either temporary or voluntary
the interests of the unemployed can legitimately be
treated as those of a small and changing minority of
society and the labour force, albeit one in need of
special short term consideration and assistance.
However, unemployment is no longer a temporary or
voluntary phenomenon and it is no longer affecting
just a small minority of the population. There is a
strong case (based on both social and economic reasons)
for re-evaluating the weight given to the unemployed
in the determination of wider economic, labour market
and social policies.
In particular, the extent to which the industrial
relations, wage determination and social security systems
are designed around the interests of the employed rather
than the unemployed, needs to be re-thought. It may
have once been legitimate for the employed to protect
themselves from competition from the unemployed when
those unemployed constituted a tiny minority who could
reasonably expect to join the employed in the near
future, but that is no longer the case. Now, a much
larger number of people are substantially alienated
For example, minimum wages represents a means by which
the employed protect themselves from competition from
the unemployed. Current award (and often State) minimum
wages are still often determined around the "norm"
of an employee supporting two children and a non-working
spouse. Whether such a family unit was ever the "norm"
is debatable. It isn't now. Denying people access to
employment at a wage which would support them adequately,
but could not support an entire family, is likely to
cause poverty and inequality rather than prevent
As a society we have a responsibility to ensure that
basic living standards do not fall below a minimum
acceptable level. The question is whether the most
effective way to achieve that is through the labour
market or through the social security system; for example,
through means-tested family allowances or even the
carers' allowance proposed in the Green Paper on Employment
Opportunities6. Where wages are not adequate to sustain
an acceptable standard of living, then meeting the
short-fall should be a social responsibility, not an
industrial relations one. I would argue that labour
market regulation is a very blunt instrument with which
to administer social policy. The evidence of labour
market dysfunction in Australia is now so persuasive
that it justifies a re-evaluation of the extent to
which industrial relations policies, however well intentioned,
have failed to deliver their objectives. Even more
importantly, they may be having precisely the opposite
effect to those intended.
Employment and Poverty
Perhaps not surprisingly the absence of full-time
employees is one of the most striking characteristics
of Australia's poorest households. There is a clear
relationship between household income levels and the
percentage of household income which derives from wages
and salaries. This is shown in the two charts in Graphs
10 and 11. If we look at the top chart we can see that
while there is a clear positive correlation between
employment income and total income, this relationship
is not smooth. Households in the lowest 30 per cent
of the income range derive much less of their total
income from wages and salaries than those in higher
income ranges. Indeed, the dividing line between the
third and fourth decile is sharp. Households in the
lowest three income deciles averaged less than 20 per
cent of earnings from wages and salaries. In the top
seven deciles of average household income each decile
group averages over 60 per cent of total income from
wages and salaries.
The effect in dollar terms is shown in the bottom
chart. Households in the third income decile averaged
around $45 a week in income from wages and salaries
in 1988-89. Households in the next (fourth) decile
averaged $228 a week from wages and salaries.
Graph 12 looks at the relationship between levels
of household income and the number of people in the
household employed. Again, there is a sharp division
between the first three deciles, the three lowest income
levels and the remainder. In the bottom three deciles
an average of fewer than 20 per cent of household members
are employed. In the remaining 70 per cent of households,
38 per cent or more of residents are employed with,
again, a direct correlation (perhaps not surprisingly)
between household income and the percentage of residents
employed. This relationship between employment and
earnings is predictable; however, the extent of the
correlation is perhaps somewhat surprising. The published
household expenditure data do not generally differentiate
between full-time and part-time employees. Nonetheless,
one can reasonably assume that the great majority of
the poorest Australian households contain no full-time
- Average gross income in the bottom two income deciles,
and average wages and salaries in the third income
decile are significantly below the minimum adult full-time
award rate applicable in that year;
- The average number of people in any form of employment
in those lower income deciles is small and it would
be expected that a significant proportion of those
who are working would be working part time;
In short, low income households in Australia are almost
exclusively those which, for a variety of reasons,
there is no full time employee.
There are many reasons for not working full time which
are beyond the influence of labour market policies.
Nevertheless, there are also almost a million unemployed
people in Australia, an estimated 300,000 discouraged
job-seekers, and half---a---million working part---time
who would prefer longer hours. These 1.8 million people
are heavily over-represented among the lowest income
households, and they are directly affected by issues
of labour market policy and practice.
I noted earlier in this address that the growing polarisation
of Australian employees into low and high earnings
groups is not caused by changes in relative earnings
but rather by change in the relative numbers of employees
in high or low paid jobs caused by the "disappearing
middle". This observation is even more true of Australian
society as a whole. The poorest members of society
do not have access to permanent full time employment
although a significant proportion would clearly like
Compressing wage differentials or increasing minimum
award wages will not affect the sharp income divide
between the bottom 30 per cent of households and the
rest of society because that bottom 30 per cent is
almost exclusively not in full-time employment. Most
importantly, if compressing differentials and increasing
award or state minimum wages reduces the number of
low paid jobs available, then the effect is likely
to increase poverty and the polarisation of society
into the rich and poor, rather than promoting equality.
It will contradict received wisdom and convention
for the past thirty years to suggest that cutting minimum
award wages and allowing wage differentials to expand
would be the best solution to growing poverty and inequality
in Australia but the data present a strong prima facie
argument suggesting that this may be the case.
Labour Market Policy
Achieving a high and rising standard of living over
the longer term should be a central plank of a government's
economic policies. As we have already seen, this will
depend on achieving high productivity growth.
Both major political groups in Australia now advocate
at least some form of enterprise bargaining, although
the extent of changes they propose, and even their
definitions of enterprise bargaining, differ considerably.
Indeed, as later speakers I'm sure will discuss, the
current Labor Government's commitment to enterprise
bargaining is under question, particularly when one
considers the most recent changes to the Federal legislation
in light of the promises that were made in the first
half of 1993.
It is not my intention to go into detail in this paper
on the case for enterprise bargaining. That has been
done by many people over a long period of time and
hopefully does not need repeating. However, let me
refer at least briefly to the recent OECD Economic
Survey of Australia,7 particularly in light of the
comments I have already made. One should also bear
in mind that drafts of the OECD survey are shown to
the Government of the country concerned prior to their
release and the language is usually very polite. Nevertheless,
in this case, with respect of Labour Market Reform,
the message is clear.
My first reference comes from page 90 of the report
and I quote:
- The wage structure in Australia has traditionally
evolved with a strong emphasis on social justice and
income distribution considerations. These objectives
were perhaps feasible in a context of high border protection,
large, natural resource rents and labour scarcity.
But, now that the economy is being increasingly exposed
to world competition, attempts to achieve income distribution
goals through the wage system will inevitably lead
to higher structural unemployment. A major problem
with compressed relative wage structures is that entry
level wages for youth, the long term unemployed and
unskilled job seekers may be too high.
The second reference comes from pages 101 and 102
and is against a background of a very polite discussion
of the reasons for the current Government's slow pace
of reform. Again, however, the message is clear.
- The choice of a moderate pace of reform of the
labour market may be justified in the interests of
maintaining social consensus. However, if the cost
in terms of workplace inflexibility, poor productivity
and higher structural unemployment are to be avoided,
bargaining structures and the role of the award system
will need to evolve in such a way as to facilitate
the spread of enterprise bargaining.
The Prime Minister's Employment Task Force, through
their discussion paper, praises the Accord process
for delivering restraint in earnings growth. While
I don't necessarily accept their view of economic history,
there is a real danger that the discussion paper's
emphasis on nominal wage restraint and their favourable
view of the Accord, will be used as arguments in favour
of retaining central wage fixing and limiting the devolution
of bargaining to the enterprise. I believe the OECD
Report implicitly was also referring to this issue.
The argument may look like this : nominal wage restraint
is the key to creating employment, only central wage
determination will deliver nominal wage restraint,
therefore Australia should proceed cautiously, if at
all, towards enterprise bargaining.
But this really misses the point. Real wage growth
is not inconsistent with rising employment so long
as productivity grows faster still, although wage moderation
and high productivity growth would yield even higher
employment growth. Nominal wage restraint at the cost
of lower productivity growth is a far inferior option.
Introducing greater rigidities and internal stresses
in the labour market may actually have made unemployment
worse under the Accord.
The objective of Enterprise Bargaining is to create
an industrial relations framework through which productivity
and therefore real earnings can rise within industries
and enterprises. It should also remove a competitive
disadvantage from companies operating in the traded
goods sector, slowing or, at best, even reversing the
growing concentration of employment in low productivity
industries, allowing aggregate productivity and the
diversity of employment opportunities to improve.
Enterprise bargaining could fail. If management or
unions abuse their power to extract unsupportable concessions
or if they are simply not competent to cope with the
responsibility which greater freedom of operation necessarily
entails then there will certainly be casualties of
the reform process. But it is evident that the Accord
process and rigid wage fixing have failed to satisfy
the interests of employers, employees, the unemployed,
or the economy as a whole. Enterprise bargaining may
entail risk; however, maintaining the status quo
guarantees continued failure.
Some may view these comments as inconsistent with
earlier comments about minimum wages. While cutting
wages across the board is neither desirable nor feasible,
allowing greater wage flexibility at the margins, where
earnings may have the greatest effect on employment
decisions, may be. Indeed, this is tacitly recognised
in many of the measures proposed in the current public
debate. For example, entry and training wages below
award minimums. Such proposals only work if people
are not being employed or trained because the wage
which they would receive is too high to make employing
them economically viable. If minimum wages are to be
deregulated, then it may also be necessary to ensure
that social security and other income support measures
meet the requirements of the families of the low paid.
This was a matter which I discussed earlier.
Hopefully, it is by now generally accepted that the
number of people employed can only be increased through
strong, sustained economic growth. Government's key
responsibility to the unemployment is to create an
economic environment in which high rates of growth
are sustained and sustainable. That is not going to
be easy, but it is possible; it is "a matter of choice".
Let me just very briefly deal with what I think are
the two crucial issues in achieving that sustainable
Sustained economic growth is not going to be possible
unless Australia raises its levels of investment. As
we have already seen in 1992-93, investment as a percentage
of GDP was at its lowest level in over forty years.
Higher investment is also crucial to raising productivity.
Graph 13 shows the results of an ACCI survey on constraints
on business investment conducted in June last year.
Taxes and charges are now regarded as the single most
important impediment to investment, ahead even of insufficient
demand. Non-wage labour costs and Government regulations
at both State and Federal levels also rank in the top
five impediments to investment. Retained earnings ranked
10th and interest costs no longer even make the top
ten. The survey indicates that as demand picks up the
most constructive direct contribution which Governments
can make to the investment climate is reforming the
direct impediments to investment : the level of taxes
and charges, the burden of regulation, and labour on-costs.
But perhaps even more important is the overall context
of fiscal policy. It is not enough for businesses to
want to invest more. If higher investment is to be
achieved then Australia must also increase its national
savings effort. This issue was covered comprehensively
in the FitzGerald Report. As FitzGerald points out,
at least as important as raising private savings is
the level of public saving.
As already discussed, at current savings levels any
increase in nett private investment seems virtually
certain to generate a deterioration in the current
account deficit. The balance of payments is already
a major constraint on sustainable growth in Australia.
The effect of any further deterioration is likely to
put significant pressure on interest rates and return
Australia to the boom-bust cycle of the past. The number
one priority for the Federal Government must be to
reduce the Federal deficit; indeed, not just to reduce
it but to turn it into a surplus.
Reform of Government
Because of the key role of the public sector in the
economy ¾ around one quarter of all activity ¾ efficiency
and effectiveness in Government are essential if productivity
is to improve across the economy.
Government monopolies control some of the key economic
goods consumed by the private sector. Energy, water,
rail transport, ports and shipping services are all
provided by Government. These in turn account for a
crucial component of the costs and therefore the competitiveness
of businesses. No matter how successful the private
sector is in achieving World's Best Practice, they
will be handicapped unless at the same time government
trading enterprises make similar gains. However, the
focus should not just be on the crucial objective of
improving the efficiency and prices of government trading
enterprises. Wider reforms from both efficiency and
accountability would also yield benefits across the
public sector. Processes such as --- corporatisation,
privatisation and contracting out, regulatory review,
(including very importantly taxation reform) and independent
assessment of efficiency and accountability, are as
important as the restructuring of government trading
At the Federal level, it appears to me that since
the election there has been a lack of commitment to
the micro-economic reform agenda. It must be revitalised
and revitalised quickly. At the Western Australian
State level the Government has had a very detailed
report on the issues that need to be addressed by the
Independent Commission into Public Sector Finances
(the McCarrey Report).8 It is vital that the recommendations
of that Committee be pursued and pursued with vigour.
The test for the Western Australian Government will
be the degree to which they adopt the reform agenda
in this current calendar year.
I suspect that a lot of what I have dealt with today
is not new to large sections of this audience. Certainly,
there is widespread agreement, at least among rational
economists, about the steps that need to be taken to
seriously address the unemployment problem. The challenge
is to have those arguments accepted in the wider community.
In this regard, I return where I started with the
comments I made about the need to bring both hard heads
and warm hearts to these issues.
I am reminded of the warning provided to us by Paul
Kelly in a recent address to a conference organised
by the Institute of Public Affairs.9 Kelly said:
- Economic reformers must change the political ethos
in which they operate. If they don't, then they will
fail in the 1990s. We need a new ethos for economic
growth in Australia, and this both begins and ends
with the persuasive argument that economic growth and
social compassion are closely linked. Too often in
the past, growth and structural change have been sold
the wrong way. The emphasis has been on the means,
not the ends : cutting programs, cutting wages, cutting
off people from the lives to which they have grown
accustomed. In short, growth has almost taken on an
anti-people overtone. All such rhetoric and thinking
must now be cast aside.
Kelly's warning applies equally to all supporters
of economic reform including organisations such as
The H.R. Nicholls Society. If we are to win the debate,
then it needs to be done with an emphasis on compassion
and perhaps with a sense of humour. At the risk of
offending my hosts, I think this is one area where
it is possible to be slightly critical of the approach
taken by The H. R. Nicholls Society.
It is not enough to be right, we must also convince
the wider community so that the politicians will follow.
We must not allow the debate to be won by those with
soft heads who wear their hearts on their sleeves,
but if the reform arguments are to be accepted then
the arguments must be attractive, not humourless, promoted
as a means to an end and not an end in itself, and
may be people---friendly. There may be people in
the audience who are familiar with the American humorist,
P. J. O'Rourke. I look forward to the day when people
such as P. J. O'Rourke are invited to address The H.
R. Nicholls Society.
After all, it was O'Rourke who brought to my attention
the basic rule of business and life, a rule which is
particularly relevant to current discussions about
labour market regulation or deregulation. O'Rourke's
basic rule reads:10
- "When buying and selling are controlled by legislation,
the first things to be bought and sold are legislators."
- 1. Blinder, A.S., Hard Heads, Soft Hearts : Tough-minded
Economics for a Just Society, Reading, Mass: Addison-Wesley,
- Note: RBA, Reserve Bank of Australia.
- 2. Chamber of Commerce and Industry of WA, Submission
to the Taskforce on Employment Opportunities, March
1994, Response to "Restoring Full Employment",
- 3. FitzGerald, V.S., National Saving : A Report
to the Treasurer AGPS, June 1993.
- 4. Dawkins, P. and Simpson, M., Work, Leisure and
the Competitiveness of Australian Industry, Institute
of Research into International Competitiveness (IRIC),
Perth, October 1993.
- 5. Gregory, R.G. Aspects of Australian Labour Force
Living Standards : The Disappointing Decades 1970-1990,
The Copeland Oration, 21st Conference of Economists,
- 6. Committee on Employment Opportunities, Restoring
Full Employment : A Discussion Paper, AGPS, December
- 7. OECD, OECD Economic Surveys : Australia,
- 8. Report of the Independent Commission to review Public
Sector Finances, Agenda for Reform, W.A., August
- 9. Kelly, P., "the End of Certainty : The Culture of
the 1990s", published in A Culture for Full Employment,
Institute of Public Affairs, Melbourne 1994.
- 10. O'Rourke, P.J. Parliament of Whores, Atlantic
Monthly Press, New York 1993, p.210.