No Ticket, No Start---No More!
A Basic Wage for Wheatgrowers: Sauce for the Gander
I suspect this paper has its origins in the wrath
I once expressed in print concerning the damage done
by people who demand a free market for those who are
rewarded by the hour, day or week, but who, at the
same time, will not support a free market for those
who are paid by the bushel, kilo or tonne. I will,
therefore, try to show that the principles offended
by the regulation of both labour and wheat production
are, as nearly as is relevant, identical. I will go
on to espouse that inconsistency would undermine the
principle purpose of this worthy society---which I
understand to be the restoration of freedom in the
The Wheat Board and the Arbitration Commission have
common roots. Those of you who know the history of
the Australian wheat industry will know that the various
wheat market regulations were once seen as providing
a 'basic wage for wheatgrowers'. The concept of a farmer's
basic wage was particularly popular among the farmers
of the Eastern wheatbelt of Western Australia---where
both our President and I spent our youth.
First I will reiterate some text-book stuff about
the nature of monopolies and price fixing and the objections
to both. That should let most of you switch off for
a while. Nevertheless, since these practices are central
to my argument, I think I should explain my objections
Next, my paper will look very briefly, at the human
rights implications of confiscating the fruits of a
Then I will endeavour to describe the regulated wheat
industry and some of the consequences of the regulations.
Finally, I will explain why I believe The H R Nicholls
Society will fail if it is seen to be asking people
who believe they have no market power, the unskilled
and unqualified, to accept the discipline of the market
when it does not demand the same of farmers, doctors,
inventors and others who are in general more wealthy.
The H R Nicholls Society has never been an employers'
club or carried a brief for the strong against the
weak. Were it to do so, most of its members would resign
---and so they should!
Before I begin, I should, depending on how you look
at it, declare an interest or establish my credentials.
I am a third generation wheat farmer---my son, who
is both a better farmer and a more thorough going deregulator
than his father, is the fourth. Until dismissed by
the democratic process in 1983, I was also a Liberal
Party politician in the Federal Parliament. I have
campaigned, in and out of politics, for deregulation
of my industry for most of my adult life, but before
the advent of the Hawke Government I was always frustrated
by socialists---that is, by the Country Party and its
successors. I do not intend to pursue the point today,
but I state for the record that, with Fredrich Hayek,
I believe that history has shown socialism to be a
dangerous philosophy which, if unchecked, leads to
loss of liberty and ultimately life.
There should be no objection to people combining in
voluntary associations to further their own ends. Unions
and firms are potentially efficient---that is, they
potentially advance community well-being while looking
after the interests of their members. They, no less
than individuals, may be guided by Adam Smith's Invisible
The condition which insures that benefits from combination
flow to people outside the union or firm is, of course,
good old competition. Under conditions of open competition,
the union or firm must offer a good or service that
somebody values more highly than all the alternatives
provided by other associations and individuals.
In competition the firm or union is driven, though
it is no part of its design to be so, to serve outsiders.
Barriers to Entry
Monopoly power is not, as the name suggests, characterised
by oneness, but by a barrier that prevents new firms,
unions or whatever offering a similar service. The
key to competition is entry into the relevant market.
When market entry is inhibited---as it is by the law
in the cases of Australian telecommunications, bulk
handling, railways, and much else---the customers'
interests tend to get shorter shrift than when they
have a choice of shrivers.
Consider the Two Airline Agreement: it encourages
Ansett and Australian Airlines to provide identical,
expensive services. Also, consider our five motorcar
manufacturers which are protected by quotas and tariffs
from international competition. Now compare these firms
with Lloyds, the airline which alone flies to Kangaroo
Island. Lloyds lives (or dies) with the knowledge that
tomorrow there may be another airline offering topless
in-flight champagne or, worst of all, a cheaper fare.
Two or five can co-operate to fleece their customers,
but no one can co-operate with the unknown predator
who has decided to make a raid on a badly-serviced
market. Even if such co-operation to raise prices or
reduce services were possible, it would be pointless,
because successful co-operation would open an opportunity
for another predator.
Where newcomers are excluded, there is the opportunity
to give too little and ask too much. These extra rewards
may take many forms---common among them are higher
wages and profits than in other industries, shorter
hours and overmanning, sloppy service and poor workmanship
and the quiet life. Together they are known as 'monopoly
rents', and they are nice when you can get them.
Getting Most out of the Monopoly
No monopoly is perfect, however. In the cases of the
examples I have already used, the motor bus and the
ferry offer a way of avoiding both the airlines and
the motor manufacturers. At current prices and levels
of service, many people in fact prefer buses. Some
custom is lost when prices are raised or service reduced---but a smart monopolist does not lose income.
The intelligent and diligent monopolist tries to maximise
revenues by raising prices until the revenue forgone
from lost volume is matched by the revenue gained from
higher unit prices. That is, he will sell fewer widgets
at a higher price until he reaches a more profitable
equilibrium. The widgets not produced, however, are
a real loss to the whole community. And there has been
a net transfer from widget users to widget makers.
This is the sort of activity which explains why Australian
living standards, once the highest in the world, are
slipping behind those of other countries.
A trade union such as, say the AWU, which in States
other than Western Australia has an effective monopoly
of the supply of shearers, raises the price of sheep
shearing. But it also reduces the supply of sheep---
I have long regarded the cattle grazing on good sheep
country as a tribute to the AWU. A capitalist's monopoly
would raise prices and reduce service only to the point
where revenue is maximised. However, there are special
factors which encourage trade unions to go further---unemployed workers drop out of unions and unions
are controlled by the senior workers who are least
likely to become redundant. Some unions, such as the
Seamen's Union, have reduced their industry to a small
fraction of what it might be, but the remaining union
members do very nicely.
Monopolies, such as the Wheat Board, the Bulk Handling
Authorities, the Australian Workers Union and the Transport
Workers Union, are symbiotic. One monopoly makes successful
rent-seeking by another monopoly easy. Someone who
does not face competition, and can therefore pass costs
on, is easy meat for another monopoly---perhaps a labour
union or a raw materials supplier. Why not give in
when the skin comes off another's nose? This point
will be important when we come to consider the Australian
Wheat Board shortly.
Monopolies---Natural and Unnatural
In theory, monopolies can be natural economic phenomena.
Natural monopolies, which are quite rare, occur when
economies of scale are such that the cheapest service
is provided by one supplier. Sewerage disposal is probably
a natural monopoly---the capacity of sewerage mains
increases as the square of the cross-section of the
pipes, and much of the cost of sewering is the disturbance
associated with burying the pipes---sunk costs in two
senses. Unnatural monopolies, on the other hand, are
made by laws or other acts of intimidation. Selling
grain and representing workers are unnatural monopolies
which derive their power from statutory authority and
There might be a sufficient reason to regulate prices
charged by natural monopolies---I don't want to debate
that now---but there can no reason to prevent competition---to create a monopoly. A little thought shows that
nearly all of the important monopolies in Australia
could not exist without their legislation and are therefore
natural. They are a government-given licence to extract
economic rents from other Australians. To the extent
that trade unions derive their monopoly power from
private---as opposed to government---coercion, they
are an exception.
Price Fixing or Pooling
The Wheat Board is not just a monopoly, it is a statutory
price fixer. It thus combines the economic sins of
the Arbitration Commission with those of monopoly unions.
The basic problem with price fixing is that, even
with the greatest will in the world, the price fixer
can never get the price right. If it is right for this
loaf, it is not for that; if it is right in O'Connor,
it is not in Belconnen; if it was right an hour ago,
it is not now. The impossible is made worse by the
fact that most price fixers don't even try to 'get
it right' in an economic sense. They try to serve vested
interests in a concept that is as alien to economics
as it is to ethics, the 'just price'. In practice,
just prices, unless based on voluntary contract, are
entirely subjective. They are less than you are asking
from me and more than you want to give to me. The key
word being 'me'. If a bureaucrat tries to keep prices
above those at which everything is sold, he produces
mountains of rotting cabbages, capped oil wells, legions
of unemployed workers or a surplus of something else.
On the other hand, if he tries to keep prices below
market-clearing levels, he is responsible for a housing
crisis, a capital deficiency, a skills shortage or
Even if he tries to get the price just right, he still
gets it wrong for nearly everybody. He can't administer
hundreds of millions of different prices. Yet this
is what he needs to do because a carpenter who works
hard is not like one who loafs, a highly skilled tradesman
is not like one who has just got his ticket, a bricklayer
in O'connor or O'Malley is not the same as one in Oodnadatta
or Oenpelli. Averages, even the best averages, just
won't do---there is a right and different price for
every job and every worker. Similarly there is a right
and different price for every tonne of grain. The
Arbitration Commission and the Wheat Board set common
prices for workmen and for grains that are very different.
Agricultural economists call the practice pooling and
labour economists could adapt the term. Pooling disguises
the price signals that should show which things are
worth doing and the least costly ways of doing them.
Pooling of labour and wheat prices is just another
reason why our living standards are slipping relative
to those nations who are not quite so silly, quite
A Property in Your Own Labour
A slave is a person who is forced to devote his life
to the service of another. Slaves are no less slaves
if they are rewarded with lives of gilded luxury which
they could not hope to obtain for themselves---a not
uncommon circumstance in the days when slavery was
widespread. A slave is one who does not own his own
labour. The right to dispose of his labour as he chooses
affects even those people who have nothing else to
exchange but their own labour.
However, this right is never complete---even the things
one can do with it are restricted. In this it is like
all property rights. You may say you own your home,
but in fact you own a bundle of rights---the right
to sell, to extend, to lease, to occupy, to destroy,
etc. You probably do not own the right to put a factory,
a church or a shop in it. Similarly, the property you
have in your own effort can be conserved, sold to Bloggs
or Smith, used to make a different widget, etc---if
you're not a slave. The more rights you have in your
effort the further removed you are from being a slave.
Conversely, slavery, like monopoly, is never complete.
Even in a Gulag, people do things for themselves and
for their friends. Even in Gulags, people exchange
the meagre things they produce for the meagre things
other people produce. So long as we still retain the
right to quit our industries altogether, I would not
describe Australian tradesmen and wheatgrowers as slaves,
but the practices of Arbitration Commission and the
Wheat Board clearly touch upon a basic human right---the property one ought to have in one's own effort.
A Human Rights Commission worthy of the name would
interest itself in this form of regulation because
it is a matter of principle and because organisations
like the Human Rights Commission ought, at least by
exposure, to protect the weak from organised bullying.
Many students of political behaviour marvel that Governments
do things that are so obviously not in the national
interest, such as the creation of monopolies, and so
blatantly trammel basic rights. The reason is however
quite simple, and it has been the same reason for long
before the Bourbons to the modern National Party. Throughout
time the recipients of acts of grace and favour have
paid for them with votes, willingness to bear arms,
flattery, party funds and even cash in Swiss bank accounts.
Concentrated vested interests can afford to pay; dispersed
The Wheat Industry
The grain industry is an excellent example of what
has gone wrong with the Australian economy. This
industry, like others, is plagued by a myth. Our myth
is that the hard times of the 1930s were caused by
the international grain traders. The Wheat Board is
expected to prevent a recurrence of the 1930s prices---to ensure a basic wage for farmers.
Wheat stabilisation has been a costly pipe-dream.
In the 1950s, in the name of 'stabilisation', Australian
growers' prices were below world prices. Despite Mr
Menzies urging us to grow more wheat to feed the starving
postwar world and help the balance of payments, history
records that we grow more wool. When world prices slumped
at the end of the 1960s, stabilisation kept Australian
growers' prices above the market. Mr Anthony, then
the Minister for Primary Industry, urged us to grow
less. Of course we didn't, and soon the Government
was building temporary storage to hold all the wheat.
Minimum wheat prices had had the same sort of untoward
consequences as minimum wages---silos full of unsold
wheat were the equivalent of unemployment. Even the
Government could see the foolishness of this, so it
compelled us to grow less. It introduced a worksharing
scheme---the infamous wheat quotas which favoured so-called
traditional growers over newcomers.
Then, although it did not say so in so many words,
the Government stopped trying to fix the average price
of wheat. Henceforth, the growers' price was to be
related to world prices. That was less stupid---export
industries which are too big for the taxpayer to subsidise
must accept export prices. Wheatgrowers, who were,
still, by most calculations, net losers from two decades
of 'stabilisation', again became subject to world markets.
The price is better now, but last year, adjusted for
inflation, the price paid to the Wheat Board was as
low as it had been in 1931. It seems the Wheat Board's
basic wage is very basic.
What then do wheatgrowers get out of their monopoly?
They do get some economic rent from the 10 per cent
of harvest sold on the domestic market in the form
of a higher than free market price paid by Australian
consumers. Farmers are not notably consistent: they
scream when trade unionists do the same to them.
Moreover, the grower politicians, like the union executives,
get status and even a little power.
The Wheat Board is not the only monopoly in the industry
but it is the one which underwrites all the other monopolies.
Beyond the farmers' gates, grain falls into the clumsy
hands of monopoly bulk handling companies, monopoly
railways, monopoly sea ports, and monopoly unions as
well as the monopoly Wheat Board. Each monopoly is
maintained by law. The uncompetitive part of the grain
industry absorbs nearly 40 per cent of the value that
the wheat has when on board a ship in an Australian
port. And its charges are about three times the sea
Politicians love inquiries: this century the grains
industry has been subjected to at least 20 major royal
commissions, inquiries and reports. The most recent,
the McColl Commission, reported that the statutory
monopolies are charging the farmers about 30 per cent
more than would be possible in a competitive environment.
In short, the monopolies impose a pointless and wasteful
tax which subsidises obvious things like poor work-practices
and overmanning and it also subsidises less obvious
things like wheat bins of the wrong size in the wrong
One reason the monopolies get away with it is that
they use growers' money to publicise themselves. Immediately
after McColl reported, the railways, Bulk Handling
Authorities and the Wheat Board bombarded farmers with
bumf, while the case in favour of the Royal Commission
findings was to be found in one down-market publication,
financed by a few growers.
Deregulation of wheat ownership, i.e. deregulation
of the Wheat Board, is the key to handling deregulation
because, unless competitive grain owners are demanding
competitive prices from grain handlers, the handlers
have no reason to improve. A monopoly Wheat Board will
always be a soft touch for unions and handlers, because,
when it accepts a price that is too high or a service
that is too low, nobody knows. Growers have nothing
to measure anybody's performance against. Until grain
ownership is deregulated, excess handling costs will
continue to be passed back to farmers.
Do not underestimate the price that growers pay for
their meagre privileges on the domestic market. The
only way that the Wheat Board can maintain its monopoly
is by pooling, and pooling is so inefficient that the
average grower is no better off and the potential producer
of high quality or speciality wheat is far worse off
than he would be in a free market. I cite my own case.
I grow my wheat at Dalwillinu---for those familiar
with what it implies I add: on fertile red land in
a 13 inch rainfall area. I grow some wool there too.
In spite of my efforts to gain yield at the expense
of quality, my wheat is of unusually high quality.
My wool, on the other hand, is unusually full of burrs
and dust. I often ask the wool producers in districts
such as Yass or Katanning to pool their wool with mine---strangely they always decline. Were our wool pooled
at a common price, might not they fill their bales
with burrs and dust too? Dust weighs well. Would not
wool pooling result in a lower average quality and
The principle affects wheat also, I have delivered
every weed seed I could get away with and, at one stage
I grew a variety, Insignia, which reduced the quality
of the Australian harvest.
The Wheat Board is thus like an Australian regulated
trade union---a monopoly seller---and like the Arbitration
Commission---a price fixer.
The foreign Market
There has been a great deal of discussion about a
free domestic market but the possibility of allowing
competitive selling on the foreign market has barely
been mooted. If the Wheat Board is as good as it claims
to be, it will still have my custom. If not, then I
want a higher price for each of the particular range
of qualities I have produced this year. I want many
people trying hard to find those market niches for
The usual reason cited for not allowing Australians
to compete with each other for foreign markets is that
by doing so they would force each other's prices down,
benefiting foreign users. That argument only makes
sense if, by combining, Australians can form a cartel
that exercises appreciable monopoly power in world
markets. As Australian wheat is only 16.2 per cent
of the world wheat trade, that seems unlikely, but
it may be possible to do with some of the specialty
wheats we now don't produce because of the centralised
system. It is far more likely that Australian wheatgrowers
are price takers---this is what they claim to be whenever
they are talking about the evils of tariffs. The Wheat
Board may not be a typical monopoly, but the hypothesis
is unlikely. Surely the onus is on the Board to show
that Australian growers would not benefit from competitive
intermediaries between themselves and a world market
which they cannot influence.
The H R Nicholls Society is often wrongly accused
of being anti-union. Of course the Society's methods
admit a wide variety of views, but I cannot recall
a single paper that has attacked unionism, combination,
organisation, call it what you like, per se. We understand
well that trade unionism is not inherently wrong while
deploring the monopolies and centralised price fixing
that characterise the Australian labour market. We
may legitimately concentrate on the labour market---
we cannot accept an unlimited brief---but we will convince
no-one if, when the opportunity arises, we do not apply
the same general principles to other markets as we
apply to the labour market.
Trade unions as presently structured are mostly cartels
in the market for employees. Most cartels are a conspiracy
of the strong against the weak---the weak in this case
being the unemployed and those consumers who cannot
pass costs along to someone else. Further, even the
majority of unionists who would be better off if no-one
formed cartels, gain great benefits in terms of higher
wages and better working conditions from their own
cartel. Nobody can afford to abandon his own cartel
unless everybody else does the same.
On top of a well-understood self-interest based in
monopoly bargaining, a significant number of unionists
believe, erroneously, that the rising living standards
they have experienced in their lifetime have been brought
by unions. They see their interests in terms of class
struggle. Unlike most other Australians, a small percentage
of unionists are prepared to shed blood---especially
fellow workers' blood---to preserve the privileges
of their cartel. Trade unionists will not give up their
privileges unless they can see that the new rules apply
Those who believe that democratic governments can
force the obedience of any substantial defiant minority
delude themselves and some unionists will fight with
weapons a government dare not match. If governments
are to take away union privileges, governments need
the overwhelming support of the public and of most
union members for each step they take---this has been
Thatcher's way. The role of The H R Nicholls Society
is not trivial.
If we are seen to single out unionists for special
treatment, exempting our little mates in the wheat
industry and elsewhere, we will suffer the contempt
Organisations which have no power and therefore depend
entirely upon suasion for influence cannot afford to
be inconsistent. We are such an organisation.