The Limits of Politics
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Review by Geoffrey de Q.Walker

Australian Constitutional Law: Foundations and Theory
Suri Ratnapala
Oxford University Press, Melbourne 2002, $69.95, 400pp, ISBN 0195510054

BY world standards, Australia as a federated liberal democracy has been a signal success, and its constitutions, Commonwealth and State, have been a factor in the prospering of that enterprise. But we could have done better, as is shown by, among other things, the relative decline of our standard of living over the past century from equal highest in the world to 18th today. At least part of that decline stems from the failure of Australia’s courts, legislatures and constitutional lawyers to develop, or at least borrow and adapt, a coherent and intellectually respectable theory of liberal constitutionalism. After a promising start in its first two decades, the High Court’s 1920 decision in the Engineers’ Case abandoned the quest for a balanced theory of the respective constitutional roles of Commonwealth and States in favour of a few crude rules of thumb that in effect meant that, in all important federalism cases (that is, cases involving the federal/state division of powers), Canberra always wins. Tossing the states a few token victories in areas that made no real difference to the growth of central power (especially from the 1970s onwards) took the place of the search for a rational and even-handed approach to interpretation. In this way most of the advantages of decentralised, competitive federalism have been thrown away.

Among the results have been a bloated public sector devouring 32.7% of GDP (as against 21.4% in 1970), a dysfunctional industrial relations system based on creating sham interstate disputes where none existed to qualify for federal jurisdiction, an ossified Canberra-controlled university system, a federal monopoly of income taxation which, under the weight of 8,500 pages of legislation, has ceased to be ‘law’ in any true sense but has instead become a form of direct bureaucratic rule, and a Native Title Act based on an overbroad reading of the Commonwealths power that has blown out cost structures, driven new resources exploration offshore and delivered a once-thriving mining industry into the hands of a few, mainly British-controlled, giants.

These and other pathologies can be traced to the High Court’s failure to adequately understand that a constitution is intended in various ways to limit the power of government. It is designed to meet the problem of how to create power and at the same time limit its abuse. From 1920 on, the Court, and the legal profession generally, were instead sidetracked into applying the constitutional theories of A.V. Dicey, Vinerian Professor of law at Oxford, who exalted the British parliament as the ideal system of government, in which a legislature with absolute power was untrammelled by any restraints based on human rights, democracy or even constit-utionalism itself. This had the incidental effect of leading the Court to read down to the point of extinction the human rights guarantees that the Constitution does contain, such as s 80 (jury trial), s 117 (no discrimination between residents of different states), s 116 (religious freedom) and to some extent property rights (s 51 (xxxi)).

Professor Ratnapala starts with the most basic precondition for constitutional government, the rule of law. The widespread observance of general rules of conduct permits the large populations of modem states to co-ordinate their activities by enabling individuals to predict with reasonable certainty how a total stranger will behave in a given situation (p.14). This social function of predictable rules needs constant restatement, however, because as the author notes the rule of law has been under constant attack for over a century, first from Marxism, then the Critical Legal Studies movement, and now from critical race studies, radical feminism and postmodernism.

Moving to the institutional structure of government, Professor Ratnapala describes the legal composition of parliament and the emergence of the system of ‘responsible government’ (now usually called the ‘Westminster system’ so as not to provoke sardonic Australian humour). That system’s requirement of party discipline meant that ‘the system of responsible government contained the seeds of its own decline’ (p.50) because it undermines the principle of executive responsibility to parliament. He quotes Geoffrey Brennan’s conclusion that parliament today is ‘just a piece of theatre’, the truth of which was recently surpassed by the imbroglio over revelations about questionable relations between a then senior minister and the leader of a minority party, relations that may have influenced far-reaching federal legislation. None of the politicians who commented on the matter, nor the parliamentary press gallery, saw anything untoward in the fact that the backbencher who exposed the matter was forced to make an abject retraction and apology. Nobody suggested that he might be owed an apology. When members are pilloried for telling the truth and liars are lionised, we are in the presence of something less than theatre, which after all makes no claim to literal truth.

Accountability, the author says, is now enforced only at election time. Even then the issue is not so much the governments past behaviour but how to predict what a prospective government will do in the future. Is a principled zealot more or less dangerous than a corrupt wheeler-dealer? Will party X if elected honour its sensible promises and break its crazy ones, or vice-versa?

The most serious consequence of the subservience of Parliament to the executive’, however, ‘is the incapacitation of the electorate to influence, directly and decisively, specific legislative measures’ (p.49). But under the United States model of separated powers, legislation proposed by the executive has no guarantee of approval by Congress, and Congress can pass legislation opposed by the president if it can muster a two-thirds majority to override his vote.

Professor Ratnapala explores in depth all aspects of the separation of powers, a subject on which he is Australias leading authority. He shows how inadequate theoretical inquiry and the influence of Dicey’s anti-constitutionalism led the High Court to abrogate the rule’ implicit in the separation of powers and the rule of law’ that the legislature should be responsible for enacting laws, and the executive, where necessary, should be delegated the power to work out the detail of the law subject to principles settled by the legislature (p.104). The essential point is that the law should not be changed at the point of execution. Yet that is what now happens in many areas of law, notably taxation, thanks to the Court’s wrong turning in Dignan’s Case. The separation of powers between the judiciary and the other two branches has been reasonably well maintained, however, and the Court has even devised a way of extending it to the state constitutions via the reasoning used in Kable.

The book then moves to the question of federalism, showing how inadequate theoretical perspective caused the Court in Engineers to take another wrong turning. It failed to appreciate the nature of a constitution as distinguished from an ordinary statute and treated language as grounded in transcendental reality, such that its true meaning could always be ascertained through a value-free judicial inquiry (p.219) divorced from considerations of context, purpose and history. That approach proved unsustainable and has been abandoned in relation to human rights guarantees and aspects of the separation of powers. But it is preserved on life support for the purpose of ensuring that Canberra wins all the federalism cases that count. This state of affairs persists partly because of the centralist leanings of a majority of the Court’s members and partly because there is a Constitutional Club of specialist lawyers which, like the old Industrial Relations Club, prefers to avoid unwelcome thought and exertion by supporting the status quo. Engineers is the Club’s partly line—and if you don’t follow the line, you don’t get invited to the party.

A chapter on constitutional rights and freedoms begins by setting out the philosophical foundations in the standard Hohfeldian language of right and outlines freedom and the evolution of rights from the common law’s struggle against the Stuarts onwards. He shows how the High Court’s originally narrow Diceyan inter-pretation of the Constitutions human rights guarantees gave way in the 1980s to a more rights-centred approach, culminating in the identification of a constitutional guarantee of political free speech in Australian Capital Television. That decision has been criticised by some commentators, but unlike contro-versial decisions such as Tasmanian Dams and Wik, it appears to have been received by the people at large with equanimity. That is presumably because people thought they had possessed the right of free speech all along and that by upholding it the Court was simply doing its job.

Professor Ratnapala concludes with a chapter on constitutional change, of which he identifies two broad types. The first is change within the system by using an amending procedure, in our case s128 of the Constitution, which requires a referendum. The other is revolutionary change, which replaces one constitution with another as a matter of political fact (p.290). A revolution can be violent, as in America in 1776, or it can be peaceful. An example of the latter kind is the way the United Kingdom lost the power to legislate for Australia through a revolutionary process in which it was a willing participant, involving the Statute of Westminister 1931 and the Australia Acts 1986. He rightly rejects both the ‘bootstraps’ argument that the Australia Acts enable the referendum requirement in s128 to be circumvented and the proposition that Australia could not become a republic by recourse to s128.

This is a fine work that will make a substantial contribution to the field. It is well timed to capitalise on the current revival of interest in the Australian constitutional tradition and on the worldwide renaissance of federalism.

Review by Martin Sheehan

Blaming Ourselves: September 11 and the Agony of the Left
Edited by Imre Salusinszky and Gregory Melleuish
Duffy & Snellgrove, Sydney, 2002, $22, 265pp, ISBN 1 876631 37 6

And why are you so firmly and triumphantly certain that only what is normal and positive’ in short, only well-being’ is good for man? Is reason mistaken about what is good? After all, perhaps prosperity isnt the only thing that pleases mankind, perhaps he is also attracted to suffering. Perhaps suffering is just as good for him as prosperity . . . smashing things is also something very pleasant.

Fyodor Dostoyevsky

THE image of the left has undergone a profound change in the past 50 years. Rather than being a working class hero, the typical leftist is nowadays closer to the 19th century poet and political radical Lord Byron—a member of the educated and affluent upper classes, but deeply alienated from the prevailing bourgeois social order. Like Byron, who wrote poems celebrating the exotic and mysterious east, today’s left worships the Other, which is any culture or society radically different from their own. For the contemporary left prosperity is a dirty word, a sign of the way in which modern societies have betrayed them, the best and the brightest, leaving them with nothing to do and nothing transcendental to believe.

Unlike the working class radicals of the 19th century, who were in rebellion against poverty and political tyranny, today’s bohemian left exists in a far more benign world. They are thus not so much in rebellion against poverty and oppression, but rather against conventional morality and common decency.

Thus the contemporary left takes its cues from counter-cultural critics and bohemians like Friedrich Nietzsche (who greatly admired Byron) rather than from stodgy Victorians like Marx or Engels. The contemporary left sympathises with, if not openly supports, radical nihilists like Osama bin Laden and his al-Qaeda movement, for their rejection of the liberal capitalist order, and for their defiance of western attitudes and beliefs, particularly those embodied in the political and economic system of the US. In the minds of these people, the Other is always to be identified with, even if that means going against ones own society.

Imre Salusinszky and Gregory Melleuish’s book, Blaming Ourselves: September 11 and the Agony of the Left, charts the lefts response to the tragedy that occurred in the US on September 11 last year. While the book acknowledges the mostly pro-US response of the Labor Party in the wake of 9/11, the contributing essayists express their profound dismay with the excuses, equivocation, and open cynicism of many left-wing commentators from this country, and overseas, to the atrocities in New York or Washington. As I read these essays I could not help feeling disgust at the many appalling, insensitive and rancorous comments from political and social pundits, otherwise known for their ‘compassionate’ views on such issues as the plight of Aborigines and illegal immigrants.

Roger Franklin’s piece is a moving account of the bravery and resilience of New Yorkers in the face of the terror attacks on the World Trade Center. Franklin, a long time resident in the US, writes bitterly of the anti-American commentary which has flooded the western media in Australia and overseas:

From a distance, the heartless might just be able to perceive the Twin Towers as symbols of globalist hegemony. Here [in New York] where we attend funerals and pick pieces of debris . . . off the streets of Lower Manhattan, we know different.

Many on the left seem to have forgotten nothing, and learned nothing since the end of the Cold War, and remain viciously anti-American and unrepentantly sympathetic to every homicidal revolutionary activist who appears on the scene.

One of the best pieces is Peter Coleman’s ‘Reflections on Violence’, which traces the genealogy of the left’s ideas on violence and revolution. Reflecting on the works of Georges Sorel, one time advocate of anarcho-syndicalism and author of the notorious book, Reflections on Violence, Coleman draws the links between his works and the revolutionary violence of al-Qaeda. According to Coleman, Sorel’s disgust with what he viewed as the pointless hedonism and unheroic, amoral market society of the late Victorian era, gave birth to many of the ideas about so-called ‘therapeutic’ violence which came to dominate the left in the 20th century.

Sorel believed that only a violent revolution, sustained by the most puritanical of revolutionary principles, could wipe away the corruption of modern European civilisation. Only a movement with the will to moral rectitude, certain of its own rightness and contemptuous of all discussion and compromise would prevail against corruption and decadence.

Sorel identified at various times anarcho-syndicalism, fascism, and bolshevism as continuing the revolutionary spirit he so admired. Sorel’s influence on philosophers such as Jean-Paul Sartre and his glorification of revolutionary violence, in turn influenced radical anti-colonial thinkers such as Franz Fanon and Yasser Arafat. Arafats own writings were a major influence on Osama bin Laden.

Other pieces by such authors as Owen Harries, Chandran Kukathas, Miranda Devine and Keith Windschuttle, complete the picture of the utter heartlessness of many on the left to mass murder and the plight of the survivors and their families in America after September 11. Many a commentator in Australia seems to have forgotten in their rush to blame the victim, that the attacks on the World Trade Center were not only attacks against America’22 Australians died on that day, as did many others from around the world, including many from Islamic countries.

I have, however, one slight quibble with the book. Some of the contributors write as if any and every criticism of the US foreign policy is somehow tantamount to support for Osama bin Laden. While Sean Regan’s piece is something of an antidote to that mentality, it is a pity more writers did not take a more critical line towards US foreign policy, which particularly under Clinton degenerated into a blase indifference to the threats from terrorist groups like al-Qaeda and an almost uncritical support for the state of Israel. The US needs not only staunch friends at this time, but also friendly criticism of the way in which it has handled Middle Eastern issues over the past decade.

Having said that, Blaming Ourselves is an excellent counter to the type of left-wing intellectual thuggery and hate mongering that has dominated the debate in our media since the attacks of September 11. It is time to call a spade a spade as the editors say in their introduction, and reject the anti-liberal and anti-Western tendencies of the left once and for all. This book is an important shot in that coming cultural war for the soul of the West.

Review by David Robertson

The Record of Global Economic Development
Eric Jones Edward Elgar,
2002, 226pp, $US85, ISBN 18406448066

THIS collection of essays draws on invited lectures presented in Germany, Japan and Australia on a selection of topics, ranging from the conventional economic defence of globalisation, through explanations of policy failure, to careful reviews of some non-economic arguments against global integration. Using an historical approach, Professor Jones develops his arguments meticulously around structural and institutional change. The volume is a fascinating read because disparate topics on social and economic change are linked by this consistent theme.

The volume opens with four essays that place global economic progress in a long-term historic context, based on Eric Jones’ own path-breaking research. This section places others’ theses on the history of economic development in a broad analytical perspective. These chapters establish the foundation for the later commentary by identifying why some societies accept change and achieve economic and technical progress, while others do not. The answer rests with ‘institutions’—organisation and rules—and their capacity to change. Failure of institutions to adapt to changing circumstances leads to decline and stagnation, evident from the dominance of Chinese and Middle Eastern leadership in the arts and technology which gave way to Europe’s Renaissance and the rise of the nation state. Now this political institution has become a threat to global economic development.

Eric Jones’ command of historical data on agricultural development provides the ammunition in chapter five for lampooning the European idea of ‘multifunctionality’ in agriculture. Placing the common agricultural policy (CAP) on one side, he evaluates the social, cultural and environmental goals of ‘multifunctionality’ on their own terms. He asks, are these anticipated public goods from CAP expenditure actually achieved? And are they properly valued? Since social and cultural goals do not feature in the business objectives of farmers, how can these public goods be generated?

Jones attempts to explain this paradox in public opinion. The social benefits can be summarised as neat countryside with leisure access, protection of the environment and the satisfaction of knowing that rural lifestyles are sustained. As a long-time amateur naturalist, Jones uses his experience to illustrate how farmers in England have sacrificed the environment and denied public access to the countryside in pursuit of profits offered by policy handouts. Rather than seeing themselves as guardians of the countryside, farmers are focused on profits—fields are roofless factories. Farmers show no more concern about environmental conservation than motorway construction firms or city developers. Yet farmers receive wide support in Europe because these public goods are regarded as being positive externalities of farming, even though no attempt is made to measure these ‘benefits’ or to assess them against relevant CAP expenditures.

The prediction that agricultural protection would shift from price supports for physical output to supports for supplying public goods (p.67) has come to pass earlier than even Eric Jones could have imagined. In mid-July, the EU Commissioner for Agriculture proposed that the CAP should be reformed; supports to farmers were to be de-coupled from outputs and subject to ceilings. Other payments would be provided for rural development, animal welfare, food safety and environmental objectives. European farmers are not about ‘good deeds’ and a strong reaction can be expected. On the other hand, EU expansion to the east makes CAP reform unavoidable, and this proposal could introduce some accountability into ‘multifunctionality’.

The next chapter engages cultural protectionists and their mis-understanding of global inter-dependence. What intrinsic value attaches to a dead and unused language, except as an historical curiosity? The benefits of global integration derive from the information and communication revolution that has shrunk the globe, which owes much to the adoption of common languages, especially English. Resistance to these trends, by culture protectionists, will delay the strengthening of links between peoples and economies, and impede integration and progress. Language protection quickly extends into other forms of cultural protectionism, which brings all the costs and damages evident in trade protection. ‘Local content’ for films and TV programmes is nonsensical in an English-speaking country, like Australia, because English has become the lingua franca across world markets. The global market for Australian cultural products (films, TV programs, literature, music, etc) is there to be seized.

An unusual dimension in the globalisation process is identified in the retail trade, that final deliverer of goods and services to consumers. In chapter 11, Jones examines the history of the retail and distribution of groceries, with special reference to Australian supermarkets. This discourse explains how the fruits of rising technology and productivity at the final interface with consumers have brought huge welfare gains, as well as overcoming potential bottle-necks in service delivery. Communitarians and romantics in anti-globalisation lobbies neglect ‘or blindly accept’ these gains without acknowledging the contributions this technological revolution has brought in lower prices. Do they really believe consumers would be prepared to regress to corner stores for personal service? The argument about protecting small stores in country towns presents the same conservatism as European support for ‘multifunctionality’.

The third section of the volume contains three papers on East Asian development. The emphasis is on the institutional and cultural dimensions of the ‘Asian miracle’, and ironically, how they triggered the East Asian crisis. While emphasising that institutions depend on philosophies, Jones notes that economic progress depends on cultural pre-dispositions too. In the mid-1990s, over-confidence derived from the ‘Asian miracle’ overcame prudence and financial realities. Changes in overseas markets and financial circumstances generated currency crises, but they were aggravated in East Asian economies by weak institutions and ‘cronyism’. Authoritarianism could not manage economic shocks.

In his concluding section, Eric Jones expresses concerns about Australia’s prospects in the global system. With the Australian economy flying high in the past decade, his scepticism raises some important questions. While sharing some of his concerns, I believe that misleading messages can arise from focusing on one national economy in an interdependent global economy. This narrow view contradicts the ‘globalist’ view evident in the rest of the volume. Australia’s recent economic catch-up owes as much to the opening of Australian markets to foreign competition and the forces of globalisation, as to domestic economic reform.

Like him, I have spent some time with Australian businessmen, directly and indirectly in Melbourne’s business schools. The qualifications of corporate board members, and their similar ages and backgrounds, seem to influence their approach to business opportunities and to economic policies. Jones draws together important qualitative and quantitative evidence to support his views, though he draws heavily on journalistic references. The ABS data and Productivity Commission reports show that high growth in productivity recorded in the long upswing in economic activity since 1993 has come predominantly from small/medium-size firms, and from service sectors. This strong performance is the envy of many OECD and Asian economies. Undeniably, the drag from large firms and their predilection for protectionism remains a burden.

In chapter ten, Jones expresses concern about the human capital outflow from Australia. Yet this has always been a characteristic of adventurous Australians. Young graduates look for opportunities in large, high income economies, and international mobility is increasing. It is not all one way, however, because there is also an inflow of talent, largely from Asia. (Of course, this raises the politically sensitive issue of migration policy.) It would be surprising if mobile labour did not seek such opportunities. Indeed, in another breath, Jones acknowledges that Australian businesses need a spirit of adventure. Surely, the two should go together? Some comments in this chapter might be interpreted as being against free labour movements but they are intended to highlight the seriousness of shortcomings in the Australian education system, about which there can be no disagreement.

Anxious that the economic benefits of globalisation are under-recognised, Eric Jones explains the costs of allowing spurious arguments to weaken the progress of economic interdependence. The important message of this volume is that conflicting opinions exist over any issue. There is no homogeneity that provides a unique policy response, which might in any case impede the momentum of social and economic progress. He shows that the world does not progress smoothly, but in fits and starts. Each hesitation must be confronted with a will, and with a reminder of historys lessons.

Review by Michael Brennan

Free Trade Today
Jagdish Bhagwati
Princeton University Press, 2002, 144pp, US$24.95, ISBN 0691091560

WINSTON Churchill once famously quipped that if you had two economists in a room you would get two opinions. Unless of course, one of them was Lord Keynes, in which case you would get three. However, despite that legendary capacity to disagree, there is at least one major public policy issue on which economists record a remarkable degree of consensus—namely the mutual benefits flowing from free trade between nations.

A 1976 survey of American academic economists found just 3% who disagreed with the assertion that ‘tariffs and quotas reduce economic welfare’. The only proposition to achieve a greater conformity of view was that ‘a ceiling on rents reduces the quantity and quality of housing available’ (2% disagreed).1

In contrast to this strong endorsement by academic economists, moves towards free trade have generally struggled to win much support in the broader community, certainly in most of the industrialised world. Moreover, recent protests in Seattle and elsewhere against globalisation and the World Trade Organisation appear to signal a hardening of opinion against greater freedom of trade.

Economist Jagdish Bhagwati is one who believes that the Seattle protests indeed indicate a new wave of anti-free trade feeling, of a greater intensity and a modified type. His new book Free Trade Today is a spirited defence of the continued reduction and removal of trade barriers, particularly through multilateral processes rather than smaller trading blocs.

Professor Bhagwati argues that the traditional objections to free trade came from vested interests, usually representing domestic producers or workers whose industries are protected by import tariffs or quotas, whilst the defenders of free trade held the high moral ground by defending the ‘general’, rather than sectional, interest. However, the latest assault on free trade, featuring a range of non-government organisations and concerned citizens, is more focused on the impact of trade on human rights, international labour standards and the environment, particularly in low-wage developing countries. This is a challenge to the moral basis of free trade.

Free Trade Today could be seen as Professor Bhagwati’s answer to this challenge. It takes the form of three thematic lectures. The first restates the theoretical case for free trade, and assesses the academic arguments advanced at various times in favour of some tariff protection. One such argument is based on the case where a country can exercise genuine market power by restricting trade, and can move the terms of trade in its favour, in much the same way a domestic monopolist restricts supply of its product and raises the price to the profit maximising level. This is a rare case in practice, and even where it does pertain, the strategy risks the imposition of retaliatory tariffs by trading partners, with welfare losses all round.

Another traditional economic argument for tariff protection is the case where some domestic distortion or other (inflexible real wages in a particular industry, for example) leads to the perverse effect that increased trade reduces welfare, and some trade restriction can increase it. Bhagwati points out that in all such cases, the first best result is the removal of the distortion itself, which (along with free trade) then operates to maximise economic well-being. By the completion of the first lecture, the case for free trade stands basically unscathed.

It is Bhagwatis second lecture which delves into the world of practical political argument, and tackles head on the issues of human rights, labour and environmental standards. He starts by citing the absence of any empirical evidence that free global trade leads to an environmental ‘race to the bottom’. Further evidence is mounted that free trade need not reduce the wages of workers in industrialised countries and if anything, has improved the lot of the poorest countries, such as India since the early 1980s.

However, his central argument is based on an insight from the theory of economic policy. Specifically, he argues that you need as many instruments as you have policy targets. The mathematical metaphor is that you cannot solve a system of n equations in n+1 variables. Bhagwati’s practical metaphor is that you cannot kill two birds with one stone.

So trade policy and the WTO can be used to reduce barriers and liberalise trade, but cannot be used to eradicate child labour or improve environmental standards in the Third World. As a result, attempts to link social or moral agendas to trade issues, such as President Clinton’s request to inject social standards into his quest for ‘fast track’ negotiating authority from Congress, lead to protectionism by stealth. The author describes it as ‘protection with a moral mask’.

None of this is to imply that Professor Bhagwati does not support social and moral agendas. It is just that he sees them as unconnected to trade. In fact, he shows himself to be a great supporter of multi-lateral institutions beyond just the WTO. He speaks highly of the International Labor Organisation (ILO), and its role in focusing on core labour standards, child labour and the right to organise. He also advocates a policy of subjecting American companies to American environmental standards irrespective of the country in which they operate.

It is here that the argument has the potential to get confused. For example, trade unions could (and do) push for improved labour standards in the Third World via the ILO in a way which is not explicitly linked to trade, but which nonetheless stems from a protectionist motive. Australia's maritime union has a history of opposing the operation of foreign-crewed ships in Australian waters. Is this a concern for the plight of foreign seamen or for Australian jobs, wages and conditions?

However, Bhagwati's basic point holds: it is perfectly consistent to be concerned about the environment, about child labour and other human rights issues and nonetheless favour free trade as the best means to maximise welfare. If countries have their environmental and human rights houses in order, free trade is still the best policy. If they don’t, then this is best addressed via other means. That insight, if truly grasped, can help broaden the free trade coalition, by embracing those who are concerned about social and moral agendas and who generally support multilateral structures to further them.

Thus Free Trade Today tries to accommodate, as much as to dismiss, newly emerging concerns with free trade. As an aside, one wonders whether the stated case against continued tariff reduction in Australia today is of the more traditional type: protected industries, like automotive and TCF, have a greater incentive to lobby for continued protection than consumers have to lobby for lower prices.

Professor Bhagwati would presumably argue that the traditional arguments for trade protection have been disproven. What remains is to defend free trade against a new intellectual challenge—that arising from the Seattle WTO protest.

Free Trade Today is short and thoroughly readable, summarising the key argument in an easy, folksy manner. Some background in economics is helpful but by no means a prerequisite, since Professor Bhagwati employs a mix of theoretical and real-world arguments. Most importantly, he takes seriously the arguments of his opponents and is rarely glib, even though these three brief lectures necessarily skim over arguments which could justify detailed doctoral theses in their own right.

1 J.Kearl, C.Pope, G.Whiting and L.Wimmer, 'What Economists Think? A Confusion of Economists', American Economic Review 69:1 (1979), 28-37

Review by Andrew Norton

The Price of Prosperity: The Economic and Social Costs of Unemployment
Edited by Peter Saunders and Richard Taylor
Sydney, UNSW Press, 2002, 278pp, $39.95, ISBN 0 86840 541 8

THE 1970s were a bad decade for the Australian economy. Slow growth, sluggish productivity, high inflation, and rising unemployment created a mood for change, and the political conditions for economic reform. Twenty years after the reform process started, of all these indicators only unemployment has failed to show any lasting improvement. Today, it remains around 6%, just as it was in the late 1970s and early 1980s, before the recession that hit in 1982.

In thirteen chapters, The Price of Prosperity takes us through several decades of unemployment, and how it has affected Australian society. These include economic, health and psychological effects on the unemployed, and possible effects on the general community in increased crime, poverty and family breakdown. A final chapter considers policies to reduce unemployment.

What The Price of Prosperity shows convincingly is that even though the unemployment rate is much the same now as it was 20 to 25 years ago, and employment to population ratios have not declined, unemployment’s social impact is much higher than in the past.

A major reason for these more serious social consequences is that, as Stephen Bells chapter shows, the long-term unemployed, those without work for more than a year, are now a larger proportion of all unemployed. From around 10% in the mid-1970s, when he starts his time series, they exceeded 35% of all unemployed by the mid-1990s, and made up 24% in the first half of 2002.

There are several reasons for the growth in long-term unemployment.

Recessions have consequences lasting well beyond periods of no growth, as marginal workers lose jobs and are unable to find new employment. The dynamic at work is illustrated in Michael Webber and Sally Weller’s chapter on retrenchments in the textile, clothing and footwear industries. Many retrenched workers in these industries had limited skills, with poor English language ability adding to their vulnerability. Despite training schemes being available, only about one-third of retrenched workers found stable full-time employment, though one in six secured stable part-time work.

Janet Taylor, in her chapter on unemployment and family life, also notes the ethnic dimension to unemployment. The most recent Australian Bureau of Statistics data shows that recent migrants from the Middle East and Asia have very low workforce participation rates and high unemployment rates.

 Another difficulty is that the link between growth and jobs is weaker than in the past. After the early 1990s recession, in particular, growth did not create jobs as it had in the past. Bell’s statistics indicate that in the 1980s a 1% increase in economic activity led to a 0.8% increase in employment, but in the 1990s the same growth led to only 0.4% more jobs.

Bruce Chapman and Matthew Gray’s chapter on youth un-employment is less pessimistic than much media coverage of this problem, because many young people without work are in education and have good prospects. However, those young people neither studying nor working face serious challenges. Their youthful unemployment has ‘scarring effects’, weakening their skill development and making them less attractive to prospective employers. They are prime candidates for long-term joblessness.

Long-term unemployment has a much greater impact on unemployed individuals than short periods between jobs. In his chapter on the psychological effects of unemployment, Bruce Headey surveys the large literature showing correlations between unemployment and poor mental health. Those who experience repeated bouts of unemployment do not improve their life satisfaction by getting a job, perhaps because they remain pessimistic. Not all the research is without hope, though. Unemployed people often adapt to some extent, especially if they can find reasonably satisfying ways of spending their time.

The stress of being without work contributes to poor physical health, as described by Richard Taylor and Stephen Morrell in their chapter. In one Australian study, unemployed men were found to suffer a recent illness 21% more often than employed men, with worse results for women. Chronic illness was also much more prevalent amongst the unemployed. Interestingly, in a finding also reported by Headey, anticipated as well as actual job loss has negative consequences. Taylor and Morrell note, however, that there are few good studies on to what extent the unemployment/poor health correlations are the result of ‘reverse causation’, that is that poor health causes or contributes to unemployment.

Unemployment’s harm is not limited to the jobless person. Janet Taylor shows in her chapter that there are large numbers of children in homes where nobody works, which in 2000 made up one in six families. These families are more likely to be poor and suffer other strains than typical Australian families, and the children are more likely to themselves become welfare dependent.

Unemployed people are in-creasingly concentrated in particular areas, from a combination of declining jobs in old manufacturing areas, discussed in a community study by Lois Bryson and Ian Winter, and rising property prices in areas with strong employment. Geographic concen-tration can compound problems. It takes unemployed people out of the informal networks that pass on information about jobs, and may contribute to increased crime.

Don Weatherburn’s chapter on unemployment and crime highlights the complex relationship between the two. Unemployment rates and crime rates do not move together, so there is no simple cause and effect. However, there are links between economic stress and poor parenting, a common experience of young criminals. The effects of un-employment may appear in the crime statistics many years later.

A criminal record also makes it harder to get a job. The staggering arrest rate of unemployed Indigenous people, as detailed in Boyd Hunter and John Taylor’s chapter, with 42% of the long-term unemployed arrested over a five year period, partially explains why so few Aborigines are in the productive workforce.

The contributors to this volume are broadly on the left of Australian political debate. Thankfully, the left’s various intellectual vices are rarely found in its pages.

Only Lois Bryson and Ian Winter show signs of them. In an example of sociologists’ do-it-yourself economics, declining employment in a car manufacturing plant after 1983 is said to be in the ‘wake of tariff reductions’. Yet this was a decade after Whitlam’s tariff reductions, and several years before Hawke’s reductions. In a gratuitous ideological aside, they criticise the ‘social exclusion approach’ to analysis as ‘it excludes the possibility of problematising the mainstream capitalist consumer society’. The main problem the unemployed have with ‘capitalist consumer society’ is that they don’t get enough of it.

These blemishes detract from an otherwise interesting chapter.

The title is also off target. Would a lack of prosperity have reduced unemployment? I think not. Some policies underlying our current prosperity may have cost some people their jobs, but prosperity itself is a net reducer of human misery.

Those contributors who offer solutions to unemployment generally favour expansionary fiscal policy, though only John Nevile in his chapter expands on the idea. He favours increasing the ratio of tax to GDP ratio by 10%, with the money to be spent on economic infrastructure, education, training, labour market programmes and labour intensive community services.

Given the Australian electorates resistance to higher taxation, and the very mixed record of these programmes here and elsewhere, taxing and spending on this scale seems very unlikely.

Despite the improbability of its policy suggestions, The Price of Prosperity contains much useful information on Australias most pressing economic and social problem.

Review by Helen Hughes

Narovinu, Hovory s Petrem Hajkem, nejen o tom co bylo, je a bude(Balance: Conversations with Petr Hajek About What Has Been, Is and Will Be)
Vaclav Klaus
Prague, Rabbit and Rabbit, 2001, ISBN 8086335038

THESE conversations with Vaclav Klaus follow a style established by Karel Apek in his Conversations with T.G. Masaryk (1928), who, after more than 300 years of Habsburg oppression, won independence for Czechs, Moravians and Slovaks by the creation of Czechoslovakia in 1918. The linkage with Masaryk is more than stylistic. When Vaclav Klaus was born in June 1941 the Czechs were once again crushed under German heels. His formative years were spent under rule that was even more shameful because so many Czechs became the eager running dogs of Russian dominated communist repression.

Klaus came from a very ordinary Czech family. His father was a minor bureaucrat. But these conversations, (and an autobiographical sketch), show a family rooted in the moral, civic and cultural values of a city that had considered itself an intellectual node since the Middle Ages and that had played a prominent role in the Reformation. In the Klaus family the Sunday literary papers were the week’s focus. The parents’ expectations were high not only in academic achievement but also in extra-curricular activities, including chess, skiing, tennis and basket ball, where teamwork brought important social and political lessons and travel abroad during the agoraphobic communist years. This background enabled Klaus to escape the narrow prisms of communist thought to develop as a liberal economic, social and political thinker. He was enough of a vejk to use the years of being sidelined as a bank official for his political unreliability to teach himself English and to school himself deeply and thoroughly in Western economics and liberal philosophy. When he managed to spend five months in the United States from September 1968, his ideas were already formed. He found himself firmly in the then unpopular anti-Marxist camp. Years of continuing isolation and self-education followed until he came to prominence in the aftermath of the Velvet Revolution in 1989.

Vaclav Klaus was Minister of Finance for the critical transition from communism to a market economy, pioneering the voucher privatisation of state enterprises, which, in spite of its difficulties, has been the most successful in post-communist Europe because the emphasis was clearly on the local acquisition of domestic productive resources. Foreign investment was only regarded as useful on the margin in marked contrast to the (failed) attempt to introduce foreign investment on a vast scale in Russia and other communist countries. Making the market economy work meant the detailed, tedious and largely unappreciated labour of reintroducing the ‘rules of the game’ that have been built up over the years in Western societies. Klaus saw the high costs of allowing the IMF and the World Bank to manage reform. Politely remarking that other countries had a greater need of its valuable services, he refused a World Bank offer of a resident Mission.

Klaus became Prime Minister from 1992 to 1996. While he did not encourage Slovakia’s secession, once the Slovaks made their wishes clear, he ensured that it went quickly and smoothly.

The early 1990s saw rapid liberal political and economic trans-formations from communism in the Czech Republic, undoubtedly aided by the unique strengths of pre-war democratic Czechoslovakia. But expectations were over-optimistic. The difficulties of reversing trends that had been created by central planning in low productivity, out of date technology and poor management, were underestimated. When Klaus left the driving seat progress stalled. The destruction of civil society by the years of fascist rule and communism could not be repaired overnight. Voters were promised an easy life and the ensuing Government lost the will to bring reforms to completion. Regulation and bureaucratic intervention, with consequent advantages not to ‘what you know’ but to ‘whom you know’ returned. Foreign visitors, feeling the lack of civility, have dubbed Prague ‘the rudeness capital of the world’.

In 1996 Klaus promised a doubling of income by the year 2000. This would have been achievable if trends of the first half of the 1990s had been followed, but instead the economy has stagnated, falling behind Poland and Hungary. The very slow rise of per capita incomes has exacerbated social friction and anti-social behaviour. Gypsies are blamed for crime. Ukrainian workers have come in to do dirty jobs that Czechs are no longer willing to do. Vietnamese market stalls (a hangover from immigration under communism) are patronised, but resented. In spite of unprecedented opportunities for travel, student exchange and international business, the Czech Republic has become provincial and turned inward. Klaus complains that Czechs are not good listeners.

Entry into the European Union has created a new illusion of easy growth. Klaus favours entry ’he insists there is no alternative’ but at the same time sees the economic difficulties that will be created by membership. The adoption of the Euro will materially reduce the Czech Republic’s ability to use monetary and fiscal policy independently and labour market rules will maintain sclerotic arrangements left over from communism. Hopefully, the enlarged goods, service and capital markets will at least offset these costs.

Although Vaclav Klaus demon-strated his practical capacity to run a Ministry and a Cabinet in the early 1990s, and although he is a keen political campaigner, he is not a baby kissing politician. He was besmirched by financial scandals in his party, and yet suffers from an opposite reputation, illustrated in almost every page of these Conversations, of high morality that may come across as arrogance to voters. He lacks a talent for weasel words and waffle.

The Social Democrats ran a scare campaign against Klaus, claiming he would return to the austerity of the early 1990s. My cousin Jirka, in her 70s an acute political observer, predicted that: ‘Czechs want to earn like New Yorkers, but to work like under communism’. And Klaus lost to the Social Democrats. The country’s only hope for reasonable economic performance is that in reconstruction from the floods, with a $60 million injection from the European Union, the Social Democrats will run more effective economic policies than in their previous term and thus raise productivity and income.

Vaclav Klaus, like Masaryk before him, is truly an intellectual, making these Conversations (soon to be published in English) a good read. One of Klaus’ most satisfying awards was an honorary doctorate from the Economics University of Prague in 1994 for his contribution to the theoretical foundations and practical application of economic reform. He has met many of the world’s leaders, attended myriads of conferences and given hundreds of lectures to learned institutions, but the contacts he values most are with his fellow liberal economists (three of them Nobel Prize winners) within the Mont Pelerin Society. If he leaves political life, the gain will be Australia’s. He has been appointed Adjunct Professor of Economics at the University of Adelaide.

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