Australia
at the Crossroads
by Fred
Argy
Allen & Unwin,
Sydney, 1998, 295pp,
$24.95.
ISBN 1-86448-669-4
The title of this
book is impeccable. The same cannot be said of the contents.
Fred Argy, a former
head of the now-disbanded Economic Planning Advisory Commission
(EPAC), has written a book about social and economic strategies
that Australian governments should pursue. He mounts an
argument for a ‘progressive liberal strategy’
and against ‘hard liberalism,’ which, in his opinion,
has gained the upper hand in the media, the bureaucracy
and politics. He begins by reviewing Australia’s record
on economic growth (gross domestic product per capita rose
an average 2·2% p.a. from 1960 to 1996, but only
1·3% from 1989 to 1995), which he finds satisfactory
– never mind the much higher growth potential of this
young, well-located and resource-rich economy. He considers
the inflation we had over the past generation ‘dismal’
(1968-91: 9·1% p.a.), but seems to deem the means
of getting to the much lower inflation of recent years too
harsh. He is critical of Australia’s employment performance
and sees dangers ahead for income distribution. Argy casts
doubts on the adequacy of GDP as a welfare indicator, but
does not go as far as Clive Hamilton of the left-wing Australia
Institute who recently argued for the complete replacement
of the GDP measure.1
Argy then defines
three ideologies:
- ‘hard liberalism’
– as represented by some policies of Howard and Costello,
and predominantly represented by the Treasury, the Reserve
Bank governor, the IMF, OECD, certain media analysts and
unnamed academics,
- ‘state paternalism’
– as represented by the policies of the Menzies era,
and
- ‘progressive
liberalism.’
Unsurprisingly,
the third way turns out to be the compromise which Argy
advocates and for which he wishes to forge a new alliance
of progressive forces. He pleads for ‘higher taxes
paid by the better off …, some loss of business economic
freedom, slightly less price stability’ (p. 44). He
outlines a ‘socially sensitive path’ for which
he is celebrated as humane and compassionate on the opening
page of the book by other former civil servants, as well
as academics with a collectivist bend.
Argy’s argument
fails to convince because it is based on three tacit and
wrong assumptions, which I will discuss under the headings:
Island Mentality, Collectivist Delusion and Moral High Ground.
Island Mentality: A book such as this, which contains not even
a rudimentary analysis of global economic prospects and
discernible technological changes around us, begins with
an inevitable birth defect: inward- and backward-looking
biases. Globalisation, though mentioned in passing, is not
taken seriously. Instead, it is assumed that ‘progressive’
interventionism to stop unwelcome or challenging global
changes at our borders is still a long-term option. In reality,
Australians – like the citizens of all other affluent,
mature economies – have to come to grips with the fact
that the number of competitors with access to modern skills,
capital, technology and world markets has been rising dramatically
– I estimate eightfold from 1950 to now, from some
250 million to 2000 million.
No Canberra bureaucrat
could ever protect us from this reality! We may adjust willingly
and try to exploit this as an opportunity. To be successful,
we have to compete for internationally mobile capital, knowledge
and enterprise, and have to shoulder the costs and risks
of broad-based knowledge search, each and everyone as best
we can. Illusions that collective action could somehow obviate
adjustment can delay our responses and at best save us knowledge
search costs. But such reactive attitudes will make us losers.
Collectivist
Delusion: Argy’s argument is replete with what
has been widely lampooned with the phrase: ‘We as a
nation must ensure that no child lives in poverty!’
– in other words, with the tacit assumption that Canberra
knows how to engineer outcomes that someone at the centre
finds desirable. Yet, in the face of the growing complexities
and unpredictable evolution of economic life, social engineering
has not worked all that well. Frequently, unforseen side
effects were caused by the ‘enlightened interventionism’
that Argy advocates. Unemployment, poor wage outcomes, rising
debts, growing welfare dependency, a spreading sense of
insecurity, pervasive cynicism about government, and the
growing and divisive politicisation of the Australian community
seem, to this reviewer, the consequences of the very social
engineering that Argy preaches. In reality, civil servants
and politicians simply do not know enough to predict the
many side effects of their schemes (Parker and Stacey, 1995;
Kasper 1998). Nor are they motivated by the common good,
but rather their self-interest, such as re-election or bureaucratic
power.
It is very well
for Argy to stipulate policies that attain ‘maximum
potential efficiency’ (142). But how can anyone know
what that is? Who is to value the inputs and outputs when
determining efficiency? In his wide-ranging review of the
policy literature, Argy oddly overlooked the National Commission
of Audit finding that Commonwealth governments had, over
the years, turned revenues and borrowings into a monumental
$73,400 million excess of liabilities over properly assessed
assets (NCA, 1996: xxii). In other words, the pretence of
knowledge and the collectivist delusion that prevail in
Canberra have led to massive value destruction, not value
adding! In the face of such facts, Argy’s designs for
even higher taxation and more selective industry, income,
labour-market, and redistribution policies strain the credulity
of the objective reader. After all, his recipes have been
tried. They have failed. They have caused huge losses to
the common wealth.
Moral High Ground: Like other neo-Fabians, Argy readily claims
the moral high ground from the ‘hard liberals.’
He starts with the premise that income inequality is injustice
(118) and that this is the automatic consequence of the
unsupervised market. There is no trace of awareness that
observed inequalities often result from discriminatory,
burdensome regulations, from state-sanctioned monopolies
in product and labour markets, and from markets made dysfunctional
by the very policy activism advocated in the book. Nor is
there any awareness that redistributive welfare states have
been failing badly around the world. The failure is unsurprising
because people are being treated as passive recipients of
government hand-outs. This breeds sullen mediocrity and
a culture of complaint. Collective welfare societies can
no longer compete with those old and new industrial countries
where welfare has remained the responsibility of the family.
The result is slow growth and high unemployment (Sachs and
Warner, 1996). Virtually all old welfare states are now
running into fiscal, moral and debt problems. Sadly, the
path to hell is paved with good moral intentions; sadly,
being liberal with confiscated money often has inhumane
long-term consequences.
Australia cannot
shirk the global competition with the non-welfare states
by clinging to putatively noble public welfarism and periodic
parliamentary vote-seeking auctions, because we are a frontline
state in the Asia-Pacific competition.
Argy is of course
not unique. His brand of neo-Fabian romanticism is the vision
of the ‘self-congratulatory anointed’ that Tom
Sowell documented for the United States (Sowell, 1995).
In this country, it is widely shared around Canberra dinner
tables, by social and industrial lobby groups, activist
‘church persons’, greens, the ABC, and many politicians,
from the Australian Democrats, Cheryl Kernot and Simon Crean
to Pauline Hanson and John Moore. If future Australian policy
were to be governed by these precepts, there is a good chance
that Canberra would soon be as relevant to our future as
the court at Versailles was in 1780 to the plight of the
French people, or the Mandarins at the Ming and Ching courts
to the fate of the Chinese.
The book is useful
in that it gives an insight into the minds of Canberra Mandarins
who distrust the spontaneous, creative powers of millions
of free citizens when they cooperate and rival in markets.
Few advocates of more collective action speak their minds
as explicitly as Fred Argy has. The book is also useful
to forewarn the elected representatives of the people of
the bureaucratic interests that are out to capture them
the moment they arrive in Canberra or are appointed to political
office.
The Third Way in
economic policy between outright central dirigisme and reliance
on markets, which Argy tries to resuscitate, deserves to
follow the Soviet central planning model into Marx’s
proverbial dustbin of history. Former Czech Premier Václav
Klaus was right when he lambasted the Third Way as a shortcut
into the Third World. Do Australians really want to go there?
I doubt it.
References
Kasper, Wolfgang
1998, Property Rights and Competition – an Essay
on the Constitution of Capitalism, Centre for Independent
Studies, Sydney.
National Commission
of Audit 1996, Report to the Commonwealth Government,
Australian Government Publishing Service, Canberra.
Parker, David, and
Ralph Stacey 1995, Chaos, Management and Economics: The
Implications of Non-Linear Thinking, Centre for Independent
Studies, Sydney.
Sachs, Jeffrey D.
and Andrew M. Warner 1996, ‘The Social Welfare State
and Competitiveness,’ in The Global Competitiveness
Report 1996, World Economic Forum, Geneva.
Sowell, Thomas 1995,
The Vision of the Anointed, Self-Congratulation as a
Basis for Social Policy, Basic Books, New York.
Notes:
1 In Australian Quarterly
(May-June 1998: 22-30), Hamilton proposes to ‘correct’
GDP by a great number of arbitrarily chosen ‘bads’,
such as the ‘use of environmental capital,’ growing
crime and mounting foreign debt, to show that, despite considerable
GDP growth, Australia’s Genuine Progress Indicator
(GPI) declined during the 1980s, i.e. during the time when
the Labor governments practised many of the policies Argy
advocates. Of course, if you ‘correct’ GDP by
the extension of life expectancy or the quality of long-distance
communication, cars or cappuccinos, you reach the opposite
conclusion!
About the Author:
Wolfgang
Kasper
is Professor of Economics at the Australian Defence Force
Academy campus of the University of New South Wales. He
was the lead author of the book Australia at the Crossroads
(1980), which analysed Australia’s economic and social
futures in the 1980s and 1990s under alternative dirigiste
and free-market regimes.
The author wishes
to thank Fred Argy for his comments on an earlier draft.
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