(Written 2015) by Neale Towart Job creation and maintenance were central until neoclassical training in the academy took over in the bureaucracy, to our detriment.
“Economics… has always been partly a vehicle for the ruling ideology of each period (Joan Robinson)
The Productivity Commission (PC) is as misnamed as its predecessor, which was, officially, the Industries Assistance Commission. In reality it was the Industries Assassination Commission, and was certainly true to that name. The Victorian Liberal Premer, Rupert Hamer, is usually credited as the person who bestowed the Assassination moniker. The PC has unions in its sights. The history and the ideology of the Commission under various names show us what we are in for.
To understand where it is coming from we need to look at economic history. Before you nod off, remember that Australia as a nation for a continent was born of the tensions between free trade (SYDNEY) and protection of industry (MELBOURNE), and it helps to keep those broadly opposed ideas in mind. Federal governments between 1901 and 1987 generally kept a pragmatic “balance” between these views. Federation itself was only achieved when these conflicts were bashed into a shape acceptable to the various states.
That job destroying and wage lowering body was itself a follow on from the Tariff Board, instituted in 1922. The Tariff Board was established as a stand-alone, seemingly separate from government departments. Tariffs could not protect us from the international depression of the late 1920s, and the economic policies needed to extract us from the mire did not flow, despite urgent calls from JM Keynes and Australian economists Copeland and Giblin, with Queenslander Red Ted Theodore the leading politician for the Keynesian approach. The war induced growth in expenditure did the job.
The need for population growth, a self-reliance ethos, state development of infrastructure, industry protection, price support and rural assistance schemes were the backbone of Australian economic development until the early 1970s. This is not to say these policies were uncontested, but the Australian economy did grow, ensured high pay rates and growing standards of living for all (white) citizens until the 1970s.
POST WAR RECONSTRUCTION: JOB SECURITY WAS KING
The policy drivers in the Federal sphere from the mid- 1940s had initially come from the Department of Post War Reconstruction with bureaucrats such as Nugget Coombs and Lyndhurst Giblin under the Curtin and Chifley governments, and under Menzies. Giblin pointed out, in 1943, that “the demand for job security was so strong and so general that no government could withstand it; full employment had become a ‘test of democracy.’ (Stuart Macintyre: Australia’s Boldest Experiment: war and reconstruction in the 1940s. Newsouth, 2015)
In 1963-5 the Vernon report expressed an alternative to the Treasury and Tariff Board approach, a reflection of the balance of political economic power. Although still a Liberal Country Party government, the membership of trade unions was above 50% and the acceptance of full employment was seen as political necessary. Classical economics was prepared to state that full employment was an unhealthy situation for the governance of capitalism. The Polish economist, Michael Kalecki (I hasten to add that Kalecki was fiercely opposed to this idea) had summed this up:
” … the assumption that a Government will maintain full employment in a capitalist economy if it knows how to do it is fallacious. In this connection the misgivings of big business about maintenance of full employment by Government spending are of paramount importance.” misgivings of big business about maintenance of full employment by Government spending are of paramount importance.”
NEO-CLASSICAL TRAINING IN THE ACADEMY
Evan Jones traces the increasing power grab to the increased role of university educated economists in Treasury, as against the accountants who had dominated until then. As Joan Robinson, the British economist saw it “economic doctrines always come to us as propaganda. This is bound up with the very nature of the subject and to pretend that it is not so in the name of ‘pure science’ is a very unscientific refusal to accept the facts.”
The Department of Trade and Industry was opposed to Treasury, and was prepared to accept facts. It was supportive of the Vernon approach, which actually looked at how active economic policy framing did work or not in many countries, including shock horror, non-Anglo ones. They tried to look at and understand world markets something the Treasury officials would not do as they looked at their careful on-paper modelling.
The beginning of the end for this pragmatism came from Country Party leader Black Jack McEwens’ decision to appoint Alf Rattigan as head of the Tariff Board. McEwen was seen as the person responsible for the balance of tariffs and rural assistance. His appointment of Rattigan was a disaster
The Industries Assistance (Assassination) Commission (IAC) replaced the Tariff Board, with Rattigan still in charge. It first reported in 1973-4. It has been downhill from there.
One of the most infamous the Whitlam governments early decision was an across the board tariff cut of 25%. Evan Jones notes example of the devastation this brought on in the textile industry in towns in northern Victoria. Wangaratta Woollen Mills (the town’s second-largest employer) laid off 100 workers in early June. The smaller plants of the Cleckheaton firm also retrenched workers at Benalla (28, one shift) and Shepparton (17).Bruck (Aust), Wangaratta’s largest employer, then retrenched 40 workers, and didn’t replace 20 others who had resigned. Clark Fashions closed down at Benalla, retrenching 40 workers.”
THE JACKSON REPORT
At about this time, but too little too late, the Jackson report arrived, with the extraordinary sight of radical economist Ted Wheelwright on the committee. Ted’s approach to economics is summed up by Joan Robinson’s dictum that “The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists. “ (Chapter 7, Marx, Marshall and Keynes, p. 75)
The report (not actual government policy) itself noted that “Market forces and tariff policy are not sufficient to achieve the desired industry structure. Positive policies are needed to develop particular industries.”
The oil crisis and world-wide economic recession saw the ALP move from the acceptance of Rattigan’s approach to a need to shore up the rising social dislocation. The ongoing crisis was used by Fraser as a reason to rein in the IAC, accepting the need to weigh social dislocation when arguing about tariff cuts. Pragmatism remained but the ground was shifting. The Jackson report was part of the economic argument that moving to a rigid neoclassical mainstream away from any vestiges of Keynesianism.
The Crawford report followed in 1977. Crawford had been a part of the Vernon Committee in the early 1960s but the report introduced us to the term “structural adjustment’” a code for the horrors to come. The IAC was partly held in check by the pragmatism of stability, but the boffins remained firmly in their silos and warded off any change that might threaten their neo-classical ideas.
HAWKE AND KEATING
The various IAC reports under Fraser had been put carefully to one side as they tried to ride out the storms. The early days of Hawke Keating saw a similar process, with the Accord acting as a brake on the wicked unionists demanding their fair share whilst industries “adjusted”.
The IAC was under review and was supposed to be more concerned with social and economic dislocation. It kept itself in the forefront of policy advice, despite opposition from a newish Bureau of Industry Economics (BIE), the Australian Manufacturing Council (AMC) and the Economic Planning Advisory Council (EPAC).
However the IAC, supposedly being pushed into a new culture, did not accept ideas of “picking winners” and the outcomes of industry reviews in the 1980s-90s shows how their approach remained unaltered, no matter what.
For example, the rapid decline of the heavy engineering sector in the 1980s was addressed by real industry planning and assistance policy. Despite the massive job losses that were addressed by alternative policies the IAC reported that it was “crucial that industry restructuring take place as far as possible in response to market signals and are not distorted by government intervention.”
KEATING FOR THE MARKET
By 1991 Keating had made the Industry Commission the successor to the IAC. It used its models in reports on the finance industry (where it went along with deregulation orthodoxy) and under Costello in a report on rural Australia which saw the continued wilful neglect. The rigidity of their economic argument hardened.
Other approaches were advocated. Whilst not a strictly economic/industry policy report, the Coombs report on Australian government administration was about a massive restructure in public service, with a socio-economic approach based in Coombs long-term views on the role of government providing a full employment economy.
Fraser looked for ways to get advice from outside the Treasury/IAC nexus to when he set up the BIE and the Department of Finance. Hawke and Keating created the AMC and EPAC with the same idea. However the reports remained constrained by what Chomsky and Herman might call the “limits of the expressible”. That even this limited alternative advice was not welcome was shown by Opposition leader Hewson threatening to abolish the BIE in 1992.
The Trade Department even set up a Business- Union Consultation Unit in 1984. The Trade Development Council came from this, and saw its light briefly shine with Australia Reconstructed, a plan to remake Australian manufacturing based on successful ideas and practices elsewhere, with union involvement. By 1987, when the report was published, the tide was flowing out.
Trade was subsumed by Foreign Affairs, and central authority for economic planning was drawn back to Treasury. By 1991 trade wasn’t even a cabinet portfolio. Keating, the Treasury boffins best ever friend, instituted the National Competition Policy in 1992. Alternative sources of advice had largely been sidelined, abolished and ignored.
Howard, in 1998, drew the BIE and EPAC into the Industry Commission and it was all over. The three bodies became our current much beloved Productivity Commission and it is the only source of advice. There is no onus on them to consider social issues. Its right to inquire seems open ended.
PC and You and Me
The annual “report card” the PC does on industry assistance reflects this view. As Roy Green amongst others says the modelling the PC uses “has the effect of maximising the costs of government assistance and minimising its benefits.”
We can rely on the current inquiry into the workplace relations framework to reflect this and can be pretty certain that the “costs” of regulation (ie union involvement in getting and maintaining decent pay and conditions) will be seen as cost maximising and no attempt to calculate the massive benefits to Australian workers and employers will be attempted.