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Wednesday, 20 May 1970


Mr WHITLAM (Werriwa) (Leader of the Opposition) - The people of Australia have now become accustomed to the delay in implementing reforms which is caused by internal divisions in the 2 Government parties. Examples such as the reform of our archaic system of health insurance and a satisfactory resolution of the issue of Commonwealth, State and civic financial relations spring readily to mind. The measure which we are now debating, the Australian Industry Development Corporation Bill, is yet another example of this process. The Corporation was first proposed to Cabinet in July 1966. It has been delayed for 4 years because of the differences between the Minister for Trade and Industry (Mr McEwen) and the previous Treasurer. The Australian Labor Party welcomes this Bill's belated appearance, despite the limitations which the previous differences of opinion have forced the Minister of Trade and Industry to include within it. It is clear that the suggestions embodied in the Bill are already a compromise with the forces of 19th century economics in the Liberal Party. I am most disturbed by the suggestions that the Minister will be willing further to dilute this measure in yet another attempt to compromise with such forces.

The limitations which have already been placed on the new Corporation are severe but they are not a barrier to amendments in due course. Some of the accusations that have been made over the 4 years since the Minister first suggested this Corporation show quaint signs of Liberal nostalgia for a lost innocence. Certain words such as private enterprise' or 'sound business principles' and other slogans have to be beaten occasionally like voodoo drums to conjure up the lost spirit of 1949. The same basic problems are indicated in the now farcical promise by the Prime Minister (Mr Gorton) to call a philosophy conference for the Liberal Party. This farce which has been continuing for almost 2 years has highlighted a problem of which the Liberals were apparently unaware. They never really had a philosophy. The belated acceptance of this fact has led to an outburst of internal controversy which is threatening to delay further major social and economic reforms. We have already waited for 4 years for this Bill. It must be clear after the events of last week that the Government benches are not the appropriate place to resolve internal divisions. It is clearly time for this bedraggled lot to be cast into the political wilderness in search of their lost innocence.

As is well known, the Australian Labor Party has supported an institution of this nature for some time. I promised it in my policy speech at the elections for this House last October. The Prime Minister did not. During the long recess it is clear that the Prime Minister searched around through the Government pigeon-holes to bring forward a flurry of legislation and create the image of energetic government. He was not unaware of the proposals by the Minister for Trade and Industry, for as long ago as 13th March 1968, in answer to a question of mine, the Minister for Trade and Industry stated that he had already had a discussion with the Prime Minister about this very matter. There was no action over the intervening 2 years. There was no thought given to the proposal before the policy statements at the last election. Suddenly it has been sprung upon us, belated but welcome, even though it bears the stamp of hasty compromise on its very face. There are many severe limitations on the Corporation throughout this Bill, so much so that there is a real danger that, to adjust the words of the Minister in 1967, this Corporation has been taken out of the state of suspended animation to be put into a state of animated suspension. Legislation, however, can be amended and it is important that this institution be created, that it gather its staff and establish its sources of information and finance so that it can readily be given a more creative role by the Labor Government in 1972, or, it seems, even earlier.

The purposes of this measure and some of the arguments in favour have already been canvassed in this debate, and I do not intend to repeat them. Issues associated with the problems of foreign investment such as balance of payments considerations have already been covered. We on this side of the House welcome the basic change in emphasis with respect to foreign investment on the part of the Government which is shown by this Bill. The new attitudes are more appropriate and the suggested remedy, though limited, is clearly a step in the right direction. I wish to concentrate on the basic issue of the availability of development finance in Australia. I trust that this Corporation will fill an important gap in the Australian capital market. There is no doubt that the Australian capital market has developed in its sophistication over recent years, although in many cases slowly and spasmodically. Creation of the Australian Resources Development Bank was an important development. Over the last 2 years the number of merchant bankers, most of them controlled by overseas interests, has more than doubled. Our major financial institutions have shown somewhat greater willingness to organise consortia and to become involved in major development projects. Nevertheless, certain basic gaps remain. The first is the necessity of major concentrations of entrepreneurial capital; the second is the availability of development finance for small businesses.

In the initial controversies between the McEwen and McMahon banks, certain amendments were made to the previous Treasurer's proposals which served as a compromise at the time. Indicative of this process was the change of name from the Bankers' Development Refinance Corporation to the Australian Resources Development Bank. This Bank as it finally emerged was to do more than simply refinance trading bank loans; it was given authority to make loans directly. It was also given power to purchase equity, although it has not yet done so. Greater emphasis has been placed on the possibility of raising finance overseas. I remind the former Treasurer of what he said on 4th April 1967. With reference to the then proposed Refinance Corporation he stated: 'We do not expect a great deal of overseas borrowing.' It is clear that originally the Refinance Corporation was to be dominated by a lender philosophy whereas the proposed Development Corporation was to be a source of entrepreneurial capital. In the process of com promise at that time the former institution acquired certain of the characteristics of the latter.

In the present compromise, the Development Corporation has had engrafted upon it certain of the features of the lender philosophy. It is clear that in these 2 processes there is a very real danger that the 2 institutions will serve similar functions with some possible differences in emphasis. This is not good enough. There are different functions to be performed. Both institutions could exist if only the Government were not so bedevilled by its internal divisions which have forced the Minister to compromise his own initial ideas. I must admit that it is somewhat amusing for supporters of private enterprise to complain about duplication. I thought that is precisely what competition was all about. It is very difficult to have competition except in terms of at least 2 competitors. Members of the Government who are opposing this Bill are quite clearly dominated by outmoded prejudices against government enterprise. They assume that for some reason or another government bureaucracies are less efficient than the private bureaucracies which dominate the large corporations. Tell that to Ansett Transport Industries Ltd. Tell it to the international airlines which compete against Qantas Airways Ltd. Tell it to the banks which compete against the Commonwealth Bank of Australia. It is clear that there is a role for government initiatives in our economy and this cannot be hamstrung by the pitiful remnants of social Darwinism.

Let me explain further what I mean by entrepreneurial capital. This is. capital which is allied directly with entrepreneurial skills and takes an active and creative part in the development of the enterprises in which it invests. If we are to compete with the large multi-national corporations, then we do need some large concentrations of entrepreneurial equity capital. The opportunities which wc are facing today require institutions which are able to combine managerial skills and capital to exploit those opportunities. We are not so well endowed with entrepreneurial talent that we can afford to spread it thinly across many corporations, including the subsidiaries of many foreign corporations. Our managerial gap may be solved by cencentration of these scarce resources to some extent. Our shortage of entrepreneurial skills is a major obstacle to our economic development, and it is both a cause and a consequence of excessive reliance on foreign direct investment. Although there have been certain promising developments amongst our insurance companies and private funds which indicate a movement in this direction, it has been slow and spasmodic. There has been suspicion until recently of investment in mining. Even today there continues to be suspicion of investment in exploration. Many of our institutions delay their intervention until the companies art almost at the stage where they can pay dividends. There are major areas of conservative management in our major institutions. They have missed opportunities in the past and they have been most reluctant to take the sorts of risks which foreign corporations have been willing to assume and regard as utterly normal. Some have sought to entrench their position by swapping shares with another conservative board of directors to prevent take-over bids. It is clear that despite some promising developments there is a role for a single major concentration of entrepreneurial capital which can direct the flow of funds to the growth points in the economy.

I do not have to emphasise again the desirability of attracting capital from overseas in the form of fixed interest loans rather than equity investment. The balance of payments effect of this alternative has already been debated. I am, however, amazed at the suggestion that, because interest rates are high overseas, it may be difficult to raise such capital. It is said that this is why the Australian Resources Development Bank did not borrow overseas until recently. But in the time since that bank was created thousands of millions of dollars have flowed into this country from overseas. Presumably the people who supplied this capital were not interested in the higher rates of interest overseas, for the rates of return on direct investment were even higher. The suggestion that these interest rates should in any way limit the operations of the proposed corporation raises directly the distinction between an institution dominated by the lender philosophy and a concentration of entrepreneurial capital. The reason why the ARDB was unwilling to borrow overseas whilst thousands of millions of dollars flowed into this continent was precisely because that bank served a particular and necessary function. It sought its capital to re-lend and not to re-invest. If the proposed Development Corporation is to regard its primary role as re-lending at fixed interest, then it will duplicate the functions of the ARDB. It will not fill the gap in the Australian capital market which I have outlined. The difficulties of the ARDB have not been due simply to the high interest rates overseas but have also been caused by the uncertainties of international exchange rates in recent years. In the period before the bank was able to build up its reserves it sought to insure itself against the risk of exchange variations. The Reserve Bank explained that its forward exchange facilities were available only for current transactions. Simply because something has never been done before is not an argument for never doing it. This was a special case, and of great importance to Australian development, and I trust that the new Development Corporation will be able to acquire foreign exchange cover for capital items.

The role of the Corporation in ensuring that some of the key growth points in the economy remain in Australian hands is crucial. Much of the debate about foreign investment has been concerned with foreign ownership rather than foreign control; such as the debate about the balance of payments effects of foreign investment. But foreign control has quite distinct ramifications over and above those of foreign ownership. For example, the importation of management skills tends to reduce incentives to improve such skills at home. Reliance on overseas technology tends to limit domestic innovation. The prices for the exports and imports of foreign owned companies may indicate a shift of the companies' international profits to some tax haven. There are also the restrictive export franchises which have already been discussed. All of these effects are functions of control rather than ownership. There is some argument for us to place less emphasis on using our scarce capital for buying minority interests in foreign companies and more emphasis on the development of Australian controlled enterprises. This should be a major role of the proposed corporation. This Corporation must not be simply another financial institution, another passive investor. It must be willing to take firm steps in the development of our resources to ensure that they are controlled by Australians. To a certain extent the compromises apparent in this Bill limit this role, I trust there will be no further compromises.

The second gap in the Australian capital market to which I have referred is the development finance available for small businesses. The assumption that large corporations are always more efficient is not true. There are many areas of investment in which small organisations are more appropriate. One of the key advantages of large corporations is in fact the ability to raise capital cheaply. There is a good deal of evidence that what economists have called the McMillan gap exists in Australia. For example, the minimum size at which it is worth floating shares is fairly large, and even above that size small corporations have problems in raising fixed interest capital. In his second reading speech the Minister for Trade and Industry stated:

In the electrical and electronic industries, including in the total many small enterprises, overseas ownership is around 50%. . . . Foreign domination is not confined to the largest industries. The production in Australia of such day-to-day items as roller bearings, electrical hand tools, abrasives and glazed ceramic tiles, to mention a few of the smaller and more specialised industries, is carried out predominantly by foreign-owned companies.

In these words the Minister may have been suggesting that the Industry Development Corporation is designed to fill this gap. The processes of making its facilities available to small enterprises require a complex organisation. It may very well be that this particular gap is best filled not by this Corporation but by an expansion of the activities of the Commonwealth Development Bank. I note that the Commonwealth has not provided any further contributions to the Commonwealth Development Bank since the 1963-64 Budget.

A disturbing aspect of the Government's approach in introducing this measure has been highlighted in the speeches from the outspoken members opposite. It is clear that after 20 years in government excessive secrecy has become commonplace in governmental decision-making. Information is too often regarded as the Minister's private property. This has become disturbingly evident in the lack of information provided by the Minister. On several occasions in recent years I have inquired about the report prepared by Mr L. J. Dooling on this proposed corporation. As recently as last Wednesday I asked the Minister once again whether he would release Mr Dooling's report. He refused. From the Press reports we learn that his Department has in fact compiled extensive information on business projects which did not get adequate financial support and in which the Australian equity was too low. The Minister has no more perceptive critic that the honourable member for Bradfield (Mr Turner) who, in his typically tart tones, revealed those sources and items of information which are the reserve of the Cabinet alone. Why has this information not yet been available to the Parliament? One of the basic rights in a democracy is the people's right to know. This requires the Government to provide full information to the Parliament on any major new measure.

The bask purpose of the Corporation must be to direct entrepreneurial capital for the development of Australian resources. Over recent years it has become clear that the major Australian financial institutions have found it difficult to adjust to the new scale of the opportunities we face. Although there are some companies which have taken up the challenge there remain areas in which excessive caution, conservatism, delay and timidity have continued to the detriment of the development of Australian resources by Australians - the denial of opportunities in their own country to Australian scientists and managers. Many of these institutions remain passive investors even after they have seen the benefits to be gained from supporting development projects. It is to be hoped that the new Corporation will not become simply another passive investor because of the restrictive provisions which the Minister felt compelled to insert in this initial Bill.

In an exhaustive survey of capital financing for the Australian mineral industry Mr P. J. Rose, of the Institute of Applied Economic Research within the University of Melbourne, pointed out that Australian financial institutions had been unnecessarily conservative in supporting mineral development and that the managerial initiative in raising international capital had come from financiers outside Australia. He also pointed out that the Australian Resources Development Bank 'must be judged a highly conservative lender'. His basic conclusion indicates the problem which we hope the new Corporation will solve. He stated:

The size of capital issue associated with the establishment or expansion of a mining company is sometimes so large by normal Australian standards that there are difficulties in marshalling the required funds.

The new Corporation can play a crucial role in overcoming this deficiency as long as it is not hamstrung at birth by a lender philosophy.

In my policy speech for the House of Representatives elections last October I outlined a 3-point plan for overcoming the problem of foreign control. Firstly, a Labor government would invest directly in development projects alongside local and foreign private companies. Secondly, we would amend the taxation laws to enable and encourage Australian insurance companies to invest in approved basic industries and development projects, as they have already been enabled and encouraged to invest in government securities. Thirdly, I promised that we would establish an Australian industry development corporation on the lines of Italy's IRI. As many honourable gentlemen now know, not only the Istituto per la Ricostruzione Industrial but also the Ente Nazionale Idrocarburi have done wonders in mobilising and concentrating Italy's economic, intellectual and managerial resources.

We have at last seen the acceptance of the last of these projects. A major new institution will now be established that could serve to introduce a new dynamism into the Australian capital market. I trust that the Government will not stop here - that it will at last take steps to enable and encourage our other large financial institutions to participate in the same broad objectives of this' Australian Industry Development Corporation.







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