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Wednesday, 5 October 1983
Page: 1378

Mr BALDWIN(4.55) —Mr Deputy Speaker, one of the many purposes of this omnibus Bill is to add a representative of small business to the Economic Planning Advisory Council, legislation to permit the establishment of which was passed in May this year. At present EPAC has 17 members drawn from the Commonwealth and State governments, industry, the union movement, local government and community groups. It is appropriate to add a representative of small business as there is little doubt that there are major divergences of interest between firms in this sector and those in industries characterised by a relatively small number of large firms, each with significant market power.

I would like to use the opportunity of speaking to the Statute Law ( Miscellaneous Provisions) Bill (No. 2) to make a number of comments on EPAC and the sort of planning role that is ultimately envisaged for it. Things are at a comparatively early stage at present. As I understand it, there have been a couple of meetings held so far, and the Director, Geoff Miller, formerly of the Bureau of Agricultural Economics, has been appointed. Advertisements have been placed to fill the other staff vacancies on the secretariat. Its first major task will be to conduct a study of the revenue base of government. This inquiry will look at earlier examinations of this area, particularly the Asprey Taxation Review Committee report brought down in 1975. Presumably it will consider such matters as the approximate mix of direct and indirect taxes and the appropriate method of taxing capital gains and wealth holdings. I would hope that it would also look at the system of transfer payments, as these can be regarded as a form of negative taxation and consideration of them is imperative if we are to gain an accurate picture of the overall effect on income distribution of government revenue and expenditure measures.

Aside from this, EPAC will initially have as its main function the facilitation of a consultative process between the Government and various interest groups in the community as regards economic policy making. This is envisaged as a two-way process, with the Government benefiting from an input from the groups involved, which will be representative of the major economic decision making units, and with the community groups having a better understanding of the premises and aims of government policy. It is envisaged that in due course EPAC will come to play a significant role in medium to long term economic planning.

The term 'planning' has been taken to refer to a wide spectrum of things, ranging from the facilitation of information exchange described above through to the centralised determination of most economic activities on the east European model, with a multitude of shadings in between. EPAC'S activities will ultimately involve the planning of the 'indicative' variety, a type of planning which involves making economic forecasts, setting targets at a high level of aggregation, and indicating the course of action the Government will follow in order to achieve these targets. It does not involve the setting of targets for individual sectors or industries, or government measures directly to affect the flow of funds or resource allocation at this level. This type of planning proceeds from the expectation or hope that dissemination of information about economic prospects and government intentions and aims will have the effect of eliciting behaviour from the other economic factors consistent with these targets.

Economic planning of any sort is anathema to those who see society's economic salvation in the free operation of market forces. A number of those opposite would genuinely hold this view, though the real hardliners were thinned out somewhat on 5 March, or at least I thought this was the case until last week when the Leader of the Opposition (Mr Peacock) publicly endorsed the recommendations of this party's Valder report, with all its laissez-faire gobbledegook. Probably a larger number would profess nominal adherence to this type of stance, but when this conflicted with the exigencies of political survival, they would be quite prepared to throw this type of ideological baggage out the window at a rate of knots.

If I could digress a little, Mr Deputy Speaker, it was amusing to see the advocates of free enterprise and small government perform in response to the Budget and the earlier economic statement of the Treasurer (Mr Keating) and hear the gutteral noises, when it was suggested that some of the rorts enjoyed by the rural fat cats be cut back, rising to howls of dismay when it was suggested that the Darwin to Alice Springs railway white elephant be financed on something a bit closer to a user pays basis to which they are supposed to be committed. Obviously this crew are only against big government insofar as it involves social provision to those at the bottom of the socio-economic heap.

But returning to the position of the genuine free marketeers, Mr Deputy Speaker , their argument rests on the view that, left to its own devices, a capitalist economy will gravitate to a position where resources will be allocated so as to produce a socially optimal output of goods and services, that is, a bundle of goods and services that will maximise community satisfaction. But the theory on which this is based assumes a state of perfect competition in the product and factor markets, an assumption which was never accurate but has become more distant from the truth with the passage of time. The theory also places no weight on equity considerations-the desirability of moving towards a more equal distribution of the social product. This type of thinking has persistently impeded the implementation of economic planning schemes, particularly in the United States but also in other English-speaking countries. It has, by contrast, been considerably less influential in continential Europe in the post-World War II period, as indicated by the following quotation from an article titled 'The Ideological Foundations of Western European Planning' by Sima Lieberman that appeared in a recent edition of the Journal of European Economic History:

Economists in both political camps in western Europe have generally agreed that the development of the interdependent factors which determine the level of economic activity could not be left to the exclusive influence of the market mechanism. Realistically, they addressed themselves to the problems of the mixed economy and discarded the old 'capitalism' and 'socialism' labels. The disagreement between economists of different political views tended to centre on the extent and type of government intervention.

The considerable success of the French in reconstructing their economy in the post-war period has been widely attributed to the application of indicative planning techniques under successive conservative governments. Their approach has certain points of similarity with what is being attempted with EPAC, though ultimately the French concept of indicative planning was far more interventionist than what is envisaged for EPAC, even in the long term. I quote again from the article I referred to above:

The French planning system had two main characteristics. In the first place, it was purely informational in nature. A principal objective of the plan was to make more complete and more accurate information available to all the economic decision-making units in the country. The underlying idea was that better information would not only improve the quality of separate individual forecasts made by firms, and would therefore reduce the likelihood of erroneous investment decisions made by them, but that it would also result in a common view of future economic development which would promote consistency in the economic activities of firms and industries.

The French planning approach also involved consultation on planning decisions with a number of what were termed modernisation units composed of government officials, selected representatives of business management, experts and, at least in theory, representatives of trade unions. The success of these measures was, to some extent, attested to by their emulation by a number of other European countries.

The similarity between the above and what is being attempted with EPAC is fairly clear. The French in fact went beyond mere indicative planning, and utilised some direct measures, particularly in regard to controls on the flow of investment funds. They made use of the fact that some 20 per cent of the country 's fixed capital investment was financed by the Treasury in the 1960s to achieve desired structural changes. I reiterate that these measures, and similar measures by other European countries, were carried out by governments of the ideological Right. It renders laughable, comments by some commentators, including the Opposition members and Peter Samuel in the Bulletin, who suggest that Labor's planning proposals would put Australia on the path toward a Soviet- type economic structure.

Opponents of planning sometimes point to what are held to be shining examples of the application of the free market approach, most often the West German and Japanese 'economic miracles', this involves a significant misrepresentation of the way in which those economies have been run. In the West German case, a perceived need to maintain favourable relations with the United States in the post-war reconstruction period may have led to a degree of eagerness to affirm that country's free market credentials, thus disguising a considerable amount of government activity that could reasonably be described as planning. In Japan, the significance of planning at the high level of aggregation has been mitigated by the consistent inaccuracy of economic forecasting, particularly in the 1950s and 1960s, where there developed a consistent pattern of underestimating the rate of economic growth. Despite this, there has been a considerable amount of government influence of a rather direct kind of resource allocation at the industry sectoral level that has become epitomised by the reputation of that country's Minister of International Trade and Industry. Furthermore, given the complaints from other countries about the difficulty of access to Japan's domestic markets to outsiders, it can hardly be held up as an example of free trade liberalism.

It is also interesting to note that Japanese industry has been marked by a high degree of separation of ownership and control of the major firms. The influence of shareholders over the operation of the giant corporations has, compared to other countries, been small. One consequence of this is that Japanese firms have tended to act so as to maximise growth and market share, rather than to maximise profits. Hence the motive of profit maximisation, believed by apologists for free market capitalism to be paramount, is of considerably less influence than in other, less successful, capitalist economies.

To summarise these points I quote from another article, this one by Messrs Grahame Dunkley and P. Casey, delivered to the forty-eighth Australian and New Zealand Association for the Advancement of Science Congress in 1977, and titled 'To Plan Or Not To Plan-A Survey of Models and Some Proposals for Australian Planning':

The extensive use of planning and/or intervention by government in West Germany and Japan to a large extent belies the accepted view that their economic ' miracles' have been the result of totally unfettered market forces and private enterprises.

Thus it is hardly valid to invoke these countries as part of a case for the free market and against government interventionism and planning.

It is important to see EPAC as one of the elements in the prices and incomes accord. This accord involves an agreement between the Government and trade union movement that goes well beyond prices and incomes, and invokes the need for a broad range of supportive policies involving, among other things, industrial relations policy, industry policy and the whole gamut of goods and services provided by government. This accord requires the establishment of a range of new institutional structures, of which this is the first to be implemented. The establishment of EPAC fulfils part of this agreement, and the information interchange and planning processes are a condition of the accord's success. If this process is carried to conclusion, ultimately we may see something like the processes undertaken under the Social Democrats in Norway, certainly in the late 1970s, and in recent times, where macro- economic planning and income negotiations take place annually and simultaneously under the auspices of bodies closely analogous to EPAC and its supporting secretariat.

In conclusion, I would re-emphasise that EPAC is, by western European standards , a very modest first step in the direction of economic planning. A number of such countries of different ideological hues have found it appropriate to go beyond indicative planning and institute a major role for government in controlling investment decisions, and these are the countries which have had the greatest success in implementing their planning schemes.