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Wednesday, 9 March 1966

Mr CREAN (Melbourne Ports) .- The motion that we are debating this evening has stood on the notice paper now for a considerable period of time. It was on 21st September 1965 that the then Prime Minister, Sir Robert Menzies, delivered his statement on the Report of the Committee of Economic Inquiry, which is now known as the Vernon report. Since then the House has not had the opportunity to debate this basic document. This evening we have the opportunity to do so. I think the right honorable gentleman said that in all his experience in the Parliament he had not known a report to be as all embracing as this one. As he went on to speak it was obvious that he did not think very much of some of the recommendations and suggestions that the Committee made.

The Opposition - the Australian Labour Party - does not have to defend the Vernon report. After all, it is not our report. The Report of the Committee of Economic Inquiry, as the document is styled, was commissioned by the Government. The Government chose every person on the Committee. In addition, the Government laid down the terms of reference of the Committee. I believe that it is worth asking why the Government did not seem to like what it received. When we examine in depth some of the recommendations in the report we begin to see why the Government did not like what it received, because in many respects the Committee trod, sometimes not very delicately, on some of the presuppositions of the Government over the previous years. I think most members of the Government parties were a little shocked by the harshness of the criticism that the then Prime Minister made in September of last year. I know that since then some attempts have been made to recognise that there is a lot of valuable information in the Committee's report.

I believe that it would be unfortunate if the report were to be treated as anything different from what it is in fact. Ir is a systematic examination of the functioning of the Australian economy; an examination of what the members of the Committee thought were matters fundamental to the economic development of Australia. I suggest that it is the sort of thing that does not have to be adopted by a government. In the past we have seen plenty of reports ranging all the way from those by royal commissions down to those by special committees of inquiry. It was never thought that every word that was written in them had to be regarded as holy writ or the opinion of the government that set up the particular committee. I for one was at some loss to understand why the then Prime Minister attacked this report in the way that he did.

The report is a pretty formidable document to read. There is not only Volume I but also another volume which is twice as big again and contains the special appendices which cover almost the whole range of the alphabet. It is a very informative document. It looks comprehensively at the economy as a whole. I believe that it is good for the economy to be looked at as a whole occasionally. The report examines not only the internal ramifications of the Australian economy but also the economic relationships that Australia has to have with other countries as a trading nation importing goods to the value df well over $2,000 million a year and with exports of about the same magnitude. I do not intend to transgress uncharitably on the time of the House. Even with what is called " unlimited " time, it is not possible within the scope of this debate to do justice to every aspect of the Committee's report. So I consider it wise to concentrate on some of what appear to be the dominant aspects of the report.

I wish to deal particularly with the question of economic growth. In modern economies, economic terms and even economic figures feature much more frequently in the columns of daily newspapers than they used to figure. If a democracy is to be an informed democracy and if a nation is to know its potential economically, the people as a whole need to have some understanding of economic terms and the range of economic activity in the community. The pattern of economic thinking has changed fundamentally in the last 30 years or so. We tend to set the line at about 1937. Since then we have referred rather broadly to what is called the Keynesian revolution in economics. Now we talk about such things as the national income, the gross national product and fixed investment, and we speak of them not in small sums but in sums of considerable magnitude. Now that Australia has converted from pounds, shillings and pence to dollars and cents, in round terms the Australian gross national product is $20,000 million per annum. That is the total of all the goods and services that the community as a whole produces. Sometimes it is pretty difficult to relate amounts of that magnitude to the daily affairs and weekly incomes of most people in the community. Most people in most modern democracies are still wage earners. They are still employed by somebody else. The share of this great sum of $20,000 million per annum enjoyed by the Australian wage earners is really measured by what they get per week in terms of the job which they perform.

It seems to me that in many respects the report underestimates the significance of the weekly wage to most people in a community. In my view, one of the weakest sections of this report is the chapter which deals with wages, prices and so on. I should think that one of the things that a government has to look at closely in the next year or so in this economy of ours is the fixing of wages. It is, perhaps, of some significance that the present Treasurer (Mr. McMahon) was previously Minister for Labour and National Service. At least he knows what some of the difficulties are on the plane of fixing the wages of the great majority of people in Australia. Directly and indirectly the deliberations of the Arbitration Commission determine what share of this great sum, the gross national product, shall go to the majority of people in the community.

We seem to face a dilemma at the moment about the very structure of the Commission itself and as to what should be the determinant of the weekly wage in the annual wrangle that is the basic wage hearing. I believe that shortly a government will have to intervene, at least legislatively, to lay down what might be called guide lines. I do not suggest that it can or should tell the individual people what they ought to do but I think that a government has at least to indicate the lines to be followed. I agree with one statement of the former Prime Minister, namely, that ultimately the government of the day must be responsible for economic policy. I think it is even hinted at in the section ot the Vernon Committee's recommendations on wage fixing. There is a great gap when what is really the most fundamental question for the majority of the people in the Australian community is not subject to any sort of very logical process.

Mr Chipp - What sort of guide lines?

Mr CREAN - There is food for a great deal of future debate in this report and tonight I shall not go into any great detail as to what I think should be done. All I am suggesting is that there is no great reason to be satisfied with the situation as we find it at present. I know that there are certain people who will say: " You mean to say that you are going to tell the Commission what it ought to do." I am not suggesting that, but I think that a question that ought to be asked is: What is the Commission really attempting to do, and is it constructed in such a way, and has it at its disposal the necessary resources and information to enable it to make that very fundamental decision as to what wage and what scales of margins shall go to those who are still over 80 per cent, of the people in the community who derive income? In my view, very little is said in this report about that very human problem.

In the long run the matter that is significant in a community is the average wage in relation to the total resources. This is a question ultimately of economic distribution. Chapter 2 of the report deals with economic objectives and economic policy. It covers this question of economic growth and how the total economic fruits of the productive and social system are distributed amongst various people in the community. Paragraph 2.46 reads -

Five variables assume a key role in the economy. These are the level of spending, the level of wages, the relation between external and internal prices, the rate of capita] accumulation and the rate of net immigration.

These are all matters upon which the Committee deliberated and most of them are matters in relation to which the deliberations have met with a fair degree of criticism one way or the other. Different people make different criticisms. The Government criticises what are called the ceilings of immigration and so on. On the other hand, I for one would be very critical about the section that deals with the fixing of wages. But every one of those five matters is of quite signal importance.

We have an opportunity here this evening in the course of this debate to look at some aspects of these variables. I want to relate these things to what seems to me to be a fundamental assumption behind the report. The Committee states -

We think that a five per cent, annual rate of growth in gross national product at constant prices is possible but that very considerable effort will be required to achieve it. We therefore regard five per cent, as a " high " rate of growth for the Australian economy in the circumstances of the next decade.

I merely comment here that during the last election campaign - now a matter of nearly two and a half years ago - both political sides made pronouncements on what was described as economic growth, and there was not a great deal of variation between the two. I think the Government side suggested that it was possible to achieve a growth rate of 4i per cent. We of the Labour Party suggested that it ought to be possible to achieve a growth rate of 5 per cent. I think it is necessary to define the term somewhat, and the Committee does that. There is quite an amount of documentation in the several appendices that come with the report.

This growth rate, of course, is a compound of two things. First there is the fact that the Australian population - and also its work force - grows by a certain something - and again that something is a combination of what are called natural increase and net immigration. Over recent years it has grown at something like 2 to 21 per cent, per annum, varying somewhat from year to year. There is always the problem of keeping the population in full employment. Both sides of the House are dedicated, if you like to use that expression, to the proposition that full employment shall continue. The maintenance of full employment would mean that year by year we would have to find, roughly, 21 per cent, more jobs, or 21 per cent, more people would have to be placed in employment to maintain the same standard per head of population. That, technically, is not growth at all but simply . continuing at the same rate. The other component that goes to make the difference between the 21 per cent, and the 4 or 5 per cent, which we may regard as ideal comes from what is known as the increase in productivity. That is, by using the same amount of resources, manpower, machines, technical skills and the like, an increasing quantity of production is obtained year by year. Those two things together go to make up this thing that is called economic growth.

A fair summation of the approach of the Committee to this central question of growth is in a statement that appears in a special issue of the Current Affairs Bulletin for December 1965. This document has all the appearance of being a kind of semigovernmental publication. At least, it exists by reason of a subsidy, I understand, payable to the Commonwealth Office of Education by the Prime Minister's Department. So if it is not the right hand of the Government, let us say that it is the left band. I sometimes think this Government is an armless wonder, with neither a left nor a right hand. However, this Current Affairs Bulletin bears the title "The Vernon Report". This article or treatise has been prepared by a prominent academic economist. He is anonymous, at least so far as I am concerned.

Mr Chipp - Break it down.

Mr CREAN - I am not as well acquainted with the inner circles and what goes on there as some honorable members opposite are, but if they care to name him I will be quite happy. AH I suggest is that this is a very good appraisal of the report. It deals with the question of the 5 per cent, growth and with some of the remarks that the Committee made in section 17 of the report, where there is a kind of summing up of its findings. The article says -

Tn other words the achievement of a 5 per cent, growth rate may be rendered difficult.

The first thing that renders it difficult is - the danger of inflation resulting from imbalance between aggregate supply and demand.

The second difficulty is - the danger of imbalance in Australia's international payments.

Then there is a reference to the third difficulty, what is called sectoral imbalance. We divide our economy into primary, secondary, tertiary sectors and so on. Sometimes we divide it in another way into what are called public and private sectors. At any rate there can be sectoral imbalance, as the article says - especially by a tendency for demand to shift further from manufacturing industries, whose productivity tends to grow relatively fast, towards tertiary industries whose productivity grows much more slowly.

I want to have a look at two out of three of these dangers. I do not want to say very much this evening about the matter of the imbalance of international payments because my learned friend and colleague, the honorable member for Scullin (Mr. Peters), will talk about that matter later, and I understand that another esteemed colleague will talk about some aspects of trade and protection and so on. I want to talk about the other aspects. First, there is the inflation resulting from an imbalance that can occur in an economy if something is moving a bit more rapidly than something else. Then I want to have a look at the very fundamental question - a question for the future - of how our future population is to be employed. I suggest that these are matters of some importance. Last evening the Treasurer - I am sorry, the old Treasurer, the new Prime Minister-

Mr Kelly - Not so old.

Mr CREAN - Well, he called the Government a new Government. I do not find anything new in it and certainly I did not find anything novel in the statement he made last night. He said that he would stimulate the economy with a substantial additional amount of finance estimated at $24 million, which will be provided by the savings banks for housing in the second half of 1965-66. To begin with, I would entertain very grave doubts that $24 million, in terms of a gross national product of $20,000 million, could really be called a substantial additional amount of finance. We are talking about 24 million new dollars. I suppose that in terms of house building that amount might build an additional 4,000 houses - assuming that people have bought their land. Something like $6,000 is the minimum cost of a house. It is the minimum, certainly not the maximum. On this basis, we find that the $24 million - this great stimulus - represents about 4,000 additional houses.

The Vernon Committee had something to say on the question of housing, particularly in relation to the matter of inflation. Section 10 of the report deals with availability of credit, and of course the availability of credit or the flow of money has at least some relation to the question of inflation. The Committee said that there is a real danger that the availability of more finance may cause an increase in land values and in the price of houses rather than in the number of houses being built. I suggest that here is a matter about which the Government has done very little. However laudable the homes savings grant of £250 may have appeared at the time of an election, I think it could be said that in the two and a half years that have intervened since its introduction the cost of a house has increased by at least £250. At least we had an alternative. It would have been just as equitable to those who are now building houses if we had somehow been able to keep the price of housing at the level at which it was nearly three years ago. It is true that the home savings grant of £250 has been made available, but that

Bum and probably more has been absorbed in higher costs. I believe that the construction of houses is flagging in the Australian community because the people who most need homes are not in an economic position to fulfil that need. The reasons for this are threefold. They are the high price of land, the high cost of building and, finally, the charge that is superimposed on both those factors by the high cost of finance - the high interest rate.

I believe that more people in a community gain when interest rates are low than profit through high interest rates and the whole history of this Government has shown a gradual rise, year by year, in what might be called the overall average interest rate :n the community. The people who suffer most unjustly from a policy of that sort are, on the one hand, those who want to become home owners and, on the other hand, those who want to put furniture, television sets, refrigerators, washing machines and so on into rented homes, and so fall into the toils of another group of gentlemen known as the hire purchase agents.

The Vernon Committee has suggested that something ought to be done to control what are described as the fringe institutions and I find myself in accord with that section of the Committee's report. I believe that interest rates in Australia are too high and that, in consequence, the majority of citizens are penalised. For years this Government has shut its eyes to the racketeering that goes on in the provision of finance for what are really household necessities. This position arises out of the fact that there are still many hundreds of thousands of families in Australia who, whether they own homes or not, find it difficult to pay at one time any sum in excess of £100. This only goes to show that whilst we sometimes talk glibly about living in an affluent society there are considerable sections of the people whose lot is not affluent at all but a matter of bare survival week by week and year by year, ground down by a system which fixes wages effectively, but does nothing whatever about the prices of goods and services that the fixed wage is supposed to buy.

It is suggested that this section of the report was compiled by some academic economists. The honorable member for Higinbotham (Mr. Chipp) does not like the person who wrote the Current Affairs

Bulletin, but presumably he finds himself more in accord with the gentleman who wrote the section of the Vernon Committee's report that deals with wages. I think it is a rather ironical comment on wage fixing and the academic theories that lie behind wage fixing, that we seem today to have got down to a proposition that my colleague the honorable member for Yarra (Dr. J. F. Cairns) and I - in the years when we studied economics under an earlier generation of economists - were told was no longer tenable. I refer to what was called the wage fund theory. This theory was that the economy can afford to pay only a certain amount in wage's and that if you make wages too high you throw people out of employment until the situation reaches its own level again.

A similar theory is at present emergent in wage fixing in Australia. It is a suggestion that wages, or rather what are called real wages - there is a distinction which I have not time to go into this evening - cannot rise any higher. I suggest that to achieve economic co-operation and to make the idea of economic growth a reality, if we agree that it is possible to have an economic growth rate of 5 per cent, per annum, which means a productivity increase of something like 2 per cent, or 2} per cent., we have to decide how we can best distribute the fruits of that increase to the wage earners, who are the great majority of the people in the community. As I see it there are only two ways of distributing such an increase: Either prices should fall or wages should rise. How else can one buy more if there is more available per head for everybody? If your income is fixed and prices remain fixed your standard is the same but, if prices rise you do not even keep your existing standard unless you receive an increase in wages.

This is the kind of fundamental problem that the Vernon Committee ultimately poses. It is easy enough to talk, as we all do, about economic growth, but economic growth is possible only when we have cooperation and understanding between all the participants in the economic process. Why should anybody be greatly interested about the fact that the gross national product is a bit higher this year than it was last year if he knows that there is no device by which he can get more of it?

Mr Chipp -. - We have the arbitration system. Why does the honorable member keep saying that there can be no rise in real wages?

Mr CREAN - Honorable members opposite talk about splits in political parties. There is a split at the moment over the determination of wages. Of the two schools of thought, which is right and which is wrong? Is the Government prepared to come out and say which it thinks is right or does it' intend to leave the decision to strikes and direct action and then hold up its hands in horror because the economic process has been brought to a standstill?

There is a question of justice involved here and it is one to which the Government has given very little attention. I do not think the present wage system in Australia can continue unless the Government begins to introduce some sort of price justice as well as what it chooses to call wage justice, but which I think is wage injustice. It cannot look after only one side of the process. The Government may say that price fixing is not possible and that the balance is redressed by means of transfer of revenue payments. If prices rise faster than wages it means that profits have risen faster than wages and one rather inefficient and unjust way of meeting the situation is to drag money back in the taxing process and distribute it in the form of social service payments. It may be that the Government regards this as the only way of meeting the situation but I think that in modern communities, with the process of automation and the shift from primary industry to secondary and tertiary industry, we are. getting to a stage where it becomes difficult for anybody to say that a Cabinet Minister is worth twice as much as a private member, or that a private member is worth three times as much as the person who sweeps the floors in this place. In the " ad-mass " that the economic system now is, can anyone say with any sense of logic or justice that everybody gets exactly what he is entitled to? Can you say that nobody gets too much and nobody gets too little? I suggest that if one makes that sort of test one will surely say that in Australia there is no justice at all in the process.

It would be possible, I think, to go on for hours about this, but I shall finish here. I want to have a look at this final matter that the " Current Affairs Bulletin " mentioned because it is one of the matters about which the Committee has been subjected to the greatest degree of distortion. That is this shift from what is called the manufacturing industry into tertiary activity as a form of economic endeavour. We in this country know that we have already gone through the revolution from pastoral and agricultural activity to industrial enterprise. If one went back and looked at the year books of the time when this Parliament was formed in 1901 one would probably find that something like half the population was engaged in pastoral and other rural activities and perhaps 15 or 20 per cent, was engaged in manufacturing and allied activity. That pattern has changed and I think it is recognised in most mechanised societies that less than 10 per cent, of the people, working on farms, can produce all that is necessary to feed, clothe and sustain the community. Then there is the change in manufacturing. The tendency now is for mechanisation and automation to produce more of the same sorts of goods with relatively less manpower. So the job becomes one of determining where to put the rest of the people. Again, I suggest that this is a matter that has not been faced up to in this community. It calls for a far greater degree of co-operation between the levels of government, State, Commonwealth and even local, than exists at the moment.

The Vernon report suggested there ought to be better co-ordination between State and Federal Governments in this field and, I suggest, also in the field of government responsibility. I believe that at present there are a lot of children at school throughout Australia who are being trained to do jobs that nobody wants to have done and there are a lot of jobs waiting to be done for which nobody is being trained. This points to a lack of co-ordination between industry, which has to employ the people, and the education system, which has to train them for jobs. I do not mean by this that the purpose of education is only to train people to do jobs. I think education has some purpose other than that. Nonetheless it is still the lot of most people in the Aus tralian community to have to get a job - to be employed by somebody else. Surely changes that will take place in the next five to ten years in the pattern of the economy are significant for the children who are in school today.

I notice that one of the criticisms of the findings of the Vernon Committee was that it tried to forecast. I concede that once one tries to forecast one can make mistakes. However, I believe that in some fields one has to make forecasts. It is of no use, on 1st January 1966, to begin determining the number of children who will attend school on 1st February 1966. One should have done that perhaps as far back as 1956. Similarly, we ought to be trying to assess in 1966 what job opportunities are likely te be in 1976. 1 consider that any government that refuses to look at these things in that perspective is being recreant to its trust. I conclude by referring to one statement that the Vernon Committee made early in its report. At paragraph 10 of chapter 1, it stated -

Since the war, governments -

That means governments from both sides of politics - have been expected to accept responsibility over a much wider area of economic affairs.

I would say that perhaps the thing thu distinguishes the political parties in Australia today more than anything else does is the fact that we in the Australian Labour Party take this matter of accepting responsibility over a wide area of economic affairs much more seriously than honorable members opposite do. At our last Federal Conference, which was held about eight or nine months ago, we wrote into our economic policy a statement that in a modern community the test of a government ought to be the pursuit of purposeful economic policies. I suggest that the feature that characterises this Government is lack of purpose in economic policy and the hope that something will turn out right, although the whole history in these matters has shown that for a lot of people things continue to turn out wrong.

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