Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
 Download Full Day's HansardDownload Full Day's Hansard    View Or Save XMLView/Save XML

Previous Fragment    Next Fragment
Thursday, 14 May 1970

Mr MAISEY (Moore) - I support and wholeheartedly commend this Bill. Twenty-three years ago the late Joseph Benedict Chifley rose in this House to introduce legislation providing for wide ranging involvement by the Commonwealth Government in the finance sector of the Australian economy. Of course, Chifley wanted to go all the way in one step. He wanted to nationalise all the banks - a step which experience subsequently proved unnecessary and which subsequently even the Labor Party dropped from its policies. The Bill we are debating tonight would have met with Chifley's approval. It takes a leaf out of Chifley's book - perhaps a pragmatic leaf.

This legislation is a compliment to the Government. It is a compliment because the ideas axe sound and the needs for the departure are demonstrable. It is a compliment too in the widest possible sense. In introducing legislation of this nature the Government fully demonstrates that it is in no way debarred by some antiquated preconception of what capitalism is about from bringing forth legislation which will benefit the people of Australia even if it happens to be in accord with the overall philosophy of the Opposition. The Bill stands as a monument to the pragmatic management of economic affairs devoid of mistaken commitment to some irrelevant ideological position. The legislation we are contemplating is parallel to that which gave birth to wheat stabilisation. It is in the spirit of the legislation which led to the formation of Trans-Australia Airlines, Qantas Airways Ltd and the Australian Broadcasting Commission, not to mention the Snowy Mountains Hydro-electric Authority. The Bill puts paid to any argument that this Government has been too long in office and has lost the ability to initiate worthwhile new departures. It shows the Government to be both vibrant and dynamic. I fervently hope that this spirit will overflow into the economic management of the rural sector.

The Bill provides for the formation of the Australian Industry Development Corporation whose capital shall be $100m, provided by this Government, and whose borrowing powers shall permit it to raise loans up to 5 times the amount of that capital and any reserves that it may accumulate. From the very first the Corporation, in theory, could have outstanding loans amounting to $600m. Although this figure is relatively modest when compared with the needs for long term development capital in this country, as a start it is nevertheless auspicious. It is intended that the Corporation shall concentrate its borrowing effort overseas while its local borrowing powers shall be subject to supervision exercised by the Reserve Bank of Australia.

Two main objections have been raised in this context. Firstly, it has been suggested that in concentrating its borrowing effort abroad the Corporation will compete with the Commonwealth Government for loan moneys. Since the Commonwealth raises loans not only for itself but, more importantly, for the States, it has been argued that this competition from the Corporation could well reduce the availability of loan moneys to State governments. Any fair-minded person would conclude that whilst this objection is quite valid in principle it has very little weight in practice. The overseas loan market is a vast one and Australia's role as a borrower is a very small one indeed. The entry of an additional borrower in the form of the Corporation, seeking $500m at the most, will have at worst a microscopic effect on die world financial market. Actually I think it will have a zero effect, for a reason which I now propose to outline. .

The intention behind the Corporation is that it shall displace, to some extent, direct overseas investment in Australia. Instead ot a large foreign corporation bringing in the money, the Australian Industry Development Corporation will bring it in. The foreign corporation would have derived ils money from the same source as the Australian Industry Development Corporation. Thus, the substitution of our corporation for an overseas corporation will have an offsetting effect on the demand for loans overseas - one borrower being substituted for another.

The second objection one hears about this new Corporation is that it should not be restricted in its domestic borrowing because financial resources within Australia are not sufficiently well marshalled for the benefit of the country. Surely this is the first sphere which ought to be explored. I do not know enough about the efficiency or otherwise of the Australian financial system. What I do know is that the last decade has seen the emergence of consortiums, including large Australian manufacturing companies, insurance companies and other financial institutions, aimed at marshalling funds for large development projects such as the enterprise at Gove in the Northern Territory.

I also think that there is very good balance of payments sense in the idea that the Corporation should concentrate ils borrowing abroad. My reasoning is that development projects require a large expenditure on heavy and/or sophisticated equipment of a type which we do not produce in Australia. Therefore the Corporation's activities will place a strain on the balance of payments. It makes very good sense that this strain should be cancelled before it even occurs by the Corporation's borrowing abroad.

This brings me to yet another objection against the Corporation. This objection was voiced many years ago when the idea was first canvassed. Writing in 'Nation' on 22nd April 1967 Mr Maxwell Newton said:

The mere establishment of the McEwen bank cannot be expected to contribute to a solution of any general foreign exchange problem.

I think Mr Newton was mistaken in this assertion. 1 shall now endeavour to tell honourable members why. In the first instance the Corporation shall substitute loan finance for equity finance from overseas, lt has been recognised always and, I believe, mathematically demonstrated by Professor Arndt and Mr Shrapnell, that overseas equity financing of Australian development had the potential of creating very serious financial balance of payments difficulties as a result of the gradual and substantial increase in remittances back to parent companies overseas from their Australian subsidiaries. While borrowing from abroad also had a remittance problem, it was a simple problem insofar as it involved simply the payment of the interest and repayment of the capital. The outflow of funds did not snowball if we borrowed abroad, while it snowballed if overseas companies brought equity finance into Australia.

The second reason why I think Mr Newton was wrong is that overseas equity financing of Australian development retarded the growth in Australian manufactured exports, which is a problem that this Corporation will overcome. The crux is in what are known as export franchises. Where an overseas company makes an equity investment in Australia by creating an Australian manufacturing subsidiary, it quite commonly restricts the ability of this subsidiary to export from Australia. These restrictions have been documented by Professor Arndt and Mr Sherk. It was with respect to this problem and other associated problems that the Deputy Prime Minister (Mr McEwen) coined the now famous, and rightly famous, phrase:

It is increasingly evident that what is best for a multi-national giant is not necessarily best for Australia.

This legislation, as I see it, is part of a pattern designed to overcome gaps in our financial structure. One of the glaring problems in Australia is the ability to obtain long term money. Traditionally the trading banks have concentrated on short term loans through the overdraft system. The savings banks were in long term financing only in the case of housing. The insurance companies were similarly geared to housing and real estate development. Hire purchase companies and stock firms concentrated on medium term lending. In this situation the only recognised means of securing long term finance was the stock exchange.

Over the last few years the Government has worked on this problem. It has introduced a policy to involve trading banks in more medium and long term financing. Similarly it has encouraged insurance companies to take part in financing of mining and processing ventures. The Australian Industry Development Corporation is a logical evolution of this line of thinking. I can see in this institution the manifestation of an idea which I would call creative capitalism. I have mentioned already that I think it is in the same spirit as the introduction of wheat stabilisation in the 1940s. I have always supported this line of thinking and I am delighted to see that I have secured a convert in the form of the Deputy Prime Minister. I well remember the distinct lack of enthusiasm with which the Deputy Prime Minister approached the idea of wheat stabilisation when it was first mooted. At the time I was a young radical leader of the Wheat Growers Union of Western Australia. This organisation subsequently merged with another to form the present Farmers Union of Western Australia. I fought side by side with Tom Stott who, until a fortnight ago, was the Speaker of the Legislative Assembly in South Australia. The two of us fought hard for creative capitalism back in those days and fought against the opposition of the more traditional interests represented by Sir John Teasdale and the then somewhat less experienced John McEwen. History records that we won the day. History, too, I hope, will record this legislation and will record it as a major credit entry in the ledger of life of the Deputy Prime Minister.

Creative capitalism has always had a substantial measure of support amongst the farmers of Australia. Farmers have, to a considerable extent, been in favour of orderly marketing schemes and similar legislative regulation aimed at taking some uncertainty out of the farmer's life. This attitude created considerable strains where ruling parties would not contemplate departures from free enterprise ideas. Also, farmers found it difficult to swing to the support of the Labor Party because of their distaste for weak defence policies reminiscent of Munich and because the Labor Party has unfortunately always had the image of being soft on Communism.

In my personal case I have always been in favour of creative capitalism. The Wheat Growers Union of Western Australia, in which I began my political life, was a breakaway body from the Primary Producers Association of Western Australia. It broke away because the Primary Producers Association was affiliated with the Country Party - some honourable members may smile to hear this coming from a Country Party member. Indeed, we were regarded as radical and sympathetic to the Austraiian Labor Party. In fact what we stood for and what I stood for was political non-alignment to achieve a better deal for the farmer through the Government^ involvement in the economy, if necessary. While becoming a Country Party member of Parliament, I have nol prostituted and do not propose to prostitute my personal viewpoints. They are as they have always been, pragmatic viewpoints not burdened by any rigid ideology. In this legislation 1 see something very much in accord with a long held standpoint. 1 applaud the intention voiced by the Deputy Prime Minister that this Corporation shall help build on our national resources. There is no doubt in my mind that responsible behaviour demands that we endeavour to move as quickly as possible from a situation in which Australia is a quarry to a situation where it becomes a processor. We have the undoubted potential for the efficient conversion of iron ore and coal into iron and steel. This, I think, is equally true of bauxite being turned into aluminium metal. The sooner we can switch from exporting raw minerals and start exporting in their stead firstly ingot steel and ingot aluminium, and subsequently rolled products, the better off will Australia be.

We manufacture in this country an unconscionable quantity of goods which simply ought not to be produced here because their production is not suited to Australia for various reasons. These industries are sheltered behind very high tariffs and serve to create an overblown cost structure which in turn is built into our wage rates. Exporting industries suffer under these arrangements. Yet the gradual phasing out of these inefficient industries cannot take place unless employment opportunities are created in efficient industries so that the labour may be absorbed, if this Corporation assists in the development of efficient Australian industry, its contribution to the economic health of this country will be very tangible indeed.

This I see as a vital 'if in this legislation. The Corporation's business activities should bc employed to the common good and this will take place if, and only if, the Corporation restricts its financing activities to those sectors of Australian industry which are efficient. This means that the Corporation should concentrate on export oriented activity and steer clear of financing ventures which have as the main reason for their profitability the fact that they shelter behind high tariff walls. 1 think that the Minister's second reading speech points in a good direction. Heaven forbid if the purpose were perverted and the Corporation were lo become yet another prop for the inefficient. In an article which I have already quoted, Mr Newton articulated this fear regarding the highly protected company when he said in connection with this Corporation:

Would it not then be entirely human for a Minister whose prestige was involved to take action through other areas of Commonwealth power to make sure that the enterprise succeeded?

It is this sort of problem that we must guard against and we hope that the annual reports of the Corporation, which have to he debated by Parliament, shall provide the necessary safeguard. To ensure that this happens. I wish to place on record that it is important that the Corporation report the allocation of its finances, amongst other things, on the basis of the type of enterprise and the type of product involved. In short, it is important that we be able to evaluate whether the money goes to the heavily protected or the lightly protected parts of the Australian economy, that is, whether the money goes to the efficient or inefficient. Further, I would request that the Government provide an undertaking that this shall be done, either during the course of this debate, or at a later stage.

Another problem which causes me concern is the possibility of a reverse type effect. I would hale to see a situation develop where the Corporation acquires shares in, or lends to, a new venture which subsequently reveals that its profitability depends heavily on protection. I am concerned lest in this situation the investment on the part of the Corporation could be used as a weight for securing such protection. I think we should all be alive to this problem.

The third problem is also tied up with protection. Much of our direct foreign investment is in heavily protected industries. Quite frequently heavy protection attracts an overseas giant which has first operated through agents, then set up, say, assembly facilities, and finally found that the protection made it attractive to invest in a fully blown manufacturing process. Once a single overseas giant comes into an industry due to the protection, the global competition conditions make it important for the other multi-national giants operating in the same industry to establish themselves in Australia. We have seen this in the motor car industry with General Motors followed by Ford, Chrysler and British Motors Leyland. We see it in the farm machinery industry. We see it in the chemical industry, lt would be disastrous if the policies of the Corporation were governed by considerations of the proportion of foreign involvement in any given industry. It would be a perversion of the Corporation's role if it entered into a field on the argument that in this specific field foreign investment was dominant. The Minister stated:

The Corporation will assist only viable projects.

Let us not lose sight of the fact that a project may be viable through tariffs. Let us not lose sight of the fact that this Corporation is being formed for the public benefit and that public benefit is best served by expanding the efficient, lowly protected sections of industry.

The next issue 1 turn to is the scope of the Corporation's activities. Clause 6 (2.) (d) of the Bill states that one of the objectives of the Corporation shall be to: further the development of Australian resources necessary for the defence of the Commonwealth.

I think this clause is admirable and I am certainly very defence minded. Nevertheless, I want to sound a note of warning here. Many a sin can be conveniently sold under the guise of its necessity for the defence of the Commonwealth. If a venture is a bona fide defence venture, well and good. But let us make absolutely sure that the ventures are bona fide defence ventures. I hope that clause 6 (2.) (a) laying down that the Corporation shall: promote trade and commerce between Australia and places outside Australia; will be interpreted in a wide sense. I hope the day is not far removed when we shall see Australian companies establishing overseas subsidiaries as part of a policy to boost sales of Australian components or materials. I hope this Corporation will be used to bring this day forward. For example, if we see the development of 2 more steel works - one in Western Australia at Kwinana and one in Queensland at Gladstone - based on the backloading principle, it may be advantageous for those export oriented ventures to carve out a captive market in Asia or Latin America. These captive markets could be in the form of rolling facilites which could then be supplied with Australian steel. The Corporation should be in a position to help finance the establishment of such subsidiaries. A similar situation could apply in relation to the grain trade. Australian companies or co-operatives may wish to establish manufacturing facilities for compounded feeds in overseas countries so that they could then have an assured outlet for the primary products which they are marketing. Here again I hope that the Corporation will have an active role.

I turn now to clauses 7 and 8 of the Bill, which I consider to be wholly admirable. This Corporation needs to be flexible in its operations. The Government has certainly endowed it with those attributes essential to flexibility. 1 turn next to Part III of the Bill which deals with the board of directors of the Corporation. The Corporation is responsible to this Parliament through its board of directors. This means that Parliament must have some sanctioning power over the directors. This raises the old dilemma. We want the Corporation to be divorced from, shall I say. pork barrel politics; yet we must have some control over it to ensure its functions satisfactorily. It is well known that this sort of relationship tends to give rise to some scope for political influence. The only assurance that one can have in these circumstances that such influence will be absent or negligible lies in the calibre of the directors who shall be appointed, lt is rather a shame that this Parliament does not have the power to advise and consent as is possessed by the United States Congress.

Nevertheless. 1 would lay down certain prerequisites for the chairman of the board. Firstly, he must have considerable experience in some financial sphere, preferably merchant banking. Secondly, he must have a reputation for independence of thought and action. Thirdly, he must have sufficient personal means so that the Government's power to renew his appointment will in no way influence his actions. Fourthly and lastly, he must not be a man who has been involved in highly protected industry or who has fought for high levels of tariff protection. Sir, he must not in any circumstances be an arch-protectionist. I would seek similar qualities in the directors of the Corporation. 1 wish the Corporation well and I want again most sincerely to congratulate the Government, especially the Deputy Prime Minister, on its contribution to this imaginative legislation. I hope that only good will come of this Corporation and that the pitfalls will remain speculative, never turning into reality. Mr Deputy Speaker, f commend the Bill.

Suggest corrections