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Tuesday, 18 September 1973
Page: 1168


Mr KELLY (Wakefield) - It is a relief not to be talking about the importance of inflation. That is now accepted as a real problem on our plate. What we are discussing is whether the Bill before the House will be an effective method of inflation control. I find that many people, particularly younger people, in the community are deluded into believing that a policy of price control is in the long term an effective weapon against inflation. It is true, of course, that it has immediate attraction. We know the seriousness of the problem, and we are all anxiously looking for some method of tackling it. It is quite clear that in the long term a policy of incomes and prices control has not proved to be an effective weapon against inflation in all the countries in which it has been tried. This has been brought out by many of the honourable members who have preceded me in this debate.

Such a policy dams up the demand and when the changes have to be made, as they must be made in a changing economy, the experience of all other countries has been that there is a further surge forward. The Leader of the Australian Country Party (Mr Anthony) used a very picturesque phrase when he said that it breaks the thermometer. I would say that it breaks the dam. When the dam breaks there is a further surge forward. It is an intensely disappointing fact that this is so. I have no philosophical objections to price control. The only reason why I objected to it was that generally it does not work. It does not work if it is separated from the other component it must have - that is, incomes control. We ought to look at it and ask why it works so badly.

We ought to recognise the problems that we face. The first is that, if it is known that there will be an introduction of price control, inevitably there will' be a pressure on prices. Firms will put up their prices knowing that price control will follow quickly after. There is only one way in which to stop that and that is to alter human nature, because that is the way in which human nature works. It sees its problem in the future and it takes action to prevent it. Nothing one can do can stop it. The second reason why prices and incomes control generally does not work in the long term is that prices are the only signals people receive which determine what they will do and how they will use their resources. In a democratic system there is no other way whereby industries can determine where the. demand will come in the future. The economy is like a bucket of worms. It is turning all the time. Problems are changing and situations are changing. Demand slackens off in one field and increases in another. There has to be a continual change in prices to meet the changing circumstances. The only way in a democratic system by which the producer can know what is needed in the economy is for him to receive the market signals.

If honourable members want a clear example of this they have only to look at what is happening to the steel production of the Broken Hill Pty Co. Ltd at this time. Many of us have been critical, perhaps unwisely critical - I have been - of recent increases in BHP prices. Nevertheless, the fact that public opinion in Australia held prices down meant that the company was unable to use its resources to increase production of something of which the community needs increasing quantities. I am sorry that the system works like this but I do not think that anybody in this House would deny that in a democratic system that is the only way in which producers of goods will receive the signals to increase or decrease production. This problem is found not only within industry itself but also between industries. I am glad to say that in a viable, shifting economy such as ours is we will always find that resources must be taken from one industry and put into another. That is the way the system works. The only way in which we can achieve a proper allocation of resources in an economy such as ours in the long term is to keep these price signals coming through with crystal clarity.

The only alternative is to have the Government saying what must be produced and where the resources must be developed. That is not a party political statement. As I think everybody must recognise, there are only 2 choices of how our resources can be used - the crystal clear price signals or government direction. Those who may cling to the idea that government direction is better than the present system - I do not think there would be many in this chamber who would agree with that - must realise that the best market for many of our products is countries that do this consistently. I refer to the communist countries, which believe that the government knows best. I do not think it is generally accepted on the other side of the House that the Government is good at this kind of direction. A while ago there was a feeling on the agricultural scene that the Government should make a realistic estimate of demand and should tailor production to meet that demand. But I am glad to see that the Minister for Primary Industry (Senator Wriedt) is realising - he made a statement about this recently - that that was really economic nonsense.

Of course, one of the problems is the weather. Even the Minister for Primary Industry would realise quite clearly that he has no control of the weather here, and if he did have it here he would not have it overseas. So we have a clear choice to make between keeping the price signals coming through clearly or having government control.

It is quite clear that we can depend only on the price signals system. For that reason I think that the impending restrictive trade practices legislation is of inordinate importance. I am aware of the great power that some monopolies have, and the power they use sometimes, to take advantage of their position. I am quite definite in saying that if these price signals are to be used as an effective method of governing the economy we must have restrictive trade practices legislation that is effective.

When one looks at a price control system one has to realise that other problems are involved. An important one is deciding which prices are to be fixed. Will it be the price of the lowest cost producer, the middle cost producer or the highest cost producer? Look at the position in South Australia. There is a system of petrol fixing which has been held up as an example to everybody. However, in Victoria one finds signs up everywhere advertising petrol at 6c a gallon off or 10c a gallon off. Maximum prices generally become the minimum prices in a government controlled prices system.

One of the reasons why I asked to be put on the speaking list for the Opposition, against a good deal of competition from some very worthy members on our side, was to mention this fact: My father had the responsibility of being adviser to the Labor Government on agricultural prices between 1942 and 1947 or 1948. I am acutely conscious of the grave problems of black marketeering that went on in those days, particularly in the case of meat, for which my father had a particular responsibility. I could give a long lecture about this but I think this story illustrates the problem in all its starkness: Two doctors were in a lounge of a hotel discussing the problems of their practices. One said to the other: 'You know, I have 3 cases of meningitis in my district.' A chap sitting behind him who was not supposed to be listening tapped one of them on the shoulder and said: 'Look, I'll take the lot.' That was the problem in those days when the flame of patriotism reinforced the edicts of the Government.

What chance do honourable members think we would have of having a price control system which would work now in a permissive society? In South Australia we are told that it is all right to break laws if we do not agree with them. With this kind of mentality in our people what chance do honourable members think we will have of holding the line?

Younger honourable members would not remember what it was like during the war. It was not what you knew; it was whom you knew that decided what came out from underneath the counter. What chance will we have of making this proposal work when we could not get it to work when we had the flame of patriotism to reinforce it. I think that people have to realise that there is no sense in talking glibly about a system which cannot operate. The essential thing about price control is that it interferes with the law of supply and demand. Prices are held artificially low. As soon as this is done it creates a pressure for black marketeering, for the spiv, for the crook to get an undue advantage over the rest, the decent section of the community. I appeal to the younger members opposite who do not know of those days not to delude themselves that this will not be an overwhelming problem.

We could make a prices and incomes policy work on the short term for a little while, but to pretend that we can make a prices policy work without an incomes component to it is just deluding ourselves. This has been brought out with cyrstal clarity by the Deputy Leader of the Opposition (Mr Lynch) today. All the authorities point quite conclusively to this fact. I should like to quote another authority to whom I think everybody in this place would look up, namely, Professor Galbraith. One would have great difficulty in not looking up to a man as tall as he is. Professor Galbraith, in a lecture in Adelaide last Friday night, as one would expect gave a brilliant exposition of small '1' liberal thinking. At the end of it I had the temerity to ask him whether he could give me an example of a successful prices policy working without an incomes component. With delightful clarity he said immediately that he did not know of any such example that had been tried. Certainly he could not imagine any such policy that could possibly be successful.

I think we all have to recognise that this is inevitable and that we cannot make one part of the system work without the other. Adoption of such a policy immediately exposes one to appearing slightly ridiculous. On the one hand the Government is saying: 'Let us encourage an increase in wages. Let us not appear before the Arbitration Commission to spell out the true economic position. Let us give the green light to wages expansion.' On the other hand the Government is saying that prices must not go up. As soon as it does this it just exposes the position as being quite ridiculous. I do not think there is one person in this House who does not realise that to have a prices policy without an incomes policy in the short term is just flying In the face of economic sense. This has been spelt out time and time again in this debate. The tragedy of our present situation is that not only do all economists in the country realise it, not only does Professor Galbraith realise, and not only do all the thinking members of the Government realise that this is so, but also the Prime Minister (Mr Whitlam) realises it. He knows what he is asking for. If he gets the power he seeks it will not make possible an effective antiinflationary program. The thing I regret more than anything else is that we are having our attention diverted from doing things that we know we can do, by going through this charade of a referendum on the subject, when we know that if we get the power we cannot make such a policy work.

The Minister for Social Security (Mr Hayden), spoke earlier. I think he was sincere when he said that the important thing that we are looking for is a breathing space. The Leader of the Opposition (Mr Snedden) has used the term 'circuit breaker'. Whatever we are looking for, whatever we call it, what we think we can make work is a short term incomes prices policy, knowing that we cannot make it work in the long term for the economic reasons I have spelt out. But we can make it work in the short term. However, it is not necessary to make it work in the short term to have the power given in this way to the Goverment. I am certain that we could get the co-operation of the State governments, in partnership with the Federal Government, to do something that we think ought to be done for a sensible, responsible attempt to have a circuit breaker or breathing space, to use the term of the Minister for Social Security. But to pretend that we have to go through this charade of having a prices policy without an incomes policy is just to defy all the laws of logic. As I have said, what I regret most about this Bill is that it will distract us from taking the steps that we ought to take. I certainly will oppose this Bill with all my ability, having no philosophical objection to a prices-income policy as such but knowing that in the long term we cannot make it work. To pretend that we could make it work without an incomes component is ridiculous.







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