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OECD: intervention by Mr Hayden



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1Nch ? 3 D a te 21 M ay 1 9 8 4 % lOECD: INTERVENTION BY MR HAYDENFollowing is the te x t of the In te rv e n tio n by the M in is te r fo r Foreign A f f a i r s / Mr B i l l Hayden/ M.P./ on achieving durable growth/ at the M in is t e r ia l Council Meeting of the OECD in Paris on 18 May 1984:MR CHAIRMAN,WE ARE BROADLY IN AGREEMENT WITH THE PRESCRIPTIONS FOR A BETTER WORLD ECONOMY WHICH ARE SET OUT IN THE SECRETARY-GENERAL’ S NOTE.I AM NOT GOING TO WASTER THE TIME OF MY COLLEAGUES BY GOING THROUGH ALL THE POINTS TO WHICH WE SUBSCRIBE.RATHER , I PROPOSE TO PICK UP THREE PARTICULAR POINTS ON WHICH, IN THE LIGHT OF OUR OWN EXPERIENCE, I FEEL I MAY HAVE SOMETHING SLIGHTLY DIFFERENT TO SAY.ONE: LABOUR MARKETS. (UNDERLINED)IN HIS COMMENTS ON THIS ITEM, IT SEEMS TO ME THAT THE SECRETARY-GENERAL HAS TENDED TO EMPHASISE THE IMPORTANCE OF FLEXIBILITY IN THE LABOUR MARKET, OF LABOUR MOBILITY AND OF ADAPTIVE CAPACITY.THESE ARE SIGNIFICANT MATTERS. WE AGREE WITH WHAT THE SECRETARY- GENERAL HAS TO SAY ON THEM.IN AUSTRALIA’ S CASE, HOWEVER, WE ARE GIVING FIRST PRIORITY TO THEMAINTENANCE OF OVERALL INCOME RESTRAINT EVEN IF THIS SHOULD ENTAIL,IN THE SHORT TERM, SOME LOSS OF FLEXIBILITY IN THE MATTER OF RELATIVE WAGES.THE AUSTRALIAN GOVERNMENT CAME INTO OFFICE AFTER A PERIOD OF RISING MONEY AND RISING REAL WAGES. AS THE WORLD ECONOMY WENT INTO RECESSION AND AS THE RESOURCES BOOM WENT OFF THE BOIL, AUSTRALIA FOUND ITSELF STRANDED WITH A HIGH COST STRUCTURE, CONTINUING INFLATION AND, MOST IMPORTANTLY, GROWING UNEMPLOYMENT.IN OUR SITUATION, WE SEE OUR FIRST TASK AS BEING TO MAKE PROGRESS ON BOTH THE UNEMPLOYMENT FRONT AND (UNDERLINE ONE) THE INFLATION FRONT. BECAUSE OF THE HIGH COST STRUCTURE WE INHERITED, AN IMPORTANT ASPECT OF OUR ECONOMIC POLICY HAS TO BE TO ACHIEVE SOME WAGE MODERATION. THIS IS NECESSARY TO HELP RESTORE THE PROFITABILITY OF ENTERPRISE AND TO HELP THE RECOVERY OF EMPLOYMENT CREATING INVESTMENT.IT IS TRUE THAT WE ALSO INHERITED FROM OUR PREDECESSORS A ’ ’ WAGE PAUSE’ ’ . THIS HAS BEEN MAKING A CONTRIBUTION TO THE COST SITUATION.BUT IT IS ONE THING TO ACHIEVE WAGE MODERATION IN A PERIOD OF RECESSION AND INCREASING UNEMPLOYMENT. IT IS ANOTHER TO ACHIEVE

SIMILAR RESULTS WHEN THE ECONOMY I S GROWING STRONGLY AGAIN AS IT IS IN AUSTRALIA AT THIS TIME.

THAT IS WHY THE AUSTRALIAN GOVERNMENT, AFTER LENGTHY CONSULTATION, HAS NEGOTIATED A PRICES ANP INCOMES ACCORD WITH THE UNION MOVEMENT.

THIS POLICY, BY HELPING TO REDUCE LABOUR COST PRESSURES, HAS ENABLED THE GOVERNMENT TO PURSUE AN EXPANSIONARY FISCAL POLICY WHILE STILL MAKING PROGRESS TOWARDS ITS ANTI-INFLATIONARY OBJECTIVES. THIS OUTCOME HAS BEEN FACILITATED, OF COURSE, BY A FIRM MONETARY STANCE.

THE GOVERNMENT IS CONVINCED THAT IN AUSTRALIA'S SOCIAL, ECONOMIC AND INSTITUTIONAL CIRCUMSTANCES THE ACCORD (INVOLVING A CONSENSUS-BASED CENTRALISED SYSTEM OF WAGE FIXA TION ) OFFERS THE BEST PROSPECT OF PREVENTING A WAGE BREAK-OUT OF THE KIND WHICH HAS

OCCURRED IN THE PAST.

WE ARE DETERMINED NOT TO LET THIS RECOVERY RUN AGROUND ON THE ROCKS OF RENEWED INFLATION AND UNEMPLOYMENT.

BUT IF WE WANT TO HAVE THE COOPERATION OF UNIONS OVER THIS DIFFICULT PERIOD, WE NEED TO BE ABLE TO GIVE THE UNIONS SOME ASSURANCE THAT STANDARDS OF LIVING WILL NOT BE UNDERMINED.

THAT IS WHY I T HAS BEEN AGREED WITH THE UNIONS THAT WAGE INDEXATION WILL APPLY, IN THE NORMAL COURSE OF EVENTS, IN THE PERIOD AHEAD.

AS INFLATION SUBSIDES, AS IT I S DOING, IT IS THE VIEW OF THE

GOVERNMENT THAT THE PRICES AND INCOMES ACCORD SHOULD ENABLE US TO HELP ' ’ RATCHET DO W N '' INFLATION.

ONE WAY OF PUTTING THE POINT I AM MAKING, I SUPPOSE , WOULD BE TO SAY THAT IN AUSTRALIA AT THE PRESENT T IM E, WE ARE CONCENTRATING MORE ON THE PROBLEM OF ' 'ECONOMIC IMBALANCE’ ' AS DESCRIBED BY THE SECRETARY-GENERAL, THAN ON THE PROBLEM OF ' ' STRUCTURAL R I G I D I T I E S ' ' .

THERE I S OF COURSE SCOPE TO REVIEW THESE POLICIES I N DUE COURSE.

AND I CAN REPORT THAT OUR POLICIES HAVE MET WITH SOME SUCCESS UP TO THIS POINT OF TIME. WAGES HAVE BEEN RISING MORE SLOWLY IN 19 8 3 . PROFIT SHARES HAVE BEEN IMPROVING, INFLATION HAS BEEN EASING OFF AND THE ECONOMY HAS BEEN GROWING FASTER.

EMPLOYMENT HAS BEEN INCREASING RAPIDLY AND UNEMPLOYMENT HAS BEEN DECREASING. BUT AS THE WORK FORCE I S GROWING AT A FAST RATE, IT WILL TAKE TIME TO GET THE UNEMPLOYMENT FIGURES DOWN TO ACCEPTABLE LEVELS.

THE GOVERNMENT IS SUPPLEMENTING IT S MACRO-ECONOMIC POLICIES FOR INCREASED EMPLOYMENT WITH MORE DIRECT MEASURES FOR SPECIFIC GROUPS INCLUDING THE TRADITIONAL POLICIES OF VOCATIONAL EDUCATION AND TRAINING. AT THE PRESENT T IM E , THE GOVERNMENT IS UNDERTAKING A MAJOR

REVIEW OF ITS LABOUR MARKET PROGRAMMES TO ENSURE THAT THEY CONTINUE TO ASSIST OUR LONGER TERM EMPLOYMENT OBJECTIVES I N THE MOST EFFECTIVE MANNER.

TWO : GOVERNMENT EXPENDITURE (UNDERLINED)

IF WE ARE TO LOOK TO THE UNIONS FOR A CONTRIBUTION TO SUSTAINING RECOVERY AND INCREASING EMPLOYMENT, IT IS INCUMBENT ON GOVERNMENTS TO MAKE SUCH CONTRIBUTIONS AS THEY CAN TO THIS COMMON PURPOSE.

THE SECRETARY-GENERAL' S NOTE SEEMS TO VIEW THE FISCAL SECTOR MAINLY (THOUGH NOT ENTIRELY) IN TERMS OF CONSTRAINING PUBLIC SECTOR DEFICITS.

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LARGE D E F I C I T S PUT UPWARD PRESSURE ON I NT E RE S T RATES AND T H I S TENDS TO P R E J U D I C E THE PRI VATE SECTOR I NVESTMENT NECESSARY TO I N C R E A S I N G EMPLOYMENT. LARGE P U B L I C D E F I C I T S CAN BE REGARDED AS A B S O R B I N G THE NATI ONAL S A V I NGS WHI CH MI GHT OTHERWI SE HAVE GONE TO THE

PRI VATE SECTOR.

OF COURSE THERE ARE ALWAYS QU E S T I ON S AS TO WHAT PARTS OF THE D E F I C I T ARE STRUCTURAL AND WHAT ARE C Y C L I C A L . AND THERE ARE ' ' C H I C K E N AND E G G ’ ’ QU E S T I ON S AS TO WHETHER THE P U B L I C SECTOR D E F I C I T

I S COMPENSATI NG FOR A PRI VATE SECTOR S U R P L U S , OR C A U S I N G I T . THE

ANSWERS TO SUCH QUEST I ONS WI L L D I F F E R , FROM COUNTRY TO COUNTRY AND FROM TI ME TO T I ME.

I N A U S T R A L I A ' S CASE WE HAVE FOUND A F I S C A L D E F I C I T , SUPPORTED BY

A F I RM MONETARY STANCE AND THE COOPERATI ON OF U N I O N S , TO BE HELPFUL I N A TI ME OF DEPRESSED PRI VATE SECTOR A C T I V I T Y .

OF C O U R S E , THE BROAD CASE FOR RE DUCI NG P U B L I C SECTOR D E F I C I T S ONCE RECOVERY B E G I N S TO EMERGE, AS SET OUT I N THE S E C RE T A RY - GE NE RA L ' S NOTE , I S FULLY ACCEPTED.

BUT P U T T I N G A S I D E THE I S S U E OF THE D E F I C I T S PER S E , THERE I S A

CASE FOR GOVERNMENTS S T R I V I N G THEI R UTMOST TO CONT AI N GROWI NG P U B L I C E X P E N D I T U R E . P U B L I C SECTOR E X P E NDI T URE HAS TO BE F I NA NCE D E I T H E R BY BORROWI NG ( H I G H E R I NTEREST RATES) OR T A X I N G ( L E S S TAKE HOME PAY FOR THE WORKER) .

AT A TI ME WHEN THE U N I O N S ARE C O N T R I B U T I N G TO THE CONSENSUS THROUGH MODERATI ON I N WAGE DEMANDS, THERE I S A R E S P O N S I B I L I T Y ON GOVERNMENTS TO DO WHAT THEY CAN TO C ON S T R A I N THE UPWARD MOVEMENT I N P U B L I C E X P E N D I T U R E , AND SO THE UPWARD MOVEMENT I N BORROWI NGS OR TAXATI ON ( BOTH OF WHI CH I NVOLVE COSTS TO BE BORNE BY T H E I R

PAY- PACKETS U L T I MA T E L Y ) .

I AM NOT S P E A K I N G HERE OF THE ARGUMENT FOR RE DUCI NG PA RT I CUL A R K I N D S OF E X P E N D I T U R E . I AM S P E A K I N G RATHER OF , WHERE THE O P T I O N

E X I S T S , THE NEED TO CUT BACK WASTEFUL AND I N E F F I C I E N T E X P E N D I T U R E . I

WOULD ADD T H A T , I N THE CASE OF S O C I A L WELFARE E X P E N D I T U R E S FOR EXAMPLE, THERE WOULD BE S AVI NGS TO BE ACHI EVED BY D I R E C T I N G EXPENDI T URE FROM THOSE WHO D O N ' T REALLY NEED I H E . SUPEL EMENTS , TO THOSE WHO DO. NEI THER NEED NOR ECONOMI C P R I O R I T I E S WOULD BE

P RE J UDI CE D BY SUCH S A V I N GS .

I T I S D I F F I C U L T TO B E L I E V E , WHEN P U B L I C E X P E N D I T U R E S RUN I NT O

TENS AND HUNDREDS OF B I L L I O N S OF DOLLARS I N OUR RESPECTI VE C OU N T R I E S EACH Y E A R , THAT THERE I S NOT SCOPE FOR S I Z E A B L E S A V I N GS EVEN WI THOUT I N T R U D I N G S I G N I F I C A N T L Y ON GOVERNMENT F U N C T I O N S .

THAT O B J E C T I V E , AT L E A S T , ALL OUR GOVERNMENTS SHOULD PURSUE WI TH GREAT RI GOUR.

WHAT I AM E M P H A S I S I N G ( ALTHOUGH THE P O I N T I S CERT AI NL Y RECOGNI SED I N THE SECRET ARY- GENERAL ' S NOTE) I S THAT I T I S NOT J U S T THE S I Z E OF

THE P U B L I C SECTOR D E F I C I T THAT MATTER S BUT ALSO THE ABSOLUTE S I Z E AND RATE OF GROWTH OF P U B L I C SECTOR E X P E N D I T U R E . I T I S ALSO

I MPORTANT THAT THE C O M P O S I T I O N OF THAT E X P E N D I T U R E MEETS THE C R I T E R I A OF NEED AND ECONOMI C P R I O R I T Y , RI GOROUS L Y DEF I NE D.

T H R E E : DEREGULATI ON

TO RETURN FOR A MOMENT TO THE F I R S T P O I N T I BROUGHT U P , I T R I E D

TO E X P L A I N THEN THAT I N A U S T R A L I A ' S CASE THERE HAVE BEEN P A RT I CUL AR REASONS FOR THE P O L I C Y WE HAVE CHOSEN OF A MORE C E NT RA L I S E D APPRAOCH TO LABOUR MARKET MATTERS.

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I HASTEN TO SAY WE HAVE NO I N H I B I T I O N S ABOUT A MORE DECENTRALISED, OR DEREGULATED, APPRAOCH TO ECONOMIC POLICY ISSUES WHERE THAT SEEMS TO MEET THE CIRCUMSTANCES OF THE CASE.

AN EXAMPLE LIES IN OUR HANDLING OF THE FINANCIAL MARKETS. WE HAVE BELIEVED THAT SOME DEREGULATION IN THAT AREA HOLDS OUT THE PROSPECT OF SUBSTANTIAL BENEFITS IN TERMS OF IMPROVED EFFICIENCY AND THE CREATION OF NEW JOBS.

AUSTRALIA HAS BROUGHT ABOUT CONSIDERABLE REFORMS IN THIS AREA OVER THE PAST YEAR OR SO AS THE GOVERNMENT HAS SOUGHT TO INCREASE COMPETITION I N FINANCIAL MARKETS, INCLUDING THE FOREIGN EXCHANGE MARKET.

MOST NOTABLY THE GOVERNMENT MADE AN HISTORIC DECISION IN DECEMBER 1 9 8 3 TO FLOAT THE AUSTRASLIAN DOLLAR. THE MANAGED SYSTEM HAD BECOME TOO PREDICTABLE AND INFLEXIBLE TO COPE WITH THE VOLATILITY OF EXTERNAL TRANSACTIONS. PRIOR TO THE FLOAT, STRONG SPECULATION HAD TAKEN PLACE AGAINST THE DOLLAR AND DOMESTIC MONETARY MANAGEMENT HAD

BECOME INCREASINGLY DIFFICULT BECAUSE OF EXCESSIVE FOREIGN CAPITAL FLOWS. AT THE TIME OF FLOATING THE AUSTRALIAN DOLLAR, THE GOVERNMENT ALSO REMOVED THE GREAT BULK OF THE CONTROLS THAT HAD APPLIED HITHERTO TO FOREIGN EXCHANGE TRANSACTIONS.

WITH THE FLOAT, THE EXCHANGE RATE FOR THE AUSTRALIAN DOLLAR IS NOW MORE FREE TO REFLECT MARKET SENTIMENTS. IN OUR VIEW ALSO, THE FLOAT WILL GIVE THE GOVERNMENT GREATER POTENTIAL TO CONTROL MONETARY AGGREGATES. THE POTENTIAL EBBS AND FLOWS OF VOLATILE CAPITAL WILL BE ANTICIPATED, AND SO REDUCED OR ELIMINATED, BY OFFSETTING EXCHANGE

RATE MOVEMENTS.

CONCLUSION. (UNDERLINED)

MR CHAIRMAN, DISCUSSIONS TODAY HAVE FOCUSSED ON THE MAJOR CHALLENGES FACING MEMBERS IN THEIR SEARCH FOR POLICIES TO ACHIEVE DURABLE GROWTH. THE PRESENT RECOVERY PROVIDES AN IMPROVED

ENVIRONMENT, BUT ONE I N WHICH POLICY-MAKERS STILL HAVE TO MAKE DIFFICULT CHOICES. ยท

WHILE WE ALL ACCEPT THE DESIRABILITY OF ESTABLISHING MORE FLEXIBLE AND ADAPTIVE ECONOMIES, WE ALSO NEED TO RECOGNISE TWO P O IN T S :

- ONE, THE COMMITMENT OF GOVERNMENTS TO THE POLICY OBJECTIVES MUST BE FIRM AND, - TWO, THE METHOD OF ACHIEVING THOSE ECONOMIC OBJECTIVES HAS TO BE TAILORED TO THE ECONOMIC AND SOCIAL CIRCUMSATNCES OF THE INDIVIDUAL COUNTRIES CONCERNED.