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Author of a new book on economic rationalism expresses concerns about the Opposition Leader's approach to protectionism which is dividing conservative ranks.

ELLEN FANNING: If the Opposition Leader, John Hewson, is anticipating a more vigorous attack from Labor, he may be surprised by what's coming from his own side of politics. On A.M., former Liberal Prime Minister, Malcolm Fraser, said his party has moved too far to the right, and tomorrow, Mr Fraser, along with ACTU chief, Bill Kelty, will be launching a book about the failure of economic rationalism. Entitled Shutdown, the book is a collection of essays about the need for a reversal of the policies of the '80s. Well, Paul Keating now says he never embraced rationalist economics, but if the Prime Minister is attempting to re-invent himself, Dr Hewson remains utterly hardline in his determination to put an end to protectionism. It's a position which is rattling many in the business community, and one of the co-authors of the book, Shutdown, says it's dividing the Liberal Party.

Dr John Carroll from La Trobe University has joined us, now, in our Melbourne studio. To talk to him, our chief political correspondent, Maxine McKew.

MAXINE McKEW: John Carroll, it would be fair to characterise you as sitting on the right of the political spectrum?

JOHN CARROLL: Yes, unequivocally.

MAXINE McKEW: And from that perspective, what concerns within conservative ranks would you identify as regards the economic approach of Dr Hewson?

JOHN CARROLL: Well, I think they're both manifest at the business level and, increasingly, within the party itself. At the business level, there was a certain disbelief, for a long period of time, that Dr Hewson was serious in his radical rationalism, where, now, the manufacturers, above all, are starting to realise that he is serious and, hence, the comments of the car manufacturers, last week, that if the Liberal Party under Hewson comes into power, we'll have no car industry in Australia.

These worries are far more widespread, certainly down in Victoria, than the car industry. To give you one example, I addressed the 500 Club two months ago. The 500 Club is essentially the organisation that funds the Liberal Party. It has members from all levels of business. The talk was a debate on tariffs. I was putting a strongly protectionist view. I was debating against Alan Wood from the Australian who, of course, is a rationalist. I don't think I'd be deluding myself to say that I got a far warmer reception in the 500 Club than Alan Wood and his rationalist ideas did. And in fact, I was told, afterwards, that the majority of Liberal Party backers in Melbourne, including their business backers, don't believe Hewson's rationalism at all.

MAXINE McKEW: And yet we've seen, in the past week, the car manufacturers, after having made some pretty public sorties on this topic, they've gone quiet.

JOHN CARROLL: The car manufacturers are all multinational companies and they like to be what they call themselves, good citizens, which means that they feel that they can't get too vigorously involved in political controversy here, which means that hardly ever will they make statements such as they made last week, and they won't put them particularly vigorously, even if that means, in the long term, that they're saying nothing against a government which is, in effect, going to cut their own heads off.

MAXINE McKEW: John Hewson, of course, is convinced that the car manufacturers are bluffing.

JOHN CARROLL: Well, who would you believe - the chief executives who make the decisions and who are going to make the losses, or a political leader who has now painted himself into a corner with a policy which is going to ruin Australian manufacturing.

MAXINE McKEW: Well, is this splitting Victorian Liberals?

JOHN CARROLL: Not yet, but I think there are already signs that Jeff Kennett is putting policies forward with less and less inhibition which are interventionist. Jeff Kennett, before he became Leader, spoke frequently on Melbourne radio about his own attachment to intervening to support manufacturing. Pat McNamara has suggested also - the Leader of the National Party down here - that he tends to interventionist views of the economy. I think there are very few believing, economic rationalists in the Victorian Liberal Party.

MAXINE McKEW: So one could anticipate that in a month or so, when we see Premier Kennett presumably take over in Victoria, there would be tensions there between yourself and Dr Hewson.

JOHN CARROLL: I think that's true. There is the other side. The industrial relations policy of the Victorian Liberal Party is a rationalist policy. I mean, that is counter to what I've just said.

MAXINE McKEW: Malcolm Fraser, of course, will be launching your book, tomorrow, and interestingly, he made the comment on A.M., this morning, that he feels the party is moving too far to the right. Again, would there be people in Victoria who would agree with him?

JOHN CARROLL: Well, in the last few weeks, a number of businessmen in the city of Melbourne have said to me that the one figure they think on the Liberal side of politics who is making any sense - and this is in columns in the Sunday Age - on the economy, is Malcolm Fraser.

MAXINE McKEW: Does it worry people in conservative circles that John Hewson doesn't see the need to persuade people to his point of view? He does tend to dismiss anyone who disagrees with him as being a bit of a wimp.

JOHN CARROLL: I think there's a growing recognition that politics requires flexibility and not stubbornness, and responses like the hit list are inevitably worrying anyone with political poise because this is just not the essence of political success.

MAXINE McKEW: You're referring, there, to the hit list Dr Hewson has of those companies and groups that don't agree with him.

JOHN CARROLL: I am. And the suggestion that in response to a policy that looks thin or attack which is very serious, such as the car manufacturers made last week, the response to that is stubbornness, less flexibility, becoming even more extreme in your reaction to policy - I mean, that is not the trademark of successful, practical politics in the Australian tradition.

MAXINE McKEW: And just a final point: would you agree, then, with Labor Secretary, Bob Hogg, when he says that Fightback would be too much of a shock to a recessed economy?

JOHN CARROLL: I don't think it will do anything for business confidence. The problem with Fightback is it's the wrong policy. It's the policy of the 1980s which failed here. In a more radical form, it's a policy of the '80s. One thing that we do in our book is we look, in detail, at overseas examples of success, and what countries that have succeeded in East Asia and Europe have done, and in all the cases, they've been, basically, interventionist. They've mixed a free market with an interventionist government. The countries that have done the Hewson sort of thing - which basically is New Zealand and, to a lesser extent, the United States and the United Kingdom - have all got very similar economic problems to us and are not seeing a way out of those economic problems. So what does reality tell you?

MAXINE McKEW: John Carroll, thank you very much indeed.

ELLEN FANNING: Dr John Carroll speaking from Melbourne, tonight, with Maxine McKew.