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Economics in plain English.

MICHAEL GILL: I am finance journalist, Michael Gill, and today, producer Marco Bass and myself present 'Economics in plain English'.

Australia is headed for an economic crisis, or so say many of our prominent commentators. We know that our payments to foreigners fall short of what we sell. We know Australia's debt has become a threat, and we know interest rates are high because of those things. But how did we come to this, what went wrong, and how do we fix it?

PAUL KEATING: This is obviously a Budget of restraint, it's a Budget of hope for the Australian economy, it's a Budget which shows that Australia is facing the huge problem of its external difficulties, and the government will have put the big changes in to remedy the problem. We've made hard decisions. I think it's true that we have shown firm leadership right throughout. The Budget makes the big shift down in government borrowing and spending and the economy has moved down a gear, to go up the very steep incline of the current account problem, of our trade problem. Australia is now just supra competitive. We have never been this competitive.

MICHAEL GILL: Faith, hope and discipline, that was the message of Paul Keating's 1986 Budget. But two months later, in October, the Treasurer was issuing dire warnings of what would happen if Australia did not quickly act on its new found competitiveness.

JOHN LAWS: When John Laws wants answers, he goes straight to

the top and gets the answers.

PAUL KEATING: Well, we've got this problem with our external accounts, but this is not just a problem for me, it's a problem for the nation and that is that we are running a current account deficit. What that means is that we are importing about 12 billion more than we're exporting, on an annual basis, and de-jargonising that, what it means is we are living beyond our capacity to meet our obligations by 12 billion.

JOHN LAWS: Well, why are we going that?

PAUL KEATING: Well, we are doing that because we don't

satisfy enough of our local needs, by local production, we satisfy too much of it by imports. And the other reason is that the exports that we normally sell - wheat, wool, sugar, you know, copper, lead, zinc, iron-ore, coking coal - all these things, the prices of them are as bad as they've ever been and they've all happened together, including oil. And if we don't make it this time, we never will make it. If this government can't get the adjustment, get manufacturing going again, and keep moderate wage outcomes and a sensible economic policy, then Australia's basically done for. We'll just end up being a third rate economy, you know, a banana republic.

MICHAEL GILL: And since that time of critical doubts, Mr Keating has maintained a consistently bold confidence in the essential logic of the Hawke Government's economic prescriptions.

PAUL KEATING: What we've got on our hands is a very strong economy and we've got a strong economy because the fundamentals in the economy are now better than they've been probably, for nearly a quarter of a century. And that strength is showing as well in better commodity prices for agricultural and mineral commodities, and the simple fact is, the surge of income from abroad is a surge of income.

MICHAEL GILL: Up until late 1988, when Australia's dealings with the rest of the world began to show unprecedented deficits, Mr Keating had little trouble in silencing doubters and critics. But the rising tide of red ink in the balance of payments has shaken the government and many others.

JOHN HEWSON: We are just sliding and we are sliding fast into

a very difficult set of circumstances. I believe it will be a major crisis by post-war standards.

PETER McLAUGHLAN: I think we've got a crisis. Unless we

really do slow demand down quite substantially, for a number of years, it will be quite a while before we stabilise the debt. And it's reaching the sort of levels where international bankers start to take a look at these little ratios that they work with.

MICHAEL GILL: Reader in History at Adelaide University, Hugh Stretton.

HUGH STRETTON: The basic nature of the trouble is three things. One is real, the terms of trade of the world and the way the world treats our dollar currency, have turned against us. Our imports are costing more and our exports are earning less, to the extent that makes a 5 or $6 billion annual deficit in foreign currency. And that's real and we'd have to do something about that and because of it, we would have to take some cuts in standard of living and consumptional saving, and as some of them have already been taken, by discounting the wage fixations. Secondly, if I could, we permitted private overseas borrowing on a scale unheard of before and that in a mere three years, has built up an annual - I repeat, an annual interest bill, in foreign currency, of 5 or 6 billion, which we need never have had. And thirdly, we've permitted the free export of Australian money, that's to say the free purchase of foreign money by Australian financial institutions, the export of capital, which is now running at 7 billion a year. So the Treasurer's problem is that he's got 18 or 20 billion of foreign currency deficiency each year and he's trying to cure it by attracting foreigners to lend to us.

MICHAEL GILL: In 1989, the problem is focused. Australia owes foreigners more than $100 billion, the equivalent of a new, top of the range Ford car for every Australian family, and that number has become the central issue. It's the justification for very high interest rates, it's the argument for more cuts in social welfare spending, it's the argument for more effort to improve work habits at places like the waterfront. And while he says the notion of crisis needs some sense of perspective, the ACTU's Laurie Carmichael says it will have to tighten up.

LAURIE CARMICHAEL: I've grown a bit circumspect about the use of the word crisis. And when I first joined the Labor movement back in the early 1940s, we saw a crisis of catastrophic proportions, expressed in a world depression, the rise of fascism, the polarisation of the world, and a global war. That to me, is a crisis of truly mammoth historical proportions. I was given the impression and believed for a while, that there would be a general crisis, that in fact society wouldn't recover from that state of affairs, that there would be a general crisis. Well, that didn't prove to be valid. What I believe now is that we go from historical stage to stage, there are crises on the way and there are a number of them.

Some of them are of mammoth proportions, some of them are rather small scale. All of them have to be faced as they arise, and resolved. I take crisis as being par for the course in history and in looking at this current period of time, in the historical process, I see a set of crises on the horizon, included amongst which is our current balance of payments.

MICHAEL GILL: But what is this debt? The fact is, according to EPAC, 90 percent is owed by business enterprises, either public - like electricity commissions - or private, and three quarters is borrowed by private companies. Some obviously, was borrowed by banks to pay for the huge increase in Australian consumer credit in recent years. And that's the reason government is clamping down on interest rates, to stop that growth. But a very large proportion has been borrowed by companies for investment, and traditional thinking says that should bring economic growth and profits.

PAUL KEATING: Too much of a good thing can be still too much

of a good thing. I mean, basically, the glass is too full and the effervescence is spilling over the sides, and that effervescence is the current account and inflation.

MICHAEL GILL: Yet lots of people, including Shadow Treasurer John Hewson, have doubts about the extent to which private debt has been creative.

JOHN HEWSON: I am very nervous in fact, by what I've just said and I guess the little more I know, that that debt will probably not get us out of it. We are having an investment boom but as I say, there's no evidence to sustain the argument that it's done much to solve our balance of payments problems in the medium term.

MICHAEL GILL: Because the traditional worry about foreign debt is centred on public spending, there have been, and remain, strong arguments that say private debts is not a problem. But now it clearly is and that's raising questions about something which has been allowed to grow unobserved.

LEIGH HALL: I think you've got to look at the accumulation of it as at least three phases. The first was in the late '70s, early '80s, when we did borrow abroad for investment, particularly in the resource sector, and you might put $12-15 billion of the current accumulation down to that. We then had three or four years, including the last year of the Fraser Government, of very high fiscal stimulus, and that took us rapidly from 15 billion to 65, and from the mid-'80s, about '86, it becomes much murkier.

MICHAEL GILL: But Laurie Carmichael has some particular observations.

LAURIE CARMICHAEL: The ordinary people don't run up the debt at all. It's not their personal debt, but they have to handle the consequences of it. The fact that somebody runs up a massive debt, goes virtually broke in a stock exchange crash, doesn't mean to say the debt has gone and that the community doesn't bear the weight of it. In a sense, the restraint that then is imposed upon the people in regard to their living standards, whether it's in the industrial wage or the social wage, or whatever, is a public subsidy for big high flyers who are sponsored to go out there and to create, as I said, mammoth empires, on the theory that somehow or another, that's all going to lead to the benefit of the nation, by capital flows - eventually, sometime, perhaps, maybe.

MICHAEL GILL: And John Hewson has a view, too.

JOHN HEWSON: The explosion of debt that we've seen, that we saw in '85-'86, which is being repeated now in a second stage explosion, is a major problem and even though we can't pinpoint whether it's going to consumption or investment, and there's a lot of evidence to suggest that it's not going into investment, it's not going into export creation capacity, and you know, I think it's a very real problem.

MICHAEL GILL: But like any debt, it has to be paid. Maybe we have the world's greatest Treasurer, but we can't give him up as hostage to the banks. As the AMP's chief investment manager, Leigh Hall says, that big overdraft has to have a wider focus.

LEIGH HALL: Only that if we don't improve our competitive situation in the world, we are going to face a time of reckoning which may not be too far away, which is going to be somewhat unpleasant for most of us because we cannot go on using up more of the world's resources by way of imports, than what we are exporting, before the rest of the world says, hey, you've had more than your share and it's now time to pay back a bit of that excess that you've been using. Traditionally, in the past, something has always cropped up which has got us out of problems, there's been some sort of commodities boom. We've had such an easy go of it that we really haven't had to worry too much about the serious things of life, that is really putting enough effort into it. When you have a climate which is as fantastic as Australia's normally is, although Sydney's isn't this year, then you know, it's a bit easy to sort of sit back and to enjoy life and the environment.

MICHAEL GILL: If Australia is to stop the flow of rising foreign debt, then the money that has gone into private investment has to start earning more. That's the whole point of the government's approach. So, where has it gone? Associate editor of The Age newspaper, Steven Bartholomeusz, has consistently criticised some of that borrowing.

STEPHEN BARTHOLOMEUSZ: I think there has to be an element of concern because if you look at those foreign debt stats, it is largely corporate debt. I mean there's something like $3 corporate debt for every $1 of government debt and so if there's going to be a problem in terms of our capacity to repay that debt, it has to lie in the corporate area. Now to the extent that that corporate debt is being devoted to paper shuffling, to building paper pyramids, there is no capacity to service that debt - I mean, an Ariadne or a Spedley. Spedley ceased to exist, it has no capacity to repay its obligations and I think as times get tougher and interest rates keep rising, you are going to see far more of those, those corporate basket cases.

MICHAEL GILL: But he also thinks there's been a change in business views.

STEPHEN BARTHOLOMEUSZ: I have .. I had and still have grave reservations about I suppose what's commonly called the entrepreneurs and their contribution to society. I couldn't see that devoting a large part of our capacity to invest and spend, towards the building of paper chains of companies, was all that productive or useful.

MICHAEL GILL: Well, they were sort of made into hero figures in this community for a while. Do you think the financial journalism was a sort of rabid cheer squad there, for a while?

STEPHEN BARTHOLOMEUSZ: I suppose yes, that's probably a reasonable comment. The entrepreneurs gained a lot of attention and coverage and created a lot of excitement because they were doing things which were buccaneering in style and because of this sort of cult of personality which pervades the Australian media, in fact international media's coverage of events and developments, the entrepreneurs were a very good focus for journalists. And you also had some very colourful people, like Holmes a Court, who single-handedly developed that sort of myth of the entrepreneurs' ability to do things that established businesses weren't very good at doing. I mean, Holmes a Court's stalking of BHP changed the attitudes, I think, of a lot of the press towards establishment companies.

FRED DAGG: I was greatly saddened to see that the Australian share market walked into a lift shaft the other night, as it was on its way back to the party, with a little more of the Chateau Laffitte, and another tray of lark's uvulas. Just in case this happens again, before we get the area roped off, there are just one or two little rules of thumb here which may help you if you are not exactly certain what's going on. Firstly, if ever a government tells you that it is letting market forces determine the character and value of the media sector, stand well back and pull the collar of your coat right up high.

If you're not careful, the media owners will borrow heavily in order to take one another over, charge the interest bill to the taxpayer, and the government will be left as the sole investor in the amount that was wiped off the value of the shares. Media owners themselves will be alright of course, they might not be able to pay much in the way of tax in the very short term because they will take a little light shower, but they do have enough money to just go round the battle field, rolling over the bodies and picking up anything shiny.

Secondly, if ABC Television, which is of course owned by the government, is going to bring us the news and call it the Crash of '87, because everyone else is, and put a graph up behind the newsreader, showing a great big line which starts high up on the left hand side and goes down towards the right hand side, and if the attitude is to be one of astonishment about how on earth it all happened, try to make sure they haven't been running a completely separate section inside their own news program every night for six months, whipping up excitement about the geniuses who are making a quick buck in the stock market. And make sure the experts they wheel on to discuss the graph are not stockbrokers and market analysts, and if they're Treasurers who have deregulated the money market, try to make sure someone asks them some questions, other than what's your favourite colour and did you lose a fair bit yourself.

Because if the indicators that the economy was in such marvellous condition last week, are the same indicators that are now being described as having nothing whatever to do with the economy, then I think we should possibly get the fire brigade in and see if they can't smell burning. If the economy is sufficiently sound as to be completely impervious to all these fluctuations in the paper value of guess work, then why is it being constantly pointed out how seriously this is going to affect everybody. If this isn't cleared up, I think the 14 million Australians who don't own shares might just have an election one of these Saturdays and come up with a government to look after their interests.

STEPHEN BARTHOLOMEUSZ: If you look around at the corporate basket cases at the moment, the numbers stack up into quite immense figures. If you look at where the bank lending has gone over the last three or four years, most of the really large scale lending was towards the entrepreneurs and towards corporate activity generally. Real productive lending was very much a secondary issue through the last few years and now the banks of course, having to massage all that out of the system.

LEIGH HALL: There's been a radical shift in attitude since the crash, out there in the market-place, back towards productive investment and towards companies like the BHPs and the Amcors and the Pacific Dunlops. For a while, when the silliness was at its heights, people forgot that to make a dollar, you actually had to produce something. Too many people had discovered the sort of financial alchemy and were making money out of making money. It was quite an absurd situation towards the end of the boom period.

MICHAEL GILL: John Hewson shares some of those doubts.

JOHN HEWSON: We don't know really, what the private sector has done to it. You'd like to believe and certainly, the government argues their case very strongly without evidence, but you would like to believe that that money that's gone into the private sector would create .. would be invested and would create capacity to expand exports, or to substitute for imports. The trend to consumption, whether it be in the public or private sector, was a very adverse trend as far as the economy is concerned. As I say, we don't know the full extent of that. Certainly in the public sector, as I said, around the mid '80s, it was a major problem because it was quite clear that budget deficits were being funded, recurrent expenditure if you like, was being funded by external borrowings or by excessive borrowings. In the private sector see, we don't know, right now there's been a lot of investment activity in the private sector but a lot of it seems to have gone into computers and upgrading of office equipment and that sort of thing, which doesn't necessarily create, and probably creates very little.

MICHAEL GILL: One very basic difficulty that Australians have had to come to terms with is the pace of change, internationally, especially in the world's money markets. Leigh Hall is one person who's had to adapt rapidly.

LEIGH HALL: I really can't say that I've had time to think about it so quick has been the change, which perhaps is an answer in itself.

MICHAEL GILL: Yes. Do you have any reservations about that?

LEIGH HALL: No, I think everything that's happened I think has .. if not in the short term having been advantageous, I think it's all, as a general thing, heading in an advantageous manner.

MICHAEL GILL: And as these problems begin to take ever greater shape, it's worth wondering whether we've lost sight of where we are going.

LEIGH HALL: I hesitate because your question assumes that we knew where we were going anyway, and I'm not always too sure that we do have a clear enough focus on that. Certainly we are all after full employment, rising standard of living, etc etc, but when it comes to just how we are going to be doing that, I am not quite so sure that there is a sufficiently clear focus on it.

PAUL KEATING: If we are talking about floating the exchange

rate, the change in the deposit maturities of the banking system, the issue of foreign exchange licences for merchant banks, the entry of foreign institutions as a trading bank, is a radical restructuring of the Australian financial system to make it more competitive, and to give Australians essentially, a more dynamic economy.

MICHAEL GILL: Financial deregulation is another area that's raised some concerns. In general terms, there's little argument about the inevitability of what's been done. But some, like Laurie Carmichael, would like to go back a few steps and check the signposts.

LAURIE CARMICHAEL: The concept of a level playing field, for example, which is a favourite word in government, in my opinion, is over stated. Nobody else practises it. We are trying in Australia to practise something that almost wishes for a dream ideal world and I would argue that it is necessary to have, in addition to indirect measures to influence the market position, to have a number of direct measures as well.

MICHAEL GILL: Leigh Hall thinks that freedom to invest overseas was an essential reform.

LEIGH HALL: I don't think it matters directly, as to where investments go, other than that it's best that they go where they will get the highest return. I suppose if we can get a higher return offshore than we can onshore, well then that's advantageous for the country, in the longer term.

MICHAEL GILL: While the Business Council's executive director, Peter McLaughlan, agrees that we didn't allow for some of deregulation's costs, he thinks that's not the real issue.

PETER McLAUGHLAN: We were really anticipating the extent to which financial deregulation would itself be a sort of growth inducing process, that people actually had access to money, at a price, when they didn't have it before. But I come back to the basic point, I think, in all this, that while that might have been a fairly minor contribution to the errors we've made, we've basically been letting demand grow too strongly.

MICHAEL GILL: Steve Bartholomeusz, on the other hand, thinks business has had unhealthy attitudes, and that lessons have been learned the hard way. But he adds that some government policy has helped bring about an improvement.

STEPHEN BARTHOLOMEUSZ: If there's a weakness in Australian business is that's it's an unwillingness to take risks of going offshore and exporting markets or putting in new equipment here and that's changed over the last year or two. And I think the environment's actually improved significantly as a result of dividend imputation. I think you will see the sharemarket, the investors, giving far greater weight to those companies that do produce things, that do employ people, that do pay tax. I think that's the great benefit in what Keating's done in terms of imputation, that there's now an incentive for companies to do things which are good for the community.

MICHAEL GILL: A third major trend that even more directly affects the community has been the creation of very large companies, some of them near monopolies, and that's a trend that has passed almost without notice. Here's Steve Bartholomeusz again.

STEPHEN BARTHOLOMEUSZ: You certainly need in a country as small as ours, with an economy as small as ours, you need businesses of real scale if you are going to compete internationally. But at the same time, you've got to have competition within the local market. Look at brewing - it's arguable that there isn't an enormous amount of competition. Look at retailing - we've allowed Coles Myer to become dominant to the extent that I am sure that if we'd foreseen it, would never have occurred. Look at media - News Corporation is now the dominant player here and the other major alternative, Fairfax, doesn't have anything like the financial clout that News has. And you can see a situation there where over a period, News become totally dominant. I don't know that you can allow that to get .. to allow any further concentration of competition. I think all business is naturally monopolistic because there are far bigger margins in monopolies than there are in truly competitive industry, so I am not naturally inclined to advocate regulation except that you can see a situation, for instance, in the retail area, where if you don't have regulation to promote competition or to protect the markets, you will have abuse of monopolies. I think you can look and say the brick industry in Victoria, where there are only two major competitors, you could be forgiven for believing that there was a cosy duopoly there. If you don't have natural competition out there, then you've got to make sure that you regulate it.

MICHAEL GILL: So what does a regulator think of that?

BOB BAXT: We've certainly looked at a couple of mergers, which we have approved through the authorisation process, looking at that philosophy as the basic philosophy. That study with the Bureau of Industry Economics will tell us whether it's been justified in one or two other areas. There must be some doubt in the minds of some people that it's achieving the results that people expect. For example, we've even got Senator Button expressing reservations about the Australian car plan and there have been some mergers that have been approved there which might not have delivered the kinds of results that people expect. And there must be some concerns that overseas competition, international competition, mightn't be effective in keeping some of those large companies really on their toes, and Australia is a long way away, we've got problems with transport, getting goods to Australia etc, and the exchange rates and all that sort of thing, might create the kinds of difficulties that mightn't always deliver those results that international competition is supposed to deliver. And in that context, you could be at some difficulty if you had too many monopolies in this country which were not as efficient as they might be.

MICHAEL GILL: Bob Baxt is chairman of the Trade Practices Commission, which has the job of trying to maintain and encourage competition, and limit monopoly powers. The heart of the problem he faces is that government has tried to build big internationally competitive companies and the fear is that Paul Keating's flat playing field has been invaded by muscle bound rugby packs who leave no room either for the innovative Rod Lavers or even for referees. Laurie Carmichael sees some of that concern.

LAURIE CARMICHAEL: Well, the theory is, I suppose, and one can only presume it because nobody has really spelt it out anywhere, that if Australia has its share of the multinationals of the world, that we will carve out a slice of the action for Australia. Now that's true if you have a very highly nationalistic employing class, a highly nationalistic finance industry. Japan, for example, that concentrated on using its domestic savings for expansion and development, and not relying upon foreign borrowings to do it, or at least to make that secondary to relying upon their savings. This country however, doesn't have a tradition of intense nationalism in its industry leaders. On the contrary, we have what everybody has called the colonial cringe and we have very much, the argument from many of our industry leaders that they want to go offshore, they want to set up their operations on the coconut islands or somewhere on the Riviera or transfer to Britain, or something of that nature, so the theory is not borne out in practice. And the finance flows that might be inferred from Australia having its slice of the action in multinational corporations, is a doubtful result, in practice.

I think government in a nation state, where you have a predominant world market today, as distinct from a domestic market, and government in a nation state where the international levers that are available to capital are also pre-eminent, requires the full use of the powers and levers that it's got available to itself, in order to administer the domestic economy. Because whether we like it or not, we've got an internationalised economy on the one hand and very limited weapons with which to deal with it in the nation, on the other side, and that applies to all nations, and unless we use those limited weapons to the absolute full, then we will get drained dry.

BOB BAXT: I'd like to see the benefits of some of the mergers that have occurred in these areas, being evaluated, but what I'd also like to see, and the Griffith Committee which recently reported, did not deal with this. One amendment that I wouldn't mind seeing in the Act is an ability for the Trade Practices Commission to deal more formally with mergers, big mergers, very large mergers, the kinds of $2 billion mergers we are talking about in food, and mergers in the sensitive areas such as the media, I think that there, the community does expect a closer evaluation of those mergers, and I don't believe that, certainly with the newspaper merger, that that public evaluation was undertaken and as you probably know, we are still in the midst, hopefully almost concluded, a report on some of the spin-offs of that media take-over. And I think that there will be concern in that area for a long time to come and part of it is due to the fact that there wasn't that public process.

MICHAEL GILL: The trouble for Baxt is that he's dealing with power, which is the meat of politicians, business people and trade union officials. And the question arises whether the TPC has the support and resources, even to find out whether too much power is in too few hands.

BOB BAXT: If you should examine those big mergers in the public process, then obviously you've got to put a lot more time and energy into it. If you deal with them in the way in which the Commission did deal with them, and that is through agreeing with the parties that if they hive off certain parts of the merged business, they will allow the merger to go through. But not putting it through the public process, then that doesn't take quite as much in the way of resources and we have had an increase in our merger work in the last twelve months, of 30 to 40 percent, up to 50 percent I'm told, in the last month or so - just an enormous number of mergers coming our way. Most of them can be dealt with fairly swiftly but we've had what, Rank Goodman Fielder in one month and now we've got this IEL Goodman Fielder, and obviously we've got to look at both of those closely. We've got to look at others that are coming our way. We've got the CSR Goliath merger, we've got one or two others.

We can't simply turn our back on those and the Griffiths Committee has said that it expects the Commission to undertake a more detailed study, a public process study, if you like, of these mergers, even though they don't go through the formal authorisation. With all the other work that we've go to do, it makes it very very difficult. There is a limit to what even a very active and a very really enthusiastic group of people, and they are, in the Commission, can do and I think we are just about at that point now.

MICHAEL GILL: Are we at a point where we have to consider breaking up companies?

BOB BAXT: Well, it's a very difficult question because divestiture, breaking up companies, is something that our courts, I think, are very very unhappy about even thinking about, let alone doing. And we've put to the Griffiths Committee that they should examine the necessity for a divestiture, the remedy in the case of monopoly. And I think it's a serious question and it may well be that the matter will have to looked at again, if the kind of scenario you are painting continues to exist.

MICHAEL GILL: In fact, there's no doubt that the economic scenario is dominated by difficult questions and more discipline, for everyone. And for some, that's been the case for some time. Childcare lobbyist, Lydia Philippou, and Shadow Treasurer, John Hewson, both understand that economic justification now dominates public debate.

LINDA PHILIPPOU: Well, I think that you're quite right, that that is the argument that is currently an argument that is more likely to win the day, but it is also the reality. There are obviously some savings and net benefits back to government in terms of childcare and that unless they understand that there are those savings, whether they are direct or indirect in terms of taxation revenue and other social security payments, then they're not going to be committing additional funds in this area. They will see it solely as an additional cost instead of savings.

JOHN HEWSON: I know it's difficult when the government's just ripped a whole pile, most of your income off you by high interest rates and high taxation. And sure, you've got to get interest rates down, you've got to get taxation down, but you also have to have that attitudinal shift which says that, you know, there is a responsibility on families to provide for their collective futures as much as it is, instead of, I should say, simply adopting the handout mentality, oh, the government will pick up the tab at some point, we'll be right, we'll be looked after. I mean, those sort of attitudinal changes which are, I think, fundamental, have to take place and government only has a limited role in that.

PAUL KEATING: Let's not get too hypothetical or too gloomy. We've got good growth ...

JOURNALIST: It's obviously a realistic possibility.

PAUL KEATING: Well, everything is possible in this world.

This is .. we've got growth in the Australian economy, we've got low inflation, the deceleration inflation in Australia is nothing short of spectacular.

JOURNALIST: But the Treasurer has to be optimistic. If I can just bring you back finally to the point which you don't really seem to have answered directly and that is, if things go poorly, more poorly than the government would want, can you fulfil the promises?

PAUL KEATING: Well, I'm not speculating about the government going poorly or the economy going poorly. I'm just making this point that we see the economy maturing, changing from a public sector led recovery to the transition to a private sector generated strength in the economy, and nothing which has happened, including today's statistics, will deter me from that view. There is enough pessimism in this economy. Government policy and progress in the economy is eternally now, the quest for the triumph of the optimists and the doers, over the pessimists sitting on their tails, writing the economy down. We've had enough of that and that's part of our problem. We've had bad news for so long, this economy has trouble adjusting to good news and I think that the ground is being laid very nicely, in inflation, in fiscal policy and in other areas of policy, for you know, the fundamentals are now right for a long recovery, and that's what we aim to give Australia.

MICHAEL GILL: There's no doubt that Treasurer Keating and the Hawke Government generally, have been consistent and single minded in their attempt to improve things, and no-one argues that policies should have been different in their basics. But there are plenty who argue that the economy is not a machine to be oiled and tuned - rather, it's made up of people with common human faults, or as Laurie Carmichael says, it could be that the voices of people need to be heard over the clatter of economists' computers.

LAURIE CARMICHAEL: The world of economics spawns more language variations and new words even than the computer industry who have lent their phrases to everyday language, like 'feedback' and the like. I suppose it's always necessary to try and convey as precisely as you can, and that's difficult in the field of economics, with words that can convey the meaning.

MICHAEL GILL: But when you get politicians sort of talking about issues like trade weighted indexes, that sort of thing, when you get people like yourself involved in fairly esoteric debates about economics, sometimes, and the sorts of issues that are always on the agenda now in politics and social context. I mean, do you think really, the people who are in the top end of the process have really changed their views or are we just hearing the language that covers the short term problem.

LAURIE CARMICHAEL: I think that views are being modified all of the time. I think one of the great things today, and far more important than what the people at the top echelons might have in their heads, and that includes myself, is that the means of communication, the level of debate and so on, involves more and more of the mass of the people. And has been proven in China and elsewhere, you cannot administer a modern industrial economy today without concomitant expansion of democratic right, and that includes our country. It includes the expansion of industrial democracy, if you are to deliver quality and product into the market that's going to carve out a slice of the world action for Australian industry and for our living standards. But the wonderful thing is that more and more ordinary people are becoming involved in the debate. I suppose in a sense, the technology adds to it but one can't ignore the impact of a high interest rate in generating some interest, some understanding of problems, or at least trying to understand the problems.

PETER McLAUGHLAN: The point that I think people in the business community are trying to make when they say that the debt is now equivalent to 45 or $50,000 per household and 8 or $10,000 per man, woman and child in Australia is not so much to try and blame people in any sense, but simply to bring home that the legacy we are leaving our children, and the bill that we're leaving for them to be presented with, is growing to quite a large proportion.

MICHAEL GILL: So Peter McLaughlan sends the same message, but differently, and so does John Hewson.

JOHN HEWSON: They have a commitment to the ACTU through this concept of the social wage which predetermines a lot of their expenditure. It says something about assistance to families, it says something about training, education and so on, and a large part of their expenditure is precommitted by those sort of deals, deals the details of which, by the way, we don't know a lot about, but the deal is there, and that's a very big difference between us and them.

MICHAEL GILL: The strong argument from the opposition and from business is that the government must work harder at getting us to work harder, or at least better.

PETER McLAUGHLAN: Our members want to invest in Australia because they are mainly Australians, but now that it's possible for them to invest on a global basis, it's simply harder to invest in Australia for productive activity, than it is in a lot of other overseas countries because of the hurdles that our labour market regulation puts in front of them. And then, in addition to that, you've got the additional costs that producers face here for coastal transport, for some of the infrastructure they use. They're the sorts of things that the government quite rightly, is talking about as part of the response to the foreign debt problem but so far they haven't done much about it.

MICHAEL GILL: And Laurie Carmichael argues that both the way we work and the way we use finance, have to be addressed together.

LAURIE CARMICHAEL: The balance of payments problem is essentially two halves of almost equal proportion, that is, the finance flows and the operation of the finance industry, including the finance operations of big companies that are out there indulging in empire building, and the other is our actual trade in goods, services and the like. They are two problems that I believe have to be answered quite distinctly and separately, although you know, you get the position in the Labor movement where if you are on the extreme right you want to sweep the finance side under the carpet, or if you are on the extreme left, you concentrate exclusively on what the financiers are doing and try to sweep the trade problem under the carpet. I would argue that there is not sufficient balance in what we are doing in order to realise the vision that people have of where we want to be in the '90s.

MICHAEL GILL: The plain message from everyone is that Australians will need, for some time yet, to accept lower standards of consumption. Whether it's through higher interest costs, tougher treatment of poor business management or challenges to established work practices, everyone is likely to be touched. So how does the future look? Leigh Hall of the AMP and Peter McLaughlan of the Business Council, sum up.

LEIGH HALL: In general terms, yes, I am an optimist. I am of the view that in some way or other, that we will muddle through, that the rest of the world will continue to be kind to us, that they will be willing to extend credit to us for some further while yet. As the realisation of our circumstance sinks in, we as a society, will be prepared to face up to what needs to be done.

PETER McLAUGHLAN: I think there is a preparedness on the part of the Business Council at least, and I think business, more generally, and certainly Business Council members, are increasingly prepared to say that there's a lot of improvement that can take place in management. And if that's what the view trade unions would like to see happen, then I think they will and it already is happening.

MICHAEL GILL: Now, if despite our best efforts, this still seems too hard, imagine the politicians' dilemma. As Lyndon Baines Johnson, President of the United States, said once to speech writer, Ken Galbraith, 'You know, Ken, what's the trouble with making speeches about economics?' 'No', Galbraith said. 'Well Ken, it's a bit like pissing down your trouser leg. Seems hot to you but no-one else out there is going to notice.'

This program was produced in Melbourne by me, Michael Gill, a reporter with Channel Nine's Business Sunday program, and the ABC's Marco Bass.