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A progressive industry policy for the 1980s



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A PROGRESSIVE INDUSTRY POLICY FOR THE 1980s

Page

1. Introduction 1

2. A Package of Policies 2

3. The Role of Industry Policy 4

- the principles

- combatting inflation

- the exchange rate

4. Industry Structure 7

- general

- revitalising existing industry

- development of new industries

.5. Instruments of Change 14

- planning for change

- bounties

- regulatory bodies

- industrial development programmes

- the place of technology

- multinationals and foreign investment

6. Policies for Smal l Busin ess 34

- the contribution of small business

- finance for small business

- exporting

2P

Page

- services to small business

- market conduct and trade practices

- taxation

- economic conditions

7. CONCLUSION 39

8. APPENDIX

A PROGRESSIVE INDUSTRY POLICY FOR THE 1980s

1. lntrocluctioil

Australia enters the 1980s with half a million unemployed,

and with a prospective increase in the labour force of at

least 110,000 per year until the middle of the decade.

This situation presents a major challenge to economic

and industry policy..

Labor believes that the revitalisation of secondary

industry is a key element in any strategy which aims to

meet this employment challenge. We believe that active

policies must be adopted which will re-establish strong

growth in manufacturing activity and employment.

The record of recent years is dismal.

From 1975 until 1979, manufacturing employment in Australia

fell by nearly 6%, which is far worse than the record of

other major industrialised countries. France, West Germany

and the United Kingdom each had a smaller decline than

Australia, while Canada's manufacturing employment grew by

1%, Italy's by 3.8% and the United States by nearly 11%.

Australia's experience is not only a national disaster, but

many regional centres and country towns have been particularly affected.

In the same period, the incidence of bankruptcies in Australia has more than doubled.

It is apparent that the economic and industry policies

pursued since 1975 have failed to deal effectively with the

problems of manufacturing industry. This e discusses g y paper dis P P the positive alternatives which Labor believes should be

considered for the future growth of Australian industry.

2.

2. A Package of Policies

Industry Policy cannot be developed in isolation from

other areas of economic policy. Accordingly, Labor's

industry policies are being developed as part of a package

of policies which together seek to promote economic growth

and employment.

The other major elements of the package include:

(i) a Budgetary and Monetary Program which will provide for a measured expansion e (a) to the extent allowed by balance of payments

and supply contraints and,

(b) within the context of an agreement with employers and employees to reduce inflation

by, among other means -i) limiting claims for excessive increases

in incomes in the forms of prices,

wages, etc., and

ii) distributing incomes and wealth more fairly.

(ii) A Manpower Policy which:

(a) establishes training and re-training programs to provide the many skills, new and old,

needed in a rapidly changing environment -some of which skills to fill jobs which are

now available - and

(b) encourages increased mobility of workers so

that people may go to those places where there

are jobs.

(iii) An Industrial Relations Program which emphasises the need for conciliation and dialogue rather than

confrontation and punitive legislation and which seeks:

(a) to establish a social and economic partnership between government, employers and employees

such as that achieved by social democratic

administrations, for instance, in Austria,

3.

with all three partners seeking agreement

on a total economic package, including the

value of the social wage, (rather than

emphasis being put only on the wages policy

part of that package) and,

(b) to involve working people in achieving a

greater identification with, and thus satis-faction from, the organisations for which they

work, (means of achieving this possibly in-dude wider employee ownership of enterprises

and participation in the decision making of

enterprises.)

(iv) A Social Policy to reduce the tragic and dangerous

community effects of unemployment which policy

should include:

(a) monitoring and guidance of the effects of

technological change to ensure its benefits are

spread and, to the extent possible, its costs

and defects limited

(b) a minimum income policy to assist those

penalised by structural change, for instance,

those undergoing retraining, and those suffering

unemployment

(c) a reduction of the working life-time as one means

of deriving benefit from increased productivity

which will spread available jobs, and

(d) the facilitation, at minimum community cost, of

ultimately self-supporting lifestyles for those

who prefer an alternative to established forms

of paid employment.

The implementation of this package of policies would not

guarantee an immediate return to full employment - nor would

it promise to offer every person the particular job he or

she wants. However, these policies do offer the best

prospect for a marked reduction in the present disastrous

rates of unemployment and the maximisation of creative job

opportunities.

M

4.

This was the promise of the 1945 Chifley Labor

Government's White Paper on Full Employment, and it is

the promise of a Labor Government in the 1980s.

3. The Role of Industry Policy

(i) The Principles

To create more jobs, it is necessary to produce more goods

and services which people want, or to share existing total

employment among a larger number of workers.

Labor's social policies do provide for a greater sharing

of existing employment. However, we also believe that

full employment requires growth in economic activity.

Furthermore, it is clear that the legitimate demands for a

greater share of income for lower-income groups in our

community can more readily be met within the context of an

expanding economy.

These important advantages are sometimes countered by two

dangers attributed to growth. The first is that the world

could run out of non-renewable resources and the second is

that we may not cope with the pollution resulting from growth.

Each of these dangers greatly concern us, and no one can

be absolutely sure of their effects. However, most, if not

all, recent experience and evidence suggests that alternatives

are available to major non-renewable resources, and that

technologies to reduce pollution are available and are more

often utilised in times of growth than in times of stagnation.

So the need to generate jobs means that economic growth can

and should be maintained in Australia. As a trading nation,

this requires some concentration on producing goods at a

competitive price for export as well as to replace imports.

This means more specialisation. But Labor qualifies this by

recognising that in some instances, due weight must be given

to retaining certain skills which would otherwise be lost.

In other cases, efforts must be made to retain a particular

industry for regional employment reasons.

5.

(ii) Combatting Inflation

Australia must strongly reject policies which try to curb

inflation by creating or maintaining high levels of un-employment. Rather, we should support policies which

seek to reduce inflation at the same time as reducing

unemployment. Other countries have shown that such policies

can succeed.

Labor's package of policies will significantly expand

activity and reduce unemployment. In this situation it is

imperative that inflation is not rekindled. The primary

requirements for the achievement of this objective are that

each sector of the economy can

(a) efficiently gear-up to higher levels of production,

and

(b) restrain their demands for an unfairly high share

of the additional income generated (whether profits

or wages)

It has been the experience of every industrialised

nation that the simultaneous achievement of low unemployment and

low inflation requires a cooperative planning effort by

government, employers and employees. Market forces, to the

limited extent to which they still prevail, cannot alone lead

to the elimination of stagflation.

A consistent package of policies is vital to the objective

of combatting inflation. Necessary growth cannot occur unless

such policies are brought to bear against inflation. Measures

to ensure that industry can efficiently gear-up to higher

levels of production are a major subject of this paper.

Before proceeding to a detailed discussion of these measures,

however, some mention of approaches to restraining demands on

income will be made.

There are at all levels of our society those who have come

to feel entitled to an increase in their real incomes each year, regardless of whether there has been a commensurate

increase in their contribution to the system.

N

This jointly taking out of the system more than is being

put into it, is a primary cause of inflation.

We cannot do much about cost increases which emanate from

overseas. But we must do something about ridding ourselves

of this attitude of "entitlement". Otherwise, we shall not

compete - and our unemployment will grow worse.

Of course, to the extent that this philosophy merely results

in inflation, any achievement in higher money incomes is a

delusion in real terms. Indeed, the damage done by inflation

to Australia's growth performance often means that the

achievement of higher money incomes actually leads to a

reduction in real incomes.

This applies equally to profits and professional incomes

as it does to wages and salaries. Indeed, Labor rejects

the emphasis of those who continually attack wages and blame

trade unions for all our ills.

Moderation, we believe, is vital. Government cannot lead in

the defeat of inflation unless there is a period of stability

in the incomes of all sections of the Australian community. Our political opponents do not seek and cannot achieve that moderation.

It is clear that moderation will only be achieved by seeking

a more fair and equitable distribution of income and wealth

over the longer term, and by creating a social and economic

partnership between employers, employees and government.

Only by establishing a dialogue and new machinery for

decision-making in a context of fairness will a successful

economic package be achieved. We believe that a starting

point is regular indexation of incomes for the lower paid in

our society, so that their standard of living is not reduced.

We also believe that attempts to moderate claims by

creating more unemployment, are immoral and eventually

ineffective. Such policies prevent the creation of a partner-ship which will result in policies of moderation over the

longer term.

7.

Those countries in the .industrialised world which have

the best record in fighting stagflation are all ones which

have established co-operation within a social and economic

partnership. In most cases, notably in Austria,

Switzerland, the Federal Republic of Germany and Sweden,

this has been achieved by Social Democratic rather than

Conservative political parties.

(iii) The Exchange Rate

The exchange rate is vital to the competitiveness of

Australian industry. The value of our currency should

be managed to establish stability as well as competitiveness

for export and import competing industry.

Should the growth in exports of rural and mineral products

in the 1980s lead to a strong trading surplus, pressures will

arise to revalue the Australian dollar and so harm our

competitiveness. Australia could avoid this harm to

existing industry by reducing the net inflow of foreign

capital.

The means of achieving this have desirable effects in other

ways. Reduced capital inflow will increase Australian owner-ship and control of the economy (see section on trans-national corporations). In addition Australia could

increase its overseas aid programs in accord with levels

agreed by the United Nations.

Finally, more Australians may be encouraged to invest

abroad, particularly where this leads to complementary,

job creating projects of mutual benefit to Australia and

neighbouring countries.

4. Industr y Structure

(i) General

The previous section set out the basic objectives of Labor's industry policy of promoting growth and employment, reducing

inflation and improving the competitiveness of Australian

industries.

El

8.

Each of these objectives requires that Australia must

in considerable measure concentrate on those things we

do well. In the longer term, we claim that policies

should aim at a flexible industry structure which

involves minimum levels of government support to the

private sector.

However, Australia has a long history of government

support and protection of industry. Rapid changes in

the levels of this support are disruptive and hence in-appropriate.

Continued support in the forms of tariffs, bounties, and

quotas is essential in many cases. Where such support is

afforded will depend on individual decisions

in the interests of more employment, of regional balance,

of defence needs, of available skills and other such con-siderations.

However, it must also be recognised that tariffs represent

additional costs for purchasers. In some cases, the more

costly goods are inputs for other industries which industries

are then consequently less competitive and provide fewer

jobs. In other cases, the increased costs are borne by

householder consumers who then have less to spend on other

goods and services. The expenditure of these consumers on

other goods and services would have created jobs - as well

as more satisfaction and an increased standard of living for those consumers.

Moreover, bounties are payable from taxation revenues which

would otherwise be spent on other government goods or

.services or be spent by taxpayers as a result of reduced taxation.

So although tariffs and bounties and other forms of govern-ment support are of benefit to the recipients, they also

represent costs to others in the community. A realistic

approach, weighing up the costs and benefits in each case

Q

is the only sensible course. But the more our resources

are applied to those things we do well, increasing

productivity and growth, the more security in employment

and the less community subsidy in the form of tariffs and

bounties there will need to be. Provided there is a proper

distribution of the resulting benefits, the outcome will be

an improved standard of living for the community generally.

Following the attainment of renewed growth, Labor will seek

within a co-operative framework, industry policies which lead

towards the longer term objective of reductions of Government

assistance to industry.

(ii) Revitalising existing Industries

A concentration on those things we do well need not mean, if

appropriate government policies are applied, a movement out

of any particular industry, leave alone a transfer out of

manufacturing altogether.

There is significant potential for achieving scale economies,

for specialising, for building volumes on exports, indeed for

generally revitalising our existing manufacturing industry

in its various sectors.

Furthermore, there is little evidence at the present time that

concentrating activities on existing employment creating

industries, however greatly subsidised, is preventing new

resources being applied to new potentially successful job

creating industries. We do not accept that our secondary

' industries must inevitably suffer while our role becomes

increasingly that of a quarry for the.rest of the world.

While the development of our minerals and energy industry

is vital, this should not lead to the collapse of the major

manufacturing industries already established in Australia.

We shall pursue policies to promote job creation in manu-facturing industry in conjunction with the development of our

mineral and energy resources. With the correct policies,

10.

Australian Industry can make a greater contribution in

terms of job creation than it is currently achieving.

Industry in Australia is relatively smaller scale than

in other advanced economies at the same stage of their

economic development.

This problem manifests in a number of ways and has led to

a generally poor performance record by Australia manufacturing

• industry. The problems include:

* the small size and fragmentation of firms in some major

industries where scale economies are important,

* the small size of our domestic markets,

* poor development of innovative skills of much of our management,

* higher cost levels vis-a-vis those of our trading rivals,

due primarily to low productivity,

* a low degree of manufacturing specialisation as reflected

by limited export orientation and small import penetration

combined with a low degree of intra-industry trade,

* high transport costs, due in part to the vast distances

between Australia's capital city sub-markets, but

exacerbated by the absence of national transport planning, and

* periodic shortages of skilled labour, due in part to the

absence of an adequate training and manpower policy.

While this appears as a formidable list of problems, most of

them are capable of some resolution through changes in policy.

For this reason, significant potential exists for an

improvement in the performance of Australia's manufacturing

industry. Governments which are willing to address themselves

to these important policy areas can be expected to encourage

much stronger growth by manufacturing industry.

Since there is a close relationship between all sectors of

the economy, a revitalisation of manufacturing will have

11.

positive multiplier effects on other industries, including

the services and mining industries. It is particularly

important that we develop mineral processing industries

within Australia.

The extent to which this is possible depends largely upon

the health and efficiency of Australian industry and our

possession of advance skills and technology. Hence, the

feasibility of secondary processing of our mineral wealth in

Australia depends greatly upon the capabilities of related

industries, including other forms of manufacturing, which are

important in the construction and maintenance of both the plant

required and the infrastructure essential for such processing

development.

Finally, there is enormous potential for industry generally

to benefit from a partnership approach between Government,

employers and employees which enables the development of

pragmatic policies for each industry separately within an

overall social and economic strategy.

(iii) Development of New Industries

There are reasons to believe that some areas of manufacturing

in Australia potentially have a greater future than does

manufacturing in other comparable industrialised economies.

For example:

* Australia is located close to the East Asian region, where demand for manufactures is growing faster than

• anywhere else in the world,

* Australia has many natural resources that can con-stitute the basis for rapid growth in related

processing industries, and

* particular scope appears to exist for the expansion of metal manufactures, other forms of heavy industry

and chemicals production complementary to structural

changes in the Japanese and other economies.

12.

More generally, the technological revolution which we are

experiencing will itself foster a further surge in the demand

for manufactured goods including, for example, those products associated with: -

* the manufacture, installation and maintenance of the new equipment involved in the installation of new labour saving technology,

* the development of new products utilising the new technology, and

* the consumption content of leisure which will ensure • that the increased leisure consequence of higher productivity will generate new demands in secondary and tertiary industries.

But the main area for the development of new industries is that of adding value to our mineral and energy resources - by

converting bauxite to alumina, alumina to aluminium, iron ore

to pellets, gas to petrochemicals, shale oil to oil and so on.

Our stable and low cost production of coal and natural gas

provides us with strong comparative advantages in the production of electricity. In turn, industries which are high users of

electricity relative to their total costs will be encouraged.

These include petroleum refining, glass and glass products,

clay products, non-ferous metal products, man-made fibres and yarns, iron and steel castings and forgings, and metal coating and finishing.

This is not to say that Australia's energy should be provided to secondary industry at prices which are substantially

below those prevailing in the rest of the world.

In an era of rapidly increasing energy prices, it is essential that the Australian Government maintain a direct involvement

in energy pricing to ensure that maximum benefits to Australia are achieved from this industry. This may require that the

pace of development of processing industries is constrained

if there is evidence that demands on capital are disruptive.

13.

Moreover, the optimum return to energy production which

is achieved by import or export parity pricing of energy

used in industry shall be foregone to the extent necessary

to ensure that a desirable rate of development of

processing industries is achieved.

An example of the potential for industry development

resulting from Australia's energy advantages is the

aluminium industry. The growth of this industry will also

benefit the petrochemical industry which will provide the

caustic soda needed in the alumina process.

With 35% of the world's bauxite ($24 a tonne) and 22% of

the world's alumina production ($120 a tonne), Australia will

still be producing only 8% of the world's aluminium (at

$1,500 a tonne) by 1986, even with over $2,000 million in

investment announced in the industry since December 1978.

The scope for investment in this area needs no further

elaboration. It is a mistake to think that this investment

does not lead to many jobs. Although highly capital in-tensive, about three quarters of the outlay on resource

projects is spent in Australia on locally produced materials

and the spin-off on other production and maintenance is

large. It is also a mistake to consider the investment in

these pursuits substituting for investment in more labour

intensive areas. The one stimulates the other.

Furthermore, vastly increased taxation receipts from down-stream manufacturing activities bring enormous benefits

in the job and welfare creating potential of government.

In summary, the short, medium and long-term implications of

Australia's growing energy edge involves vastly different

.potential strategic considerations for industry. The

opportunities and the costs must be analysed in order that

policies are implemented which ensure Australia achieves

the maximum possible gain from these developments.

14.

s. Instruments of Change

(i) Planning for Change

(a) Planning and Partnership

As stated in our National Platform, Labor will

establish or convert institutions of government

in order to relate both the public and private

sectors to the goals of society. This essentially

seeks to influence the allocation of resources

between the various sectors in the economy in

accordance with priorities set by a national

economic and social strategy.

We shall establish an Economic Planning Advisory

Council which will assist the government to

develop our national and social strategy on a

co-ordinated, co-operative and participatory basis.

This body should include representation from all

of the major sections of Australian society -government, employers and employees, and consumer

interests.

It is particularly important also, that both State

and Federal Governments are involved in this process.

The role of EPAC will be assisted by a Department

of Economic Affairs. This Department will play

a central role in Labor's economic strategy. It

will have responsibility with EPAC for providing

advice to Government on such matters as sectoral

economic growth targets, workforce requirements,

levels and forms of protection, investment, regional development and so on.

Such instrumentalities as the IAC, PJT and TPC will

be required to report to government through the

Department of Economic Affairs. Government

expenditure and revenue budgets will be the

responsibility of a separate Department.

15.

An early task of this new structure for

economic advice to government will be the

preparation of a comprehensive indicative

planning program for the future development of

Australian industry. This program will outline

the growth opportunities and general target

industrial structure desired by the government

and endorsed through the consultative processes

to be established.

An industry development strategy must have the

support of both employers and employees. It must

also obtain the support of the States.

It must be recognised that there are common interests

in producing a higher level of real wealth, as well

as objective conflicts of interest over the dis-tributive shares of income and wealth.

It follows that institutions must be designed to

improve the efficiency with which resources are

used and to moderate the conflict of interests

between employers and employees. The political

basis of this must be a social partnership that

the well-being of society as a whole is enhanced

by ensuring that the country can increase its real

wealth and increase its international competitiveness,

at the same time as distributing both the costs and

benefits of improved efficiency in a fair and

equitable manner.

Such an approach, which emphasises the importance

of improving the efficiency of a wide range of

industries via a system of consultation, establishes

a basic social partnership on the policy to be

pursued. As such, it is a complete and fundamental

contrast to the confrontationist approach of con-servative interests. That approach is based upon

the polarisation of interests and is accompanied by

a campaign of union-bashing to reduce real wages,

16.

and the deliberate fostering of social

inequalities by budgetary assaults on the "social wage".

In essence, Labor proposes to establish

machinery to achieve partnership rather than

conflict. The key ingredients for this will

include planning within a framework of consultation.

(b) The A.M.C. and I.A.C.s

Separate from, and in addition to the foregoing,

the structure of specific industry consultation

and advice which has been established through the

Australian Manufacturing Council and the sectoral

Industry Advisory Councils should be further

developed.

Critics of these bodies fail to appreciate that

they remain advisory on matters of government

assistance and protection, and that what is proposed

is a means whereby those who are actually involved

in the industry have a forum to advise on ways in

which they can co-operate in bringing about change.

It is a recognition of political reality to say

that the only way that positive policies to

facilitate change can be introduced effectively,

in the context of our mixed economy, is by agreement

between the various, relatively autonomous, decision

makers in business and trade unions, as well as in

government. Other affected interest groups should

be represented, but the primary function of the

industry councils is to constitute a system of

voluntary consultation and policy development,

organised by those involved in industry, to co-ordinate their activities in their common interest.

The Councils should report to Government through

the Department of Industry and Commerce. This

Department could be given a stronger role in-corporating the major elements currently provided

by the Departments of Business and Consumer Affairs

and Productivity.

17.

(ii) Tariff and Import Quotas

A clear distinction must be made between the

objective of a lower general level of protection on

the one hand and the using tariff or quota cuts

to initiate restructuring on the other hand.

This distinction is particularly important at a

time when the level of economic activity is low.

Making changes so that we concentrate on those

things we do well has already been stated and

argued as an objective. But dismantling existing

operations, or reducing activity in them, can only

be justified if the resources made available are

transferrable to the new and better activities.

In times when resources remain underutilised, the

initiation of change is best achieved through

measures to build up new activities rather than by

cutting tariffs and dismantling operations in the

hope that this will lead to the necessary changes.

Any efficiency gains which do occur as the result

of tariff reductions do not occur immediately, but

over a fairly long period of time, because of time

lags in the adjustment of consumers and producers

to the new conditions.

In particular, on the production side, changing

specialisation occurs quite slowly. Many of the

adjustments involve significant investment programs

for which gestation periods are likely to be very

long (measured in terms of a number of years).

Similarly reallocation of labour often involves

retraining which can take a considerable period of

time. In fact, it is reasonable to argue that the

benefits attainable from lower protection in the

first year after it occurs are negligible, and that

the main gains are realised over a period between

18.

one to five years. And what of the costs

of encouraging change and adaptation through

lowering the tariff? The Crawford Study j.

Group pointed out that such costs could be quite

cur c o high if occurring in periods of low and inter- g g p mittent growth. .Indeed, the costs of such a

strategy probably would be at their highest

quite early in the adjustment process, at a time

when the benefits may not have yet been realised.

Dogmatic opponents of the tariff ignore the

implication of the time differences between the

realisation of the costs and benefits of general

tariff reductions. Because of these differences,

appropriate discounting techniques should be applied

to a situation where the benefits, in actual terms,

may only be marginally in excess of the costs.

It is possible that this would indicate that an

across-the-board reduction in protection levels

would result in a net loss, rather than a net gain.

Therefore, advocacy of the use of general tariff

cutting alone to promote industrial development

can only be based upon either the dubious act of

faith that the benefits of the strategy are in

fact large or upon a naive use of comparative

static analysis. This is not to ignore the benefit

of giving reasonably long advance notice of future

tariff cuts in order to allow adjustments to take

place without too much disruption - such as is

happening in the whitegoods industry at present.

Thus, the initiation of change in industry should

primarily be achieved through positive measures of

encouragement to new activities rather than

immediate cuts in assistance to existing industries.

Tariff reductions should in most cases result from,

rather than cause, structural change. Such tariff

reductions should never occur on an across-the-board

basis, since this is discriminatory towards those

19.

industries which have most recently had their

particular tariff levels reviewed. Tariffs

should only be altered on a pragmatic, case-by-case

approach within a context of general industry

growth initiated by positive economic policies.

(iii) Bounties

While the previous section has argued for caution

in the reduction of tariff levels, the form of

protection provided to industry does have important

effects. In particular, protection by tariffs (and

to some extent by quotas) is often less desirable

than the direct provision of subsidies to industry

in the form of bounties.

The advantages of bounties over tariffs include:

* a lower direct impact on prices and inflation;

* the provision of assistance (and hence its

total cost) is directly related to the level

of local production;

* assistance is provided to exporters as well

as producers for the local market;

* the costs of protection do not directly flow

through as higher input costs in other industries.

Of course, the major disadvantage of bounties is

that they are a direct callon government revenues,

whereas tariffs add to government revenues. For

this reason, it is not feasible to convert all

tariffs to bounties. However, it is likely that

in future determinations of new assistance

requirements that bounties will be the preferred

instrument.

20.

(iv ) Regulatory Bodies

The Industries Assistance Commission, the

Prices Justification Tribunal and the Trade

Practices Commission are all institutions

which are vital for the regulation and

encouragement of business activity in the

interests of business as well as the community

generally. It is important to recognise that

• these institutions are not merely watchdogs

which serve the interests of consumers, but also

• provide vital services to the business sector

itself.

Each of these bodies, however, is in need of

reform, and in a changing world reform will

continue to be necessary from time to time.

One obvious need at the present time is to reduce

the costs imposed by these institutions on

business. An important measure towards this

would be greater standardisation of the information

which each seeks from firms.

A number of other reforms are needed in each in-stitution. An exhaustive analysis of these is

not possible within the scope of this paper,

particularly as many require extensive study.

• However, some concerns of a Labor Government can

be stated as an indication of our positive approach

to industry policy.

Labor is also aware that the full burden of

responsibility for industry change cannot rest

on these bodies alone. The Government itself

in consultation with industry, must ensure a more

effective performance, particularly where the existing

structure of an industry is inappropriate to Australian conditions.

21.

In other areas, too, a much stronger

involvement by Government is needed. One

of these is in the area of transport planning,

where inefficiencies and lack of national co-ordination impose a heavy cost burden on

Australian Industry.

It is important that Governments at the national

level do not shrink from responsibilities in

these areas where a completely free reign for

market forces is neither feasible nor desirable.

(a) The Industries Assistance Commission

Firstly, an independent body such as the

Industries Assistance Commission, which

assesses the needs of protection and makes

recommendations to government, is necessary.

It would not be in the interests of the

community for this work to be carried out in

a government department - particularly if it

were done behind closed doors and be subject

to "pork-barrelling".

However, it appears that more attention should

be given by the IAC on many occasions to the

employment effects of the recommendations it

makes. We believe that attention must be

given to the Commission's methods of working

to seek improvements regularly. Furthermore,

certain sensitive, highly labour intensive

sectors, such as the Motor Vehicle, Textiles

and Clothing, Footwear and certain parts of

Metal Manufacturing Industries, may require

more specialist attention. The establishment

of Authorities or 'sub-commissions' under the

general umbrella of the IAC to examine con-tinuously these sectors, make recommendations

to government about them more regularly and to

monitor the effects of policy would appear to

be a desirable step in this direction.

22.

Labor has already announced its intention to

establish an Authority for the Textiles and Clothing Industry (See Appendix).

The authorities would substantially share the

resources of the IAC, but would provide more

specialised "sub-Commissions"-jincluding employer

and employee representation to ensure that these

industries receive the attention which they require.

(b) The Prices Justification Tribunal

Prices justification machinery is necessary in

Australia for three main reasons:

(i) Australian markets are characterised by substantial 'market power', whereby a small

number of firms operate in an oligopolistic

situation. Competitive market forces do not operate effectively in these circumstances,

so that prices and price increases may be

excessive. An 'economic watchdog' is

essential to ensure that market power is not used in this way.

(ii) Large firms should be socially answerable for the major decisions which they take, and

prices justification procedures are a major

means whereby this accountability can be achieved.

(iii) Given that trade union members are required to argue and justify their wage levels before the Conciliation and Arbitration Commission,

the objective of wage restraint cannot be met unless pricing policies are subject to

similar public scrutiny and assessment.

Trade Unions cannot realistically be expected

to adopt a restrained position if firms are

free to set prices without reference to any

public authority.

23.

Unfortunately, the Prices Justification Tribunal

has virtually been dismembered by the current

government. Having regard to the lessons learnt

through the past operation of the Tribunal, its

role should be re-established and clarified.

This may involve the reintroduction of substantive

mandatory prior notification requirements, the

incorporation into the Act of more explicit

guidelines about the meaning to be attached to

"justified" price levels and the restoration of

the Tribunal's power to initiate price inquiries.

(c) The Trade Practices Commission

The Trade Practices Commission, too, has had some

of its worthwhile functions removed from it and

changes proven necessary by experience have not

been made. The Commission is necessary for the

promotion of competition and the protection of

consumers. Again, this is particularly important

in Australia's oligopolistic market conditions.

The weakening of this institution should be

corrected. In particular it should have restored

to it former powers over harmful take-overs and

mergers. In addition, laws to constrain predatory

practice, particularly in industries which have

experienced a degree of vertical integration, should

be introduced.

Trade Practices legislation is of particular con-cern to the small business sector, and this aspect

is discussed separately later in this paper.

(v ) Industrial Development Programs

(a) The Principles

Industrial development policies need to be

selective in nature. Across-the-board programs,

constrained by budgetary limitations, often

provide insufficient assistance in particular

24.

areas, and may worsen unnecessarily the job

displacement effects of industrial change and

adaptation.

Industrial development policies should avoid,

where possible, giving unnecessary encouragement

to labour-substituting investments in a period

of high unemployment. This is not to argue that

some forms of assistance to companies engaging

in investment programs are not warranted. Such

programs are often labour complementing rather

than job displacing particularly when directed

at expanding exports or replacing imports.

However, the totality of industry development

programs should seek as far as possible to result

in a neutral effect on the relative price of

labour and capital goods. Programs which en-courage overall performance, such as research and

development and export incentives, are more likely

to have neutral factor price effects than programs

which directly subsidise factor inputs.

Accordingly, the investment allowance programme

should be phased out. This scheme may in part be

replaced by higher depreciation allowances

following a review of rates of depreciation

allowed for taxation purposes. Nonetheless, the

principle of maintaining neutrality between labour

and capital prices should be given a heavy weight

• in that review, which is required primarily to

ensure that rates of depreciation are consistent

with world trends in the rate of capital

replacement.

Similarly, taxes on employment in the form of

payroll tax and workmen's compensation premiums

also discriminate against labour.

If possible, by taxes on profits rather than taxes

which discriminate against employment.

25.

(b) Developing Investment and Entrepreneurship

Apart from the possible liberalisation of depre-ciation rates, the primary means of encouraging

investment is to establish a more stable

environment for economic growth. By reducing

risks associated with investment through in-dicative planning in a co-operative framework,

a more expansionary fiscal and monetary policy

as well as through the specification of clear

objectives for industry assistance, investment

will be encouraged in Australia without heavy

resort to the Treasury coffers.

As the Crawford Study Group found, in a growing

economy, special investment subsidies are not

necessary.

It is also important, however, that the supply of

finance for capital investment is maintained.

This is particularly important for small business

and proposals for improvements in the access of

small firms to finance are mentioned later in this

paper.

In addition, there is need for more capital for

new ventures to be provided in Australia. The

public sector has a role to play in this area in

addition to its traditional role in infrastructure

provision. For example, investment funds may be

• provided from government sources at times to ensure

that Australian equity is maximised. This could

effectively be achieved by extending the role and

increasing the financial resources of the

Australian Industry Development Corporation.

This could include developing in an appropriate

form its National Investment Fund as a source of

finance for public ownership, wholly or in part.

The AIDC should not be viewed merely as a provider

of funds. It should undertake to achieve beneficial ra tionalisation programmes in the public interest to a

greater extent than hitherto.

In the initial years of the next Labor

Government, funds for such ventures would not

be very substantial because a large number of

other uses of public funds will have a higher

priority. The major area where public venture

funds are likely to be required in the immediate

future is in the area of energy resource

development.

Wherever such ventures operate in competition

with the private sector, they should be placed on

a strictly commercial basis to avoid unfair

advantages detrimental to private firms.

Entrepreneurship should also be encouraged in

Australia. Initiatives for new and improved

processes and products can derive from both

employers and employees.

Employer entrepreneurship can most readily be

encouraged by a substantial upgrading of many of

the programs which have been developed

experimentally by the Department of Productivity.

These include the establishment of Industry Program

Groups, Enterprise Development Programs, Information

Technology Programs and so on.

The status of programs such as these may be

advanced by merging the Department of Productivity

with the Department of Industry and Commerce, and

substantially increasing funding for these

measures.

Assessment of the role and structure of Business

Information services generally in accordance with

the recommendations of the Crawford Study Group

should also be expedited. It may be possible to

subsidise private sector services in this area.

In addition to the tole of these services in

directly providing information to business,

28.

schemes, is urgently needed. In particular

the administration of export incentive payments

should be improved to ensure that payments

are made as soon as possible after the

expenditure is incurred.

(d) Industrial Research and Development

Just as many Australian firms have not been

sufficiently export oriented in the past, in-adequate industrial research and development has

been undertaken in Australia. Expenditure in

IRED in Australia is a lower proportion of the

gross domestic product that in virtually every country of comparable economic development.

Incentives and direct expenditures on industrial

research and development are clearly inadequate.

Furthermore, policies should place higher

priority on converting the results of basic

scientific research into commercially viable

technological innovations.

Indeed, the major deficiency in Australian IRED

activity is in the area of development rather than

in the area of pure research. Additional funding

should therefore be concentrated on programmes

to encourage the development of commercially

viable innovations by Australian industry.

Labor will investigate the need to establish

a venture finance institution which would advance

funds to firms seeking to exploit commercially

viable innovations. This initiative would be

complemented by a review of the programme of

project grants already provided through the

current IR&D INcentives Act.

29.

The ability of industry to take advantage of

new technologies under prevailing Patent Law

will be reviewed by the next Labor Government.

In addition, government procurement and offset

policies, provide an important means to ensure

that Australian industry gains opportunities

to develop new technologies.

(e) Other forms of Government Assistance

A number of other means are available to

Government for the encouragement of industry

development in Australia. These measures have

both costs and benefits, and accordingly, each

must be assessed on a case by case basis.

The Department of Industry and Commerce will be

charged by Labor with the responsibility of

providing Government with ongoing advice on these

policies. This advice will follow close con-sultation with industry as outlined in this paper.

These forms of assistance include:

* Government Procurement policies which give preference to domestic producers;

* offset arrangements for major new capital investment projects (in Defence and in

other areas such as computers), whereby

local participation is a condition applied

to major tenders;

* programmes of assistance to regions adversely affected by structural changes in economic

activity.

In general, there appears to be considerable

scope for increasing the level and effectiveness

of these types of assistance.

30.

(vi) The Place of Technology

Automation has been with us for some time.

Micro-processing, in particular, has hastened

this development and so the coming era may

be one of rapid automation.

Automation is having and will continue to have

an impact in two areas of employment in

particular, namely production line jobs in the

secondary sector and clerical jobs in the

tertiary sector.

Two particular types of machinery will have an

increasing impact - the multi-robot in the

secondary sector and computers and word

processors in the tertiary sector.

Although many jobs disappear, these innovations

also have desirable consequences. Many mind-stultifying tasks are eliminated, thus hopefully

releasing people for more satisfying occupations.

Increases in productivity also result. Some

of the benefits of this should be applied to

reduced working hours, others to sharing the

jobs more equitably.

We must use new technology in order to achieve

and maintain necessary competitiveness for

growth, for new jobs, and for preserving

existing jobs. But that is not to say that all

new technology is necessary and good. And it is

not to say that its benefits and burdens will

properly and fairly be shared in the community

without government monitoring and if necessary,

regulatory action.

31.

it is also not to say that many of the new

jobs created by new technology, for instance

in making the machines themselves, will be

located here in regions where we want them

unless government provides initiatives and

guidance.

These problems point to the need for a widely

representative Technology Planning Council

to evaluate the socio-economic effects of new

technology and advise the government in the

formulation of plans to cope with the adjustments.

This council could, among other tasks, prepare

technology impact statements so that the govern-ment is informed about the actions which need to

be promoted to ensure that there are net benefits

for the community in the introduction of

particular new technology - and the costs and

benefits are properly shared.

In addition to the Technology Planning Council,

other policies should be brought to bear to

maximise the potential net benefits of tech-nological change.

Firstly, a higher rate of economic growth would

greatly reduce the costs of job displacement due

to technological change. Secondly, the neutrality

of industry assistance policies insofar as they

affect the relative price of capital and labour

would ensure that unnecessary job-displacing

investments do not occur.

Thirdly, employees should be fully consulted

at all stages of any major technological change

programme. This involvement by the workforce

in planning for technological change is essential

to any strategy for a social and economic

partnership.

32.

(vii) Multinationals and Foreign Investment

Just as Labor had led in promoting public

discussion on the question of new technology and

its impact, so our Party has stimulated dis-cussion in Australia on the problems of multi-nationals in particular and foreign investment

in general.

-As was argued earlier, the probable improvement

in Australia's balance of payments in the 1980s

should in some measure lead to a reduction in

the net rate of capital inflow, rather than be

allowed to force revaluations and consequent

major structural changes.

Any resulting shortfall in development funds

should be found through both domestic private

and public sectors. This will require sub-stantial and long overdue reforms of the Australian

Financial System.

The effect of such policies will be to reduce

reliance for growth on the multinational

corporations.

Labor is also concerned to ensure that multi-nationals already operating in Australia do so

to the maximum possible benefit of Australia.

An appropriate principle in this .respect is to

require that foreign-owned and controlled firms

act essentially as if they were autonomous

Australian firms - developing new technologies,

marketing internationally as well as domestically,'

and participating fairly in all aspects of the

Australian social and economic system.

In particular multinational firms should not use

their advantages to indulge in tax avoidance.

An example of this is transfer pricing, whereby

33.

goods or services are priced in such a way

as to minimise taxes charged in Australia.

The provisions of the Income Tax Assessment

Act should be revamped to strengthen the

powers of the Commissioner to ensure appropriate

taxes are charged, and to increase significantly

sanctions against companies which seek to avoid

tax in this way.

In addition, it is necessary to expand the

functions of the Foreign Investment Review Board.

The Board should develop a monitoring function in

respect of all relevant activities of foreign

owned or controlled firms including their

marketing,pricing, research, employment and

investment policies.

It should advise the Government on any amendments

to policy needed to ensure that the community

gains maximum benefit from the activities of

multinational corporations.

34.

6. Policies for Small Busi ness

(1) The Contribution of Small Business

The small business sector occupies an important

place in the Australian economy.

The latest estimates indicate that at the end

of 1977 there were some 372,000 small businesses

in Australia, representing about 96% of all

business enterprises. These small businesses

employed around 1.6 million persons or nearly

40% of the total private workforce.

The contribution which the small business sector

can make to our economy goes beyond that directly

suggested by its size.

* small businesses help to spread economic power, risk, responsibility and ownership;

* effective competition is enhanced by small business;

* of even more importance is the largely un-recognised fact that small businesses are

responsible for the overwhelming majority of

new jobs created during periods of expansion.

They tend to be more labour intensive than big

business, and, unlike large enterprises, they

do not tend to expand by substituting capital

for labour.

Given the employment challenge Australia faces in

the 1980s, it is essential therefore that governments

pursue policies which utilise to the full, the job

creation potential of the small business sector.

35.

(ii) Finance for Small Business

Small businesses cannot sustain their present

levels of activity, let alone expand their

output and .provide more jobs, without adequate finance.

Increasingly, it is being recognised that the

type of investment project in which financing

difficulties arise most frequently involve

innovation and modernisation in small and medium

sized companies.

The Crawford Study Group, for example, concluded that:

" ... more expansive arrangements for finance are needed if greater development and

adjustment in industry, particularly in

smaller businesses, is to occur ...

The capital market of today is geared largely

to the needs of big business. Special in-stitutions such as the AIDC and ARDB almost

exclusively service large ventures whereas no

parallel institutions exist for small business.

The main source of finance for small business

is from trading banks, usually in the form of

overdraft. These funds are only short term.

Equity and long term funds are almost unobtainable

by small business. Capital for new ventures is

also almost unobtainable, as existing lending

institutions place an unduly heavy weight on

security rather than profit potential.

As a result, it is unlikely that investments

by small businesses are attracting funds con-sistent with the risks and potential returns to

the community as a whole.

36.

In order that these gaps in financing may he filled it will he necessary to:

* establish a specialist financial in-stitution (possibly by extending the role

of an existing institution), to provide

equity and/or long term packages for fast-growing small and medium sized firms. If

possible, this body could be established in

partnership with private financial institutions;

* give consideration to establishing (possibly within the above institution), a venture

capital body specifically to promote in-novations, including new processes and tech-nologies for small firms;

* investigate the effect of government control over the rate of interest charged on trading

bank overdrafts under $100,000 to determine

whether it is detrimental to the supply of

funds to the small business sector.

(iii) Exporting

Only a small proportion of the funds allocated

to export incentives aim at encouraging companies

to commence exporting via the Export Market

Development Grants Scheme. The bulk of the funds

go to the Export Expansion Grants Scheme which

C7 has the effect of encouraging an increase in the

value of exports by existing exporters, most of

which tend to be large enterprises.

A more selective export incentives programme

could be achieved by eliminating grants which

are currently derived through price increases

alone, and redirecting these funds toward real

export market development activity.

This could be done through an upgrading of the

Export Market Development Scheme, and by

37.

establishing Trade Centres in a selected

number of neighbouring countries which

represent significant potential export

markets.

The cost of these centres would be substantially

defrayed by agreed charges levied on those who

use the facilities.

(iv) Services to Small Business

Services such as counselling, financial advice

and management training are not usually best

administered at the national level.

However, there is a need to co-ordinate state

services and to provide information and assistance

to enable the states to carry out their role.

To ensure that due recognition is given to the

small business sector, the small business section

of the Department of Industry and Commerce

should be upgraded to provide for greater co-operation between State small business agencies

and the Federal Government. This small business

section will give special attention to:

ensuring that facilities for management

training and for advisory and counselling

services are both adequate and. effective;

* providing continuing information on

• opportunities offered by government regarding

tenders, special grants, and assistance

schemes; and

* monitoring the effects on small business of the policies of government and public

instrumentalities.

38.

In addition, the Australian Bureau of

Statistics could be requested to update

the presently inadequate data on the size

and characteristics of the small business

sector.

(v) Market Conduct and Trade Practices

Small business is particularly vulnerable to un-fair market conduct and trade practices.

Numerous inquiries and reviews since 1976 have

called for amendments to the existing trade

practices law, and even for special legislation

in the case of specific industries.

It is extremely damaging to small business if

these changes are delayed unduly by Government

tardiness. There is now a substantial backlog

of needed changes in the areas of price dis-crimination, takeovers, predation and franchise

protection.

(vi) Taxation

The tax law as it relates to companies and

individuals is in need of substantial reform.

Anomalies in this area result at present in

significant variations in tax depending on whether

the enterprise is operated by an individual, a

partnership, a private company or a public company.

r_

Under this confusing situation, it is small

business which is most disadvantaged, and which

is subject to the highest tax accounting costs.

A review of this area of tax law, in particular

the undistributed profits tax, should be urgently

pursued.

39.

(vii) Economic Conditions

The problems confronting small business have

been further aggravated by the economic

recession. The depressed economic environment

and an uncertain future particularly affect

investment by small business.

A more expansionary budgetary and monetary

policy together with a positive Manpower,

Industrial Relations and social policy will

contribute greatly to improving the conditions

faced by small businesses and hence the

potential contribution to job creation which

they can make.

7. CONCLUSION

Considerable scope exists in Australia for the revitalisation

of existing manufacturing industry and the establishment

of new industries.

A resumption of growth in secondary industry in Australia

is necessary for the expansion of employment opportunities,

not only in manufacturing, but in the tertiary sector as well.

But these objectives cannot be achieved as a matter of course.

Australian Government must accept primary responsibility for

ensuring that growth occurs. Labor's Industry policies,

set within a consistent package of economic policies including

more expansionary budgetary and monetary policy, recognise

and meet these fundamental principles.

The development and implementation of these policies is

vital for the job security of those presently employed as

well as for the creation of new jobs in the 1980s.

APPENDIX A

THE FUTURE OF THE CLOTHING AND TEXTILE INDUSTRIES

A Statement issued on behalf of the Federal Labor Opposition

A future Labor Government would establish a Textile and Clothing

Authority to ensure better long-term planning and certainty within

the industry. This decision has been taken after discussions over

12 months with all sectors of the industry.

The Labor Party is concerned at the continuing erosion of regional

employment, particularly in Victoria and Tasmania, caused by industry uncertainty about its future.

The Authority would replace the functions of the Industries Assistance

Commission and the Industry (Quota) Review Committee in respect of the clothing and textile industry.

The Authority would include representatives of employers and

employees to allow practical input from people directly involved in the industry.

It would monitor the industry and recommend policies. It would suggest

measures to improve efficiency. It would aim to provide a base for

confident investment and development.

In particular, it would be concerned to consolidate a sound base for

opportunities in regional employment over a medium-term of five years • while a longer-term future is being planned.

The Labor Party is firmly committed to the survival of a strong and

viable clothing industry in Australia. It particularly appreciates

the importance of the industry to regional centres like Geelong, Ballarat

and Bendigo, and key areas of Tasmania such as Launceston.

Labor's attitude is supported by the Crawford Study Group which stated:

"It may be appropriate to develop in dustry-specific policies for those few industries with different problems in order to imporve their ability

tc cope with changed circumstances and to ease the adverse consequences of adjustment."

2.

The 'Textile and Clothing Authority would advise on specific policies

in the industry and would implement decisions by Government.

In looking to increased efficiencies in the industry, a Labor

Government would also be looking to greater efficiency in the super-visory administration which would reflect concern for the social

and regional implications of its advice.

On behalf of the Government, the Authority would consult and plan

with our trading partners so that Australian production of clothing

and textiles was integrated to the greatest extent possible with

the production of countries exporting to us.

Labor is confident that the flexibility provided by the Authority

should lead to increased international competitiveness and reduced

portection which would mean better value and a higher standard of

living for Australian consumers.

Chris Hurford, MP Shadow Minister for Industry and Commerce,

April .1979

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