The Transformation of the Australian Economy

When Keith Windschuttle asked me to write this review of Paul Kelly’s latest book, The March of Patriots, I had two hesitations. To start with I thought that I would be the ultimate in unreliable witnesses. After all, I was one of the subjects of the book, along with my immediate predecessor as Prime Minister. The other hesitation flowed from the fact that I am deep into writing my own memoirs, which naturally will cover all of the events canvassed in Kelly’s work. Why should I provide sneak previews of what will appear in the authoritative account of those events and times! That would not endear me to my publisher.

Then, having reflected on what Kelly had written, I concluded that it was so full of facts, opinions, judgments and analysis that I could compile a review without in any way cruelling the pitch of my own book. There would be plenty left over. As for being an unreliable witness, I will leave that to the judgment of those who might read both the Kelly book and this review.

Since the Second World War Australia has produced many political journalists, but just two of them, the late Alan Reid and Paul Kelly, have been serious chroniclers of their political times. They have been the only ones to attempt to tell a sustained story of Australian politics, with its changes and convulsions through the years. For that they deserve a special place in the regard of both participants and observers of Australian politics.

In this book Paul Kelly did not make the mistake of focusing only on economics, because that has been only part of the political saga of the past few decades. He rightly identified the gulf between Paul Keating and me on social, cultural and national identity issues. They were the subjects of some of the best chapters in his book. Although clearly a republican himself, he identified many of the flaws in Keating’s anti-monarchist push. Keating’s anti-British onslaught and his denigration of large elements of the Australian achievement implanted in the minds of many conservative Australians the image not just of a politician they disagreed with, but of someone who symbolised both division and repudiation of much of our past. Kelly also fully appreciated the synthesis I not only sought but, largely, achieved between economic liberalism and social conservatism, in my leadership of the Liberal Party. It was crucial to our success over such a long period.

The March of Patriots is the latest of Kelly’s books to analyse Australian politics during the past thirty to forty years. It covers Paul Keating’s prime ministership of a little over four years, and the first two terms of the government which I led. It is very readable, impressively researched, factually accurate and, in company with his earlier works, thematic. I shall come to the theme shortly. The greatest strength of Paul Kelly’s writing has always been a capacity to combine sustained policy analysis with lively personality studies. He is a policy wonk who has retained a passion for the blood sport of politics. He has a good sense of political history; as a fine writer he can describe an historic political reality in a compelling fashion.

For example, his portrayal, in The March of Patriots, of Menzies’s political capture of the Second World War ex-service generation was incisive: “The vanguard of the World War II ‘greatest generation’ went Liberal.” How true that was. These men dominated the Liberal Party that I joined in the late 1950s, both as MPs and in the organisation. With poetic justice, Ben Chifley had unwittingly aggravated the dominance amongst ex-servicemen that Menzies was to take from his victory in 1949. Before the election Chifley massively increased the size of the Parliament, from 75 to 124 in the House of Representatives, and from 36 to 60 in the Senate—all designed to shield sitting ALP members from defeat. It gave the Coalition’s “forty-niners”, as they became known, a disproportionate influence for close to a generation. Chifley’s electoral changes also, incidentally, brought in proportional representation as a voting system for the Senate—once again a device to soften the impact of Labor’s then apprehended defeat.

The theme of Kelly’s book is that the economic renovation of Australia over the past generation was a joint project of Paul Keating and me. That was true, but only partly so; and overt co-operation between us lasted for a limited period only. Moreover, bi-partisan support for difficult reform decisions by a government was always a one-way street: Coalition supporting Labor, never the other way around.

Whether or not the theme can be fully sustained barely matters though. The past thirty years or more has seen historic change to economic policy in Australia. Kelly’s is a detailed account of many of the individual decisions contributing to the way in which Australia became a stronger, more competitive nation, better able to resist external economic shocks. Australia’s ability to withstand the recent global financial plunge owed much more to that economic reform process than it did to Kevin Rudd’s huge stimulus package which, in any event, was made possible by the strong fiscal position bequeathed to him by the outgoing Coalition government.

Kelly does try too hard on occasions to minimise the differences between Labor and the Coalition, so as to fit the narrative. In surveying the political scene in the wake of the Liberal victory in 2001, which saw an increase in the Coalition’s majority, Kelly made the remarkable statement that Beazley had “virtually conceded the GST”. The defeated Opposition Leader had done no such thing. The GST had been legislated courtesy of the deal that I concluded with Meg Lees, ferociously opposed by Labor at the time, despite the people’s verdict at the 1998 election. Beazley’s diminished attack on the GST in 2001 owed nothing to his embracing taxation reform and everything to a pragmatic acceptance that the Coalition had finally secured the verdict of history on the issue and the electorate wished to move on. There had been no joint project on taxation reform.

In two crucial areas—labour market reform and competition policy—Kelly seems too benign about what Paul Keating did. I remain astonished that praise continues to be heaped on the Keating–Brereton changes to industrial relations in the early 1990s. That legislation did allow a limited form of enterprise bargaining between unions and employers, but in the non-union area effectively permitted unions to stymie agreements, even when no unionists were involved. Predictably, individual agreements in the non-union sector never got off the ground, that being the intention all along.

The 1993 legislation delivered the unfair-dismissal laws, which harassed small businesses for more than a decade until removed, for firms employing fewer than 100 workers, in 2005 by my government. Kevin Rudd has brought them back, in a slightly diluted form. It is too early to assess the impact of their restoration, but the omens are not good. In addition, the Brereton Act shifted the Section 45D secondary boycott sanction on unions from the Trade Practices Act to the Industrial Relations Act, thus destroying its effectiveness. This was reversed by Peter Reith’s legislation in 1996. It was employed to crucial effect in the waterfront dispute. Thus far Rudd has not tried to reverse the 1996 change. That will probably be an ACTU project if Labor wins again at the end of this year.

When the unfair-dismissal laws and the secondary boycott action are paired against the limited enterprise bargaining experiment it is hard to see the 1993 Act as reformist in character, and one which made the labour market freer. Jenny George, then President of the ACTU, gave the game away. When told of employer complaints about the legislation, especially the unfair-dismissal laws, she retorted, “they [the employers] should understand that we won the election and they lost it”.

Kelly implies that I was not much interested in competition policy, and provides a third-person quote from my Chief of Staff, Arthur Sinodinos, in support. Competition in its broadest sense meant opening up the economy; I was hardly uninterested in this. In relation to the pattern of competition payments to the states, launched in the early 1990s, and, partly, the subject of a chapter in The March of Patriots, I would note that the Howard government continued the program instituted by its predecessor, but was understandably sceptical about paying the states simply for implementing the policies which any competent state government should.

My scepticism was intensified by the specific exclusion of the labour market from the reach of competition reforms. Trade union power continues to impose huge inefficiencies on state economies. The most egregious recent example must surely have been the several successful attempts of the unions in New South Wales to block electricity privatisation in that state.

Paul Keating, long out of the Lodge, may now rail against John Robertson, former boss of Unions New South Wales (and now a minister in the state government), for the unions’ anti-privatisation campaign, but as Prime Minister he happily excluded unions from the requirements of competition reform in the states.

For me the most disappointing chapter in Kelly’s book, and the one whose conclusions I most hotly dispute, is that on the waterfront confrontation. Kelly seemed mesmerised by the personality issues and legal definitions to the detriment of the broader outcome. The 1998 waterfront dispute transformed the productivity performance of our nation’s waterfront. It went from very bad on any reasonable international comparison to being equal to or better than world’s best practice. Kelly opens the paragraph writing, “Peter Reith’s tragedy is that of a man who lost his dream, his clout and finally his career.”

That flawed analysis clouds the rest of the chapter. His obsession with assessing the impact of the dispute on Reith blinded Kelly to a proper realisation of what the outcome of the dispute meant for industrial relations in Australia. The iron grip of the MUA on restrictive work practices on the wharves was broken; productivity soared; an icon of trade union power and truculence was successfully challenged by my government in a way that no previous government had attempted. A huge reform of this nature was never going to be achieved without drama and setbacks. If it had been that easy it would have been attended to years earlier. Most of the business community doubted that my government would keep its nerve. Reith earned the enduring hatred of the ALP, the unions and many press acolytes of the Left not so much for the balaclavas, but because he had been successful.

Strangely, Kelly constantly tolerated both the political bruiser and the policy dreamer in Keating, yet was quick to condemn the benign compromising Reith of the 1996 negotiations with the Democrats on industrial relations, changing to the tough confrontational Reith of the waterfront dispute. The explanation was simple. The leaders of the MUA were not Cheryl Kernot and Andrew Murray. Just as different circumstances produced different Paul Keatings, so it was with Peter Reith. Yet oddly Kelly did not concede this.

The foregoing are all matters of judgment inviting vigorous debate. What cannot be an issue of judgment is that the Australian economy is stronger, more competitive, more resilient and, importantly, more respected internationally than it was thirty years ago. That is the underlying message of Kelly’s book, as distinct from the more overt theme constructed around Paul Keating and me.

This transformation of the Australian economy was brought about by five major reforms enacted by both Coalition and Labor governments: financial deregulation; tariff reform; labour market deregulation; taxation reform; and privatisation. Kelly’s book accepts the thrust of this proposition, although he and I might argue about some of the detail.

All of those reforms will endure, with the exception of labour market changes. The Rudd government has done much more than reverse WorkChoices. It has imposed additional rigidities, which are akin to compulsory arbitration. Only now is the business lobby beginning to grasp the scale of the legislative payback to the unions for their massive support in the 2007 campaign. For the first time in a quarter of a century a major economic reform has been rolled back. It will take time to filter through, but Australia will pay a heavy price.

The joint project description can be legitimately applied to financial market deregulation, with Hawke being substituted for Keating in relation to the float of the Australian dollar. The then Prime Minister and the then Governor of the Reserve Bank, Bob Johnston, drove that decision. Paul Keating was at most a reluctant conscript. The Campbell inquiry, which I established during my time as Treasurer, provided the intellectual framework for the sweeping freedom brought to our financial system. The admission of foreign banks, an important Campbell recommendation, was announced by the Fraser government. The full implementation of financial deregulation, commencing with the float, was by far Labor’s most significant and successful reform. At every stage it received the full support of the Coalition.

Although financial reform was the most significant in economic terms, the political risks, for Labor, were potentially much greater with tariff reductions. The Coalition indemnified Hawke and Keating against any political fall-out from this decision by giving it strong support. There was no fear campaign about job losses in heavily protected industries. No such reciprocal gestures were ever forthcoming from the ALP in opposition. Labor tenaciously fought taxation reform when my government proposed it; likewise, it constantly voted against the privatisation of Telstra, despite being the beneficiary, in government, of Coalition support for the sale of Qantas and the Commonwealth Bank. Naturally, it opposed all of our industrial relations changes, and not just WorkChoices.

The March of Patriots is a thorough, painstaking description of political events which continue to shape our daily lives. It ought to command the attention and interest of many well beyond the normal readership of political books in Australia.

The Hon. John Howard AC was Prime Minister of Australia from 1996 to 2007.

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