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Odd facts of Australia

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Shouts and rounds

Egalitarianism
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Black and taboo

Australia Day
The true meaning

Anzac Day
Lest we forget

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The Post-Socialist and Post-Capitalist Australian Economy

Until the 1980s, the Australian economy was best described as national socialist with an under-developed free market. Specifically, major industries such as health, banking, education, telecommunications and transport were either government owned or heavily regulated by the government with the aim of achieving a social justice outcome. In addition, wages were regulated and protection was given to Australian industries and workers so that they would not face non-British competition. It wasn’t only government that embraced the socialist way. Private enterprises formed single desks, co-ops and industry bodies in order to reduce their competition and gain power through solidarity.

After World War 2, some of the restrictions on migrant and non-white workers were relaxed as part of Australia's attempt to increase population. Then in the 1980s, the federal government implemented a number of reforms that transformed Australia into a post-socialist society. These reforms included privatising government industries and opening up the market to foreign competition. Ironically, some reforms, such as compulsory superannuation, also transformed Australia into a post-capitalist society by making a capitalist class out of all workers. Rhetoric about ‘class warfare’ and ‘control of the means of production’ thus became redundant in Australia.

Like all reforms, there have been winners and losers, not just in the economic sense, but also in the ideological and identity sense. Therefore, whether the reforms have been good or bad depends on the socio-economic or ideological position that a critic is coming from.

The Reforms

1948 – Pharmaceutical Benefits Scheme

Most countries around the world suffer extreme problems in the provision of health care drugs, which in many ways illustrate the limitations of capitalism. One problem is affordability. Lifesaving drugs tend to be developed and patented by private companies. With a monopoly on the drug’s manufacture, the company can charge prices that are far beyond what an average patient can pay. A second problem is corruption. Drug companies bribe doctors to prescribe drugs even when there is dubious merit in the drug. Even if a doctor doesn’t want to be corrupt, he or she is not always in a position to scrutinise a drug’s value. As a result, patients virtually bankrupt themselves buying drugs that do little to help.

In Australia, such problems have largely been dealt with due to the Pharmaceutical Benefits Scheme, also known as the PBS. The program was developed in 1948 by the federal government and provides subsidised prescription drugs on the PBS register. Because drugs are subsidised, no Australian is economically denied access to drugs that they need to survive. Furthermore, because the Australian government buys the drugs in bulk over a single desk, it is able to negotiate lower prices than that paid by private citizens in other countries. Corruption is somewhat negated because it is only drugs that have been proven to work that are placed on the PBS register. Potentially, drug manufacturers could still bribe a corrupt government worker to place a dubious drug on the register but there are far more checks and balances to prevent corruption occurring. At a basic level, a drug company that wants to get onto the PBS register will voice concerns with another drug already on the register if they believe it its keeping their own product off the market.

1983 - The accord

In the early 1980s, the Australian economy was characterised by high inflation, industrial disputes and high unemployment. The federal government (Labor) recognised that the economy needed restructuring but it needed industrial peace to implement its policies. To move forward, it struck a deal with the Australian Council of Trade Unions (ACTU) that proposed that unions would restrict wage demands in return for a government pledge to minimise inflation, implement social services and allow for unions to be merged.

Industrial disputes can destroy companies thus leading to lose lose outcomes. When devising the accord, Labor prime minister Bob Hawke believed industrial relations should lead to win win outcomes.

1983 - Floating the dollar

In 1983, the Federal government (Labor) floated the Australian Dollar, which allowed the market to fluctuate its value between US48c and $US1.10. When the dollar was high, imports became cheaper and exports less profitable (vice versa when the dollar was low.) In theory, floating the dollar allowed the market to assess the value of the Australian economy relative to others and adjust the dollar accordingly. This made the economy more adaptable to change.

Although economic performance generally followed the theory, currency trading provided an opportunity for private power to abuse its power to the detriment of the whole. For example, during the 1997 Asian financial crisis, currency traders like George Soros bet that the currencies of Asian currencies would go down. With the wealth at their disposal, the currency traders had the means to sell the currencies to push them down. When other traders saw the currencies being attacked, they too sold the currencies with the expectation that they would go down further. If the currency was pushed significantly below the true value, then it was purchased again with the expectations of a rise where it could be sold again. Australia was caught up in the currency attacks but managed to withstand them better than the likes of Malaysia, South Korea and Thailand. These attacks artificially affected the profitability of some Australian businesses.

Exchange rates are not always logical reflections of an economy's health. For example, in 2008, structural problems in the US economy led to the subprime mortgage crisis and the collapse of numerous American banks yet the Australian dollar fell relative to the US.

1980/90s – Deregulation of the banking system, privatisation, and Reserve Bank independence

To regulate or deregulate the banks has been a perpetual argument in the world’s economies over the last century. Bank regulation in Australia can be traced to a speculative property boom in the 1890s that led to 11 commercial banks going bankrupt, which in turn pushed Australia into recession. Over the next 100 years, successive governments introduced restrictions against foreign banks entering the market, created government controlled banks and took it upon themselves to set interest rates.

In the 1980s, the federal government (Labor) allowed foreign banks to enter the Australian market and for banks to set their own interest rates. The government increased competition further in 1992 when it privatised the Commonwealth Bank. In 1996, the Liberal government built on the reforms by giving the Reserve Bank of Australia the autonomy to make decisions concerning interest rates and inflation independent of the elected government.

The outcomes of deregulation have been mixed. On one hand, it could be argued that the policies have been a failure as a form of non-official bank collusion seems to have prevented significant price competition. As a result of a decision by banks not to compete on price, Australians pay among the highest bank charges in the world. Furthermore, the Reserve Bank has set interest rates at a level higher than most people would like and by extension, higher than a politician would like. Like bank fees, these interest rates are higher than that paid in much of the world.

On the positive side, deregulation, banking independence and bank profitability spared the Australian banks the conditions that led to the 2007/08 Global Financial Crisis, which stemmed from banks being too regulated in some areas but insufficiently regulated in others. Specifically, America’s Clinton administration instructed government sponsored mortgage giants Fannie Mae and Freddie Mac to give home loans to low socio-economic groups that lacked the capacity or inclination to repay the loans. To further ease entry to the market and stimulate the economy, Alan Greenspan, Chairman of the Federal Reserve, set interest rates at just 1%. The new entrants into the market increased demand and so created a property bubble.

With interest rates so low, banks were unable to make money via the traditional loan interest model. Consequently, they turned to derivatives, a largely unregulated area, to make profits. Derivatives are financial instruments that have no intrinsic value but derive their value from something else that may or may not have value.

Derivative trading was particularly harmful when low socio-economic groups starting defaulting. Banks referred to the default as a sub-prime mortgage, and created derivatives based upon the default. (Many of these banks were closely aligned with the Democrats so there was a suggestion of corruption.) Other financial institutions bought the derivatives because they didn't really know what they were. The trade and ultimate valuelessness of the derivatives led to the GFC as banks discovered that the derivatives were worthless. Unable to repay their own debt, they too defaulted, which started a chain reaction of bank collapse in the US and Europe.

Although Australian banks also gambled in derivatives, because profits from loans and charges allowed them to operate like banks rather than bookies, the derivative market was far less advanced. Furthermore, due to the separation of government from banks, Australian governments hadn’t been able to use the banking system to assert a social or corruption agenda in the housing market that would eventually crash like a house of cards.

1988 - Removing import protection

After World War 2, high wages, low economies of scale and strict environmental regulations made it increasingly difficult for Australian manufacturers to compete with manufacturers in Asia, even with the help of duties, quotas and tariffs on imported goods. Instead of raising the protectionist policies even further, in 1988, the federal government (Labor) started removing them. It was a concession that since Australian manufacturers could not compete, it would be better for the Australian economy to adapt so that the workforce was in an area where Australia had a comparative advantage.

As the protection was removed, the prices of goods fell, thus reducing inflation and lowering costs for businesses that relied on imported goods. Against expectations, manufacturing was not wiped out. Although there was a fall in the manufacture of textiles, footwear and clothing, over the following two decades, innovation allowed the manufacturing sector to actually grow by 40 per cent. The agricultural sector also adapted admirably to the increased competition with significant value adding achieved by using labels like 'organically grown', 'hormone free', 'free range' in addition to refined produce like gourmet cheeses and wine.

Perhaps the lifecycle of computers provide the best example of how the removal of protections led to a favourable balance of trade. 87 per cent of computers are manufactured in China by workers earning a barely subsistence wage. Despite the low wages paid to workers, they are sold to Australia on low profit margins. In Australia, the computers are used in the design of computer applications, software, advertising, marketing and other intellectual industries with high profit margins. When the computers are outdated, they are sold back to China as e-waste. Extracting the chemicals from the e-waste poses significant health risks and some of the Chinese centres that extract the chemicals have now polluted their ground water and whole communities suffer significant health issues. By not trying to compete with China in the manufacture or recycling of computers, Australia benefits socially, environmentally and economically. Ideally, the Chinese Communist government would raise minimum wages and enforce environmental regulations but that is an outcome that is beyond the means of Australians to bring about.

Ewaste on a Chinese lady's porch. In regards to the life cycle of computers, the balance of trade between Australia and China is environmentally, socially and economically in Australia's favour. (Picture from Edward Burtynsky Manufactured Landscapes)

1989 - HECS (Higher Education Contribution Scheme)

In most countries around the world, higher education is prohibitively expensive. This leads to serious stratification of society between those who are education rich and those who are education poor. Such divisions are in turn passed across the generations as the education rich are able to gain the social contacts, the incomes and the guidance to provide opportunities for their children that are not available to the education poor. These social problems in turn affect the allocation of resources in the economy.

In Australia, the stratification has been somewhat reduced due to the Higher Education Contribution Scheme which was introduced in 1989. In a nutshell, the scheme allows students to pay their university fees by taking out an interest free loan from the government for each subject they study. When the student gets a job and reaches a certain income threshold, the money owed is taken out of their salary. If they never get a job they never need to repay the loan.

HECS provided the opportunity for students to attend university who may have otherwise been denied the opportunity due to a lack of money or a lack of the intellectual talent to qualify for a scholarship. It replaced a previous model of "free" education (government paid but student didn't) that was extremely expensive and wasteful. In addition to being expensive, "free" education has been criticised on equity grounds as it required labourers and tradesmen to be subsidising the education of doctors, lawyers, accountants etc who were more than capable of paying for their education once they got a job.

HECS was originally developed by ANU economist and lecturer named Bruce Chapman. The model has been subsequently varied and given different names but the basic premise of a student contribution remains.

1990 – The National Integrity System (The Queensland Model)

In every country around the world, corruption is the worst social problem because it hinders solutions to other social problems (be they poverty, environmental destruction, drug use etc) being successfully implemented and money being allocated wisely.

Australia has a long history of corruption but out of one of the worst cases came the The National Integrity System, often called The Queensland Model, which has since been adopted by the United Nations, Unesco, the World Bank and a host of universities around the world.

In the 1980s, the Fitzgerald inquiry found widespread corruption in the ranks of Queensland politics. Among many others, four government minister and a police commissioner were sent to jail. In addition to uncovering corruption, the Fitzgerald inquiry made recommendations for how it could be prevented in the future.

Lawyer Jeremy Pope, founder of Transparency International, organised these recommendations into a 'system' which he called The National Integrity System.

1991 - Privatising government businesses

History has repeatedly shown that private enterprise is more innovative and efficient than government enterprise. For this reason, government ownership of business is only justified in industries that the private sector would not provide a good or service, the private sector would not provide it in a way that serves the interests of the whole or that the private sector would not provide in a way that deals with a social justice concern. For a number of decades, the aviation, telecommunication and banking sectors were areas where governments felt the the need for government ownership.

In 1991, the federal government (Labor) embarked on a policy with privatisation with the sale of the Commonwealth Bank. In 1992, it followed this up with the sale of Qantas. In 1997, the new federal government (Liberal) sold Telstra. Meanwhile, state governments sold their banks, insurance companies and some power producers and distributors.

Since being sold, the Commonwealth Bank has increased in profitability and along with Westpac, ANZ and NAB, it has been the backbone of a profitable banking sector that easily navigated the 1997 Asian Financial Crisis and the 2007/08 Global Financial Crisis (European and American crisis).

With the sale of Telstra, telecommunications have seen a proliferation of competition and a diversification of services provided. Aviation has been a concern. Critics have argued that privatisation of Qantas led to corners being cut on safety and new entrants to the market have struggled to turn a profit.

Privitising the state-owned Telstra has enabled more competition in the Australian market place, which has in turn benefitted Australian consumers.

Compulsory superannuation

In 1992, the federal government (Labor)  implemented compulsory superannuation. By 2013, 11 per cent of the weekly wages of Australians were being redirected into a variety of industry, retail or self-managed superannuation funds and more than $1.6 trillion was under management.

Compulsory superannuation stimulated massive growth in the financial industry as professionals were needed to manage the funds. In addition, enterprises had avenues other than banks to access investment capital.

Aside from changing the economy, compulsory superannuation has been causing a change in social values. Because they are compulsory investors in the stock market, all wages earners in Australia have a personal interest in the economy succeeding. Furthermore, because they are the capitalist class, old notions of class warfare are difficult for politicians to exploit.

As well as changing some of the values of the average wage earner, compulsory superannuation seems to have changed the values of the financial industry. Wage earners are not solely motivated by short-term profit (like most financial industry workers); they also care about sustainability, ethical practice, and corporate governance. If wages earners feel that the superannuation fund doesn’t share their concerns, they can chose another one. Consequently, superannuation funds that want to manage the wages of workers have needed to alter some of their practices so they reflect the values of wage earners.

Due to compulsory superannuation, investment decisions are not always made with profit as the sole focus. Instead, superfund managers may be guided by an ideological desire to support sustainable business practices or ethical practices. The financing of the left-wing news site The New Daily by Australian Super, United Super, and Industry Super Holdings, is perhaps an example. The establishment of the paper makes little commercial sense because news media is in declining in profitability and left-wing editorial policies tend to alienate advertisers. Despite the limited commercial prospects, the super funds invested.

 

1993 - Enterprise bargaining

Industrial relation regulations reflect a government response to the eternal battle between unions and employers about what is a fair wage. For much of the 20th century, wages and conditions were determined Australia-wide by the Industrial Relations Commission. Arguably, corrupt union officials disliked governments setting wages because it eroded their ability to blackmail employers to give under-the-table payments to call off a strike. Employers also disliked governments defining wages because it prevented them from being able to use income as an incentive to improve productivity.

In 1993, the federal government (Labor) ended centralised wage-fixing and introduced collective bargaining at the enterprise level. In 2005, the Howard government (Liberal) promoted individual contracts to reduce union power and end reliance on industrial rewards.

Since the dismantling of the Industrial Relations Commission, a number of police and government investigations have found significant corruption in unions while some manufacturers have left Australia out of frustration with union activities. On the positive side, some businesses have been able to use individual contracts as an incentive for those workers who have the talent and work ethic to be of greater value to the company.

1996 - Goods and Services tax

To address a number of agendas, in the 1996, the federal government (Liberal) devised a goods and services tax accompanied by income tax cuts.

One agenda was to simplify the tax system with a flat rate of 10% on goods and services bought. Previously, goods were taxed at varying rates, which made accounting procedures inefficient.

A second agenda was to address tax avoidance. Among high income earners, it was common to use loop holes to avoid paying tax. Under a good and services tax, high income earners would still have to pay tax each time they purchased anything.

A third agenda was to address tax evasion. Businesses evaded tax by engaging in black market trading. By allowing businesses to claim the tax they paid on the goods they purchased as a tax deduction, the GST made it easier for the Australian Tax Office to track the inputs into a business in order to ascertain what revenues the business should be making.

A fourth agenda was to encourage savings. In theory, taxing someone by how much they spend rather than how much they earn should result in the more frugal members of society having more money available to deposit in the bank, which would in turn result in interest rates being lowered. In Australia’s situation, the tax cuts and GST were far too low for this benefit to be significant.

In 1998, Australia's richest man Kerry Packer he won a court battle with the Australian Tax Office to cut his three-year income tax bill from $40 million to nil; however, with a GST in operation, the government was still able to tax Packer according to his spending habits.

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Innovation and Creativity

Inventions
Thinking different

Economy
It could be described as post-Socialist but also as post Capitalist

Strine
Australian English reflects penal history and the influence of Aboriginal languages

Poetry
Defying stoicism

Painting
Landscape and Identity

Cuisine
Creativity in the kitchen

Movies
Once were popular

""Shouting", or rather its meaning, is peculiarly Australian. The shortest and most comprehensive definition of "shouting" is to pay for the drink drunk by others." Drinking

"Australia has been hailed as a saviour of our soi-disant movie industry. So it could be, irrespective of its box office earnings, if it leads to recognition that we don't have a film industry, despite expenditure over 20 years of $1.5billion in subsidies and perhaps another half billion in tax concessions." Movies

"Australians are very difficult to impress; even if you do manage to impress them, they may not openly admit it." Social Rules

"a confused mix of landscape, animals, and Aboriginal culture, with a kind of Bible overtone." Painting

"A determined soul will do more with a rusty monkey wrench than a loafer will accomplish with all the tools in a machine shop" Wisdom

"Gallipoli tends to seem strange to outsiders, as it appears to be a celebration of Australia's greatest defeat, but in essence it is rather a commemoration of those who died serving Australia in battle, be it warranted or not." Anzac

“We must be the only country in the world that marks its national day not by celebrating its identity, but by questioning it.” Australia Day

"He declared, confidently, that an immense number of women were dying for his diminutive highness, but became terribly angry, when an ugly, red-nosed publican with a hump-back, pretended to recognize him as an organ grinder strolling about with a monkey." Egalitarianism

"Yet there are some like me turn gladly home
From the lush jungle of modern thought, to find
The Arabian desert of the human mind,
Hoping, if still from the deserts the prophets come" Poetry