ipa review

ipa ReviewThe Institute of Public Affairs

JanuaryMarch

289 Flinders Lane, 1975Melbourne, 3000Telephone: 63 6558 Vol. 29, No. 1

An Unpromising Prospect

No year in the last thirty has opened so unpromisingly,indeed so ominously, as 1975. Clearly Canberra is in a state ofconfusion about where the economy is headed. Some peoplefear an economic cyclone that would lay waste the economycausing widespread hardship and the dislocation of plans andexpectations. For the first time since World War II the dreadedword "depression" is being heard, with disturbing frequency.

With unemployment over a statistical 300,000 (the realfigure is fortunately very much less) , the Australian Govern-ment is undertaking a reflationary operation. This includesthe 12i% devaluation of September last year, the easing ofrestraints on lending and on capital inflow, small reductionsin income and company tax, additional financial assistance tothe States, and import quotas to stimulate production andemployment in the motor car, textile and possibly other indus-tries.

These measures have been attacked either because of theiralleged inadequacy — the tax reductions for instance — orbecause it is believed that they will further fuel the inflationaryfires. — the devaluation and import restrictions for example —already burning out of control. A much more alarming critic-ism, however, is that while the reflationary measures could

IPA Review—January-March, 1975

An Unpromising Prospect (continued)

relieve unemployment later in the year, they are likely to leadto an even more serious inflationary crisis in 1976. This, inturn, could precipitate a total collapse of confidence and un-employment of critical social proportions.. With unemploy-ment mounting week by week, however, no Government,whatever its colour, could refrain from embarking on a policyof reflation.

There must nevertheless remain grave doubts about thesuccess of the attempts to reflate the economy while the busi-ness community's confidence in the Government is so palpablylacking. This want of confidence, which is now total, isscarcely surprising. From the moment it assumed office inDecember 1972, the Labor administration has left no doubtthat it has been out "to get" private enterprise. Its success inthis purpose is indeed largely responsible for the spate ofproblems now on its plate.

The private sector has taken such a mauling, both verballyfrom senior Ministers (Mr. Whitlam, Mr. Connor and Mr.Cameron in particular) and from Government policies onwage increases, taxation, mining, capital inflow, prices andother matters that business confidence has, been destroyed.There have also been mutterings from Dr. Cairns and Mr.Cameron that it is "the system", not the Government's policieswhich are responsible for the ills of the economy. The implica-tions of statements of this kind are perhaps even more demoral-ising to business enterprise and investors than the abject failuresof the Government in economic management.

The net effect of the Government's policies has been toreduce and transfer corporate income to individual wage andsalary earners and recipients of social welfare on such a scalethat the capacity and willingness of businessmen to invest inthe future have been virtually destroyed. The consequentialdecline in new employment opportunities and the recent rapidrise in unemployment have brought about an almost unbeliev-able change of attitude — at least on the surface — on thepart of the Government toward the private sector. Afterkicking the dog around for two years, the Government is now"tickling its tummy". It is surely the quintessence of irony to

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see the President of the Labor Party, Mr. Hawke, who mustaccept some responsibility at least for the current economicstagnation, now arguing that the restoration of profitabilityis an essential part of the cure for unemployment. Until afew months ago, he was repeatedly claiming, quite fallaciously,that business earnings were appropriating a larger and largershare of the national cake, leaving a diminishing portion forthe wage-earner.

The key to the employment problem lies, more than any-where else, in the revival of confidence in business board roomsand executive offices. Much more than small reductions orconcessions and easy credit will be necessary to infuse life intothe ailing private sector, to restore its "animal spirits", the in-tangible on which Lord Keynes placed so much stress. Biginvestments are made and large projects undertaken, not justor mainly because money is available, but because of an optim-istic, confident assessment of future prospects for the business,trade or mine. Assessments are influenced not only byeconomic and financial calculations based on cost-benefitanalyses, but also by the long-term political and industrial out-look. The almost uninterrupted record of economic growth inthe 1950's and 1960's was due as much to the confidence ofinvestors and business enterprises in continued political stabil-ity as to the generally favourable economic climate. (Indeedthere were a number of quite serious mistakes in national eco-nomic management.) The great expansion of the second halfof the 1960's had its genesis in unexampled mineral discoveries,but it is an interesting question whether these new-foundresources would have been developed under a Labor administra-tion, with its pathological hatred of the "multi-nationals" andof overseas money.

Apart from misgivings about the political intentions ofthe Labor Government, the greatest obstacle to the recoveryof business confidence is the fear that eventually inflation couldget completely out of hand. It is believed, with good reason,that uncontrollable inflation would lead to an economic col-lapse with disastrous effects on the value of investments andthe financial viability of many companies. Inflation hasreached the point where the future has become hazardous and

3 IPA Review—January-March, 1975


unpredictable. While these conditions continue, it is unlikelythat many businesses will be sufficiently bold to make firmlong-range plans.

The first, the prime task of the Government is to demon-strate that it has a credible policy for bringing inflation undercontrol. No one believes that it has such a policy. Only a planwhich provides a convincing guarantee that annual wage andsalary increases will be brought back to 6 per cent or underwill restore confidence.

The one "counter-inflationary" proposal in the Govern-ment's locker at the moment is the linking of wages to pricechanges. Indexation has now been under public scrutiny forover 12 months. When first suggested as a means of curbinginflationary cost increases, it was acclaimed with almost un-seemly enthusiasm by many people, not least by the majorityof academic economists. But, in fact, indexation also tendedto be looked upon favourably by the opposition parties, bymost of the press, and even by some businessmen, so much sothat its eventual introduction came to be regarded as a fore-gone conclusion.

But with maturer consideration, many people began tohave second thoughts. In the last two or three months, publicconfidence in indexation as a means of slowing cost inflationhas waned, almost to vanishing point. Only the Government(who may already be regretting its impetuous adoption of theidea) and the trade unions are now firmly wedded to it. Manyeconomists are perceptibly wavering, both the Liberal andCountry parties have belatedly come out in flat opposition,and the press now seems to have turned against it. The bestthat has recently been said for indexation is that, under certainconditions (the main one being that the unions will be pre-pared to severely limit their wage claims — which no one reallybelieves anyhow) indexation might result in a slightly slowerrate of cost inflation.

From the beginning the I.P.A. has made no secret of thefact that we regard indexation as a monstrous stupidity, that itsintroduction would be tantamount to a decision not to cure but

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to live with inflation. The fate of indexation now rests withthe Commonwealth Arbitration Commission. The Commis-sion carries an awesome responsibility; its determination couldmake or break the Australian economy.

One thing is crystal clear: there is no way of bringinginflation under control while wage costs continue to escalateat somewhere between 20 and 30 per cent a year. If indexa-tion could work at all, it could work only in the long run.But in the long run, anything can happen. In the next 12months to two years, indexation, on simple mathematicalcalculations, would ensure an inflation rate of close to 20 percent, at best. But by that time, the damage would be done.People do not wait for the long run. Unless inflation had per-ceptibly slowed in 12 months, faith in indexation would havevanished and confidence in the economy would have plungedto rock bottom.

Unless, too, there is a substantial improvement in profitprospects, there can be no lasting recovery in employment.Access to easy money holds little attraction for business unlessa satisfactory return on sound investments is a reasonable possi-bility. But indexation would virtually rule this out. Everyincrease in prices would be followed almost immediately by acomparable increase in wage costs, and industry would be"locked in" to its present dismal profit ratios. The PrimeMinister and senior Cabinet Ministers have now conceded thata turnround in employment is dependent on an improvementin "profitability". How is it proposed that this be done? Thatappeals for wage restraint fall on deaf ears is borne out not justby Australian experience, but by that of all other countrieswhich have relied on voluntary wage discipline. This is notbecause wage-earners in general and the moderate majority ofunion leaders are irresponsible, but because it needs only one"bad boy" to snatch more than his fair share of the cake andeveryone else will forget their manners and rush the table tograb what they can for themselves. This is the story of the lastthree or four years — what has come to be called the "leap-frogging" process. If there is to be any hope of arresting theprice spiral, this free-for-all must be terminated.



Any Government which is serious about solving inflationcannot escape from imposing a temporary ceiling on annualincome increases. There is simply no other way open to it.Political parties shy away from this step because they fear itwill be totally unacceptable to the community and will lead toan intensification of industrial unrest. Perhaps they are under-rating the moderation and good sense of 90 per cent of theAustralian people. They should try a little leadership. If theissue were frankly put to the people, the alternatives clearlydefined — on the one hand, rapid inflation, unemployment,arbitrary injustices on the weak, with the fearful danger ofeventual total economic collapse, and, on the other, the returnto sanity and stability, the guarantee that everyone, subjectedto the same restraints, would be treated equally, the end torunaway cost and price rises, the restoration of confidence andthe resumption of steady economic growth and all that thatmeans for employment prospects and improving living stan-dards — if the issue were put in these terms, is there any doubtthat the overwhelming majority of Australians would getbehind their leaders? What the people clearly want is an endto the present uncertainty, the slowing down of inflation anda return to full employment.

It will be argued that the Commonwealth Governmenthas no constitutional power to impose a ceiling on incomes.However, the ceiling could be introduced by agreement be-tween the States and the Commonwealth and thus with thefull moral and, presumably, legal authority of all AustralianGovernments. The Governments could issue an instruction toall wage-fixing tribunals, and to employers and unions, thatthis ceiling was not to be exceeded in wage adjustments. Thoseemployees who had fallen behind the general run at the date ofthe introduction of the ceiling — that their "relativity" wasout of line — could put their claim to the relevant wage-fixingbody. In addition, companies could enter into an undertakingwith the Government that, except in justifiable circumstances,their dividend rates would not be increased during the periodof the ceiling. Any increase in profits would be ploughed backinto the company for purposes of productivity improvements,expansion of operations and improved working conditions.


Along with the imposition of a ceiling on annual incomerises, the functions of the Prices Justification Tribunal shouldbe recast. The Tribunal was established as an instrument toassist in restraining inflation. Experience has shown it to be,in this respect, a total failure. More than that, the Tribunalhas contributed to economic stagnation and rising unemploy-ment because of wrong-headed concepts of industrial profitsin a period of soaring costs. Nevertheless, if the people are tobe persuaded to co-operate in a ceiling policy on incomes, theymay need to be assured that, so far as possible, profiteering willbe prevented. This should be the task of the Tribunal. It couldinvestigate cases where profits are believed to be excessive onits own initiative, or on a reference from a Government or anyother responsible body.

To make a ceilings' policy more acceptable to the people,rates of personal income tax should be re-cast to ensure thatwage and salary increases would benefit mainly the recipientsrather than Government revenues. A further and substantialreduction in company tax to 40 per cent or under is also desir-able to help restore profitability to the point where business isencouraged to undertake new investments. Both thesemeasures, of course, would need to be complemented byrestraints on expenditures in the public sector.

The central purpose of economic policy at the momentmust be to reinvigorate the .private sector. This requires are-birth of confidence and the restoration of profitability. Inturn, these depend on a general belief that the national Gov-ernment has a convincing policy to counter inflation, and thatit is prepared to acknowledge, in practical terms, the vital roleof private enterprise in the promotion of economic well-being.

Will the Labor movement be prepared to recognise in thefuture that the improvement of social welfare and the healthof private enterprise are inter-linked, that the latter is a con-dition of the former?


The Corporations & SecuritiesIndustry Bill 1974

The Bill is a quite extraordinary piece of legislation. In size, and also to some extentin content, it could not unfairly be described as a monstrosity.

The Bill creates a 5-man Commission on which it confers virtually unlimited powers tointervene in the affairs of public companies and Stock Exchanges. No right of appeal throughnormal legal channels against the decisions of the Commission is provided for in the Bill.There is no limit to the information which the Commission can demand from companies andStock Exchanges. The legislation takes an unprecedented, indeed revolutionary, step inempowering the Commission to appoint one of its officers to participate at meetings of boardsof Directors or shareholders.

The Bill prohibits members of the Stock Exchange from acting as Directors of publiccompanies. The ,Commission can suspend trading on the Stock Exchanges, without appealand without the need for reasons to be given to the Stock Exchange or to Parliament.Numerous other provisions of the Bill are of a quite arbitrary and dictatorial character. Inshort, the Corporations and Securities Industry Bill would open the way to bureaucratic pry-ing and interference in a strategic part of the private sector which already has to contendwith a surfeit of bureaucrats meddling in its affairs. It should be comprehensively re-drawn.

The Corporations and Securities In-dustries Bill 1974, introduced into theSenate by the Attorney General inDecember last year, passed the House ofRepresentatives in February. This largeand highly controversial piece of legisla-tion has yet to run the gauntlet of theSenate.

The Bill is the outcome of the Reportof the Rae Committee established by theLiberal-Country Party Government inMarch, 1970, to investigate the opera-tions of the Australian securities marketfollowing the feverish stock exchangeboom and speculation in mining sharesof 1969/70 in which tens of thousands ofpeople participated, often with disastrousfinancial consequences. The professedintention of the Bill is to protect thepublic from abuses of the kind thataccompanied the boom.

It is only right to say that many,although far from all, of those who lostmoney in the mining boom were the vic-tims of their own foolish indiscretions,their desire "to get rich quick", and theirpersonal failure to check properly on thebona fides of companies to which they

entrusted their savings. They were aneasy prey for unscrupulous promotorsand manipulators.

The Rae Committee noted that it "isseriously concerned about the inadequacyand ineffectiveness of the present regula-tion of the Australian securities market,of related activities of public companies,and of the corporate managers of someinvestment companies and investmentactivities". The Committee went on tosay that it had "discovered numerousinstances of improper practices . . . con-siderable evidence of insider tradingmanipulation and other abuses in thestock market". The Rae Committee alsocriticised the frequent and serious failureto provide accurate and timely informa-tion. The Committee concluded thatthere was need for legislation to meet thetwo objectives of promoting an efficientcapital market and protecting the invest-ing public. Its main recommendation wasthe establishment of a Commission toregulate the securities industry and ad-minister public company law.

'The Bill is concerned with two majorareas:—

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(1) The Stock Exchanges and theSecurities Market and

(2) The conduct of Public Corpora-tions.

The purposes of the Bill are to beachieved through the establishment of anadministrative authority to be known asthe Corporation and Exchange Commis-sion (C.E.C.). The Commission is to becomprised of a Chairman and four othermembers appointed for a seven-yearperiod. Most public companies will berequired to register with the C.E.C. TheCommission will have powers to makerules and, in practice, through Govern-ment, to issue regulations covering amultitude of matters. The Bill also re-quires the C.E.C. to promote the estab-lishment of a national stock market.

The C.E.C. is empowered to demand awide range of information from publiccompanies and from stock exchanges andcan specify information and data to becontained in prospectuses issued for theraising of money from the public. It hasthe right to appoint one of its own offic-ers to attend and to participate in meet-ings of directors and shareholders ofregistered companies. The decisions ofthe Commission cannot be challenged inthe Courts and appeals can only be madeto an administrative Tribunal to becreated by legislation. Among the dutiesof the Commission, specified in the Bill,is the promotion of Australian owner-ship of industry. There are special sec-tions in the Bill dealing with InvestmentCompanies and take-overs.

At present the operations of companiesand stock exchanges are regulated byState laws embodied in the various com-panies and securities Acts. The Corpora-tions and Securities Industry Bill wouldmean, in effect, a massive transfer ofpower over companies and stock ex-

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changes from the States to the FederalGovernment.

Potentially, there would now be foursources of law by which the affairs ofbusiness will be governed in Australia.These sources are, first, the Corporationand Securities Bill itself; second, regula-tions made by the Government under theBill; third, rules made by the Commis-sion; and fourth, relevant State law. Theconsequent confusion confronting busi-

- ness will be enormous and is exacerbatedby two further factors. First, clause 18 ofthe Bill provides for the Commonwealthlegislation to overide State laws. It is notclear whether companies which registerwith the C.E.C. have to register withState authorities as well; nor whetherprospectuses registered with the C.E.C.also have to be registered with the Stateauthorities. The second factor is that ingeneral the Commission may make ruleswith respect to matters which may alsobe • governed by regulation. Such rulesare valid until regulations are madewhich are "inconsistent" with it. Thisonly seems to add to the tasks of busi-ness in ascertaining what law at a par-ticular time governs a specific subjectmatter.

Nobody will deny the need for meas-ures to ensure the more efficient opera-tion of the capital market and to guardthe investing public against unscrupulouspromoters and speculators. However,there must be grave doubts whether theproposed legislation in its present formis the most desirable way of meetingthese important objectives.

On the basis of past experience (forexample, the Prices Justification Tri-bunal) there is a manifest danger that thebureaucrats appointed to administer theBill will interfere unwisely in the opera-tions, economics, and profitability ofpublic companies in such a way as to do


The Corporations and Securities Industry Bill 1974 (continued)

more harm than good. In the long runsuch interference could lead to a re-definition of the purposes and obligationsof public companies by outside peoplewithout practical experience of the com-plexities of company administration.

The most disturbing aspect of thelegislation is the quite extraordinary, onemight say dictatorial, powers granted tothe proposed Corporation and ExchangeCommission. Industry, already over-burdened with bureaucratic controls andinterference with its activities, will nowhave to contend with a new instrumental-ity armed with unlimited authority to de-mand information and against whose de-cisions there is no right of appeal throughnormal legal channels. The Commissioncould be composed of men unfamiliarwith the day to day problems of businessand yet responsible for the regulation ofthe activities of companies registered withit.

There is virtually no limit to the in-formation which the Commission couldrequire from registered public companiesand from the stock exchanges. In all theinformation demanded by the Commis-sion, whether routine periodical reportsor otherwise, the Commission is em-powered to prescribe whatever detail anddata it wishes. For instance, the Bill con-tains a clause authorizing the Commis-sion to receive reports relating to "theoperations of the corporations". Thesereports must contain such information asthe Commission prescribes. This clearlymeans that there is no detail of a com-pany's activities than can be withheld.

It may be argued that the Commissionmust have these powers if it is to carryout effectively the tasks for which it isestablished. However, one can be justifi-ably concerned at the time and energywhich companies may have to expend insatisfying the Commission's appetite for

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information, time and energy whichcould be far better used in promoting theaffairs and more efficient operation of thecompany.

A much more alarming aspect of theprovisions relating to information is thedanger of divulging matters of a confi-dential nature concerning a company'sactivities. For instance, the Commissionhas power to make rules with respect tothe issue of a prospectus, prescribing thedocuments to be lodged with the pros-pectus and the precise matter to be in-cluded in the prospectus itself. A pros-pectus, however, is a public documentand a company might thus conceivablybe forced to reveal information of ad-vantage to competitors. Unless the Com-mission is comprised of men of excep-tional discretion and understanding, thedangers of such powers are manifest.

A similar invasion of accepted con-cepts of privacy and secrecy is also madepossible by the provisions relating tomembers of stock exchanges. Section 86of the Bill provides for a register show-ing the interests of dealers in securitiesin registered public companies. It is un-arguable that information of this kind isessential for a body concerned with theabuse of insider trading. But the registeris to be open for public inspection. Thisinfringement of privacy might be over-come by limiting the right to inspect theregister to the Commission or to personsauthorized by the Commission. It shouldbe noted that broking firms now notifyclients of any interest they may have insecurities they recommend.

The Bill prohibits stock exchangemembers from acting as directors ofcompanies listed on the exchanges. Thepurpose here, of course, is to preventwhat could be an undesirable conflict ofinterest. But this restriction on membersof stock exchanges could not only be


detrimental to their own personal inter-ests, but also to the most efficient con-duct of business and thus the interests ofthe community. In a sense, it amountsto an infringement of the traditional rightof the individual to apply his talents tothe best advantage in pursuit of a liveli-hood. Also many stock exchange mem-bers are equipped with a special kind ofexperience which is of value in the de-liberations of company boards — just aslawyers and accountants, for instance,act on boards as non-executive directorsbecause of their specialist qualifications.

The Bill, incidentally, discriminatesrather illogically against members ofstock exchanges because it permits otherdealers in securities to sit on companyboards. If there is a conflict of interestin the case of the former, why is itabsent in that of the latter? It might beargued, too, that directors, other thandealers in securities, could also be facedwith conflicts of interest especially wherethey are directors of a number of com-panies whose business is competitive.

It would surely be possible to make lessdrastic provision to ensure that the abuseof insider trading is effectively prevented.To a large extent insider trading hasalready been covered in recent Statelegislation, and indeed other provisionsin the proposed Bill are designed toensure that a dealer-director will notabuse his special position.

An even more questionable feature ofthe Bill is the section permitting theCommission to appoint an officer toattend meetings of Boards of Directorsor of shareholders or debenture holders.of registered companies. The officer isnot merely to be an observer but isentitled to express his views. This is anextraordinary provision not only becauseof the confidential nature of many of thematters discussed at board meetings but

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also because it conflicts with the formalstructure of companies. The only peoplestrictly entitled to attend a board meet-ing are those representing the sharehold-ers — that is the owners of the company— or those invited to attend meetings inorder to assist the directors in their work.What, it might be asked, would be thereaction of Trade Union officials, ifGovernments were able to insist that oneof their representatives should sit in ontheir discussions? The question has onlyto be asked to be answered. In businesscircles this clause of the Bill has cometo be known, not without justification, asthe "spy" provision.

The tremendous powers conferred onthe C.E.C. are not balanced by any rightof appeal against its decisions throughcustomary legal channels. An aggrievedparty is denied the right of access to thecourts and thus to be dealt with underthe concept of natural justice. The onlychannel of appeal against the decisionsof the Commission is to an Administra-tive Tribunal to be created under the Act.The precise composition and functions ofthe Tribunal have yet to be defined.

A pertinent example of the dangersinherent in the powers of the C.E.C.,and the denial of access to the Courts,arises out of Sections 60 and 61 of theBill. These sections empower the Com-mission or the Government to suspendtrading in specific securities or in allsecurities. There is no appeal againstsuch a suspension and where the suspen-sion is executed by the Government thereis no need for reasons to be given to thestock exchanges or to Parliament.

* *

The criticisms we have made of theBill do not, of course, mean that theserious abuses revealed by the Rae Com-mittee and the recommendations of itsReport should be ignored. No right-


The Corporations and Securities Industry Bill 1974 (continued)

thinking person would deny the respon-sibility of the Government to take strongaction to guard against a recurrence ofthe kind of situation which developedduring the mining boom of 1969/70.But the Bill, in its present form, hasmanifest dangers and in many cases pro-vides for quite unwarranted bureaucraticinterference in the operations of in-dividual companies and of financial andsecurities' markets.

Business has already to contend with asurfeit of bureaucrats meddling in itsaffairs and this new Bill, unless drastic-ally revised, will make confusion worseconfounded..

The Commonwealth Government hasblatantly seized the opportunity pre-

sented by the need for the better regula-tion of security markets, in particular theprevention of insider trading, to greatlyextend its control over the private sectorof the economy.

The Bill should be comprehensivelyredrawn so as to strictly define, and im-pose limits to, the powers of any bodycreated to administer its provisions, andto overcome the legal confusion to whichthe Bill would inevitably give rise in itspresent form. The amended Bill shouldalso take account of existing and recentState Laws, and recent amendments madeby Stock Exchanges to their own rules,both designed to give better protectionto investors than existed at the time ofthe 1969/70 mining boom.

Cecil McKay — It Wasn't All Sunshine

In the review of "Cecil McKay — It Wasn't All Sunshine" by MarjoryMcKay in the October-December "Review", we omitted the name ofthe publisher. This is "The Hawthorn Press Pty. Ltd.", 601 LittleBourke Street, Melbourne, 3000.

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New Members of I.P.A. Council

Two leading businessmen, Mr. L. W. H. BUTTS, C.B.E.,C.St.J. and Mr. R. A. SIMPSON, have accepted invitations tojoin the I.P.A. Council.

Mr. L. W. H. BUTTS, C.B.E., C.St.J.Mr. Butts is a consultant to Morris Fletcher & Cross

Solicitors, Brisbane. He was President of the Law Council ofAustralia 1954/55. He is a Director of R. M. Gow & Co. Ltd.,Chairman of the Queensland Board of Colonial Mutual LifeAssurance Society and a member of the Queensland Board ofElder Smith Goldsbrough Mort Ltd. Among his other interestsMr. Butts is a Director of the Elizabethan Theatre Trust andDeputy Chairman of the Council of Griffith University.

Mr. R. A. SIMPSONMr. Simpson is a Director of several companies including

Simpson Pope Holdings Ltd., Brighton Cement, Adelaide Ropeand Nail, Onkaparinga Textiles, Australian Innovation Cor-poration and Colonial Mutual Life Assurance Society (S.A.Board) . He is a member of the Australian Universities Com-mission and of the Council of Flinders University. Mr.Simpson is also a member of the A.A.E.C. Advisory Committeeand a member of the Council, Chamber of Commerce andIndustry, S.A.

It is anticipated that these gentlemen will form small com-mittees in Brisbane and Adelaide to assist in promoting thework of the I.P.A.

In Western Australia a very active I.P.A. Committee wasestablished last year under the Chairmanship of Mr. L. C.Brodie-Hall, an I.P.A. Councillor who is the resident Directorof the Western Mining Corporation in Perth.


Every Man His Own Architect

The Institute believes that Australia is at a great turning point inits history.

In the next decade or two we will either proceed irreversibly alongthe socialist road or we will reaffirm our faith in traditional Australianvalues — values which have their roots in our early history — ofindividual enterprise and self-reliance. The issue will be decided notso much by political parties as by the people themselves.

If we choose the former we must be prepared for Government totake a bigger and bigger part in the direction of our lives. This wouldbe a momentous decision. All Australians should think carefully wherethey stand.

The I.P.A. has always insisted that the individual person is all-important, that Governments exist to serve the people, not to rule them.

There is much more than economics involved in this transcendentissue. It touches the very depths of our natures. It concerns the extentto which we want to stand on our feet as individuals and be responsiblefor shaping our own lives by our choices.

One of the great minds of the present century, the British philoso-pher, Macneile Dixon, has presented the issue confronting us in graphicterms, in an inspired piece of writing. The following is extracted fromhis book "The Human Situation". It was written in the 1930's but istotally relevant to our present dilemma.

There is a wealth of meaning in almost every sentence. The pieceis not one to be read lightly or hurriedly but to be re-read, studied,contemplated and discussed.

"Men cannot get along without religion. If one is aban-doned another is adopted. And all our humanitarianism, allour philanthropy and welfare work are efforts to fill the greatspiritual void left by the decay of faith, drab substitutes forthe older creed. The spirit of man craves a friendly God, andyou give him economics. He asks for immortality, and yousay, 'Be content, here is beer and bacon'.


Since there is nothing beyond the present to be hoped for,let us make the only lives men will ever know less pitiablywretched. As the tide of religion has receded, the tide of thiscreed, the only alternative, it seems, has correspondingly risen.Miracles, once the province of the Church, will now be per-formed by the' State, which will provide a heaven on earth,here and now. I am not to be understood as decrying human-ity, kindness, philanthropy. These are no new things. Theywere not discovered yesterday. It is the gospel that is new.These things have always existed, and will continue to exist.There was plenty of kindness in the world, before it was setabove the Olympian gods, above truth, and freedom andjustice, before emotionalism was placed upon the throne ofZeus and took the wheel of the universe. In the new Gardenof Eden, when we enter it, there will be good roads and watersupply, unlimited picture houses, unstinted soft drinks, excel-lent sanitation, and humane slaughtering, the best of schoolsand wireless installations for everyone, free concerts and lec-tures for all. There will be no far horizons and invinciblehopes. We shall cease to think of birth and death, of the in-finite, of God, and the sublime secrets of the universe.

I am not much in love with these sixpenny Utopias. Menhave other thoughts than these — thoughts that wanderthrough eternity, and projects unattainable in time. Howchildish to think that the world's griefs are all of economicorigin. Our world planners have great designs for the fillingof empty stomachs. Let them ponder the more intricate prob-lem — the filling of empty hearts.

The troubles of the world have been assigned to a greatvariety of causes. The giant or dragon to be slain is differentlypictured in different generations. In one age monarchs aredeclared the public enemy, in another the aristocrats, in an-other the bourgeois class, or the capitalists, the bankers or theJews. The millennium is not yet, however, in sight.

And under whose leadership are we to advance towardsit? There is never any lack of seedy reformers who supposethemselves entrusted with a divine mission for the bettermentof the human lot, "sky-blue idealists", as Carlyle called them,kind hearts and muddy understandings, "potato" philosophers,


Every Man His Own Architect (continued)

who see their way to provide beef and beer, or preferably beefwithout beer, for everyone from East to West; the grass-greenenthusiasts, who in their mind's eye see men over all the earthsitting for ever at their cottage doors, festooned with ivy andhoneysuckle; who are persuaded that if wars should cease,gambling be put down and love-making rendered respectable,if men in their more energetic moments were given a ball toplay with, a harmless woolly ball, God would be better pleased.

Even morals become a nightmare when we reflect uponits self-appointed representatives. What sort of world wouldit be in which Wesleyanism or Anglicanism ruled the scene?In which throughout its breadth and length not a soul everkicked over the social traces, in which there were no idlers, orspendthrifts, or jesters or Sir Fopling Flutters? Does anyonein his senses really wish for an undiluted respectability through-out eternity? A perfectly ordered world is not, though it maybe to yours, to everyone's mind. Some would prefer a dis-orderly as vastly more interesting, and a risky life as betterworth living and infinitely more attractive. Must we lookforward to wholly conventional lives, all alike, on the modelof a colony of ants, in standardised buildings, with hot waterprovided, lifts and electric light, where all men think the samethoughts and pursue similar ends? If this be what is promisedus, then indeed the life of all our blood

Is touched corruptibly, and the purebrain,

Which some suppose the soul's fraildwelling-house,

Doth by idle comments that it makesForetell the ending of mortality.

Science has worked -wonders in our time, and may be con-fidently expected to work still greater wonders. The Utopianarchitects, as might have been anticipated, have turned to hergenius for assistance and encouragement. If science be per-mitted to take matters in hand no bounds can be set, ProfessorHaldane assures us, to human progress. Diseases will, of course,be banished. Men, he predicts, 'will be able to think likeNewton, to write like Racine, to paint like the Van Eycks, tocompose like Bach. They will be as incapable of hatred as St.Francis'. Man's life will probably be measured by thousands


of years, 'and every moment of his life will be lived with thepassion of a lover or discoverer'. One can see it will all bevery wonderful. Professor Haldane is man of science, thegrand manner of the prophets sits well upon him, and I haveno kind of claim to challenge his forecast of what science canperform. It may be that the Professor Haldanes of the futurewill be able to manufacture any kind of men to order, cynicsor saints, chess-players or engineers, poets epic or lyrical, orany brand of humorist, philosopher, Adonis, or AdmirableCrichton to suit the requirements of society.

And what more could you want? Well, shall we say, forone thing, justice, a small matter which this programme doesnot include? Would you in possession of this heaven uponearth be content to forget the past sufferings of human kind?Would a happy lot for men and women to be some day bornobliterate or compensate for all that the previous generationshave endured? Do not these humanitarian schemes overlook,with a singular inhumanity, the millions who have perishedwithout even a glimpse of the glories to come? They are of noaccount. Yet what have the new-corners done to deserve thefelicity denied their predecessors, and will they be of any greateraccount when their day, too, has come?

Oh dreadful thought, if all our siresand we

Are but foundations of a race to be, —Stones which one thrusts in earth, and

builds thereonA white delight, a Parian Parthenon,And thither, long thereafter, youth and

maidSeek with glad brows the alabaster

shadeNot caring that these mighty columns

restEach on the ruin of a human breast, That to the shrine the victor's chariot

rollsAcross the anguish of ten thousand souls!

The thoughts of our well-meaning reformers appear to bedirected to one end only, the cessation of strife, and the con-sequent cessation of effort, for which there will no longer beany need. But how false it is to suppose that human beings


Every Man His Own Architect (continued)

desire unending ease, unthreatened safety, that their summumbonum is cushioned comfort, a folding of the hands to sleep.That way madness lies. What then is left to occupy their inter-est and attention? They desire rather difficulties, such is theirnature, difficulties to elicit their powers, to keep them alertand wakeful. They wish to be alive. In the absence of resist-ance to desires, desires decay,, and an intolerable, an appallingtedium invades the soul.

Whose lives do we read with interest and admiration? Thelives of men lapped in comfort from the cradle to the grave?Or of those who in the face of odds have accomplished theirends, good or bad? When the soul of man rises to its fullstature, with what disdain does it regard the sweetmeats andthe confectionery. In their anxiety for human welfare, in theircollectivist schemes, the sentimentalists have overlooked theindividual man. They submerge him in the sea of their uni-versal benevolence. But who desires to live in the pauperdomof their charity? Every man desires to be his own architect,and the creator of his own design, the sentimentalist himselfamong the rest. And the last and greatest insult you can offerto the human race is to regard it as a herd of cattle to be drivento your selected pasture. You deprive the individual of his lastrag of self-respect, the most precious of his possessions, himself.If you treat him as a thing, an inanimate object, which can bepushed hither and thither, if you treat him as one of a droveof oxen, you take away his birth-right, and for his loss nothingcan compensate him, not all the soothing syrups and honeys ofthe world.

To its eternal honour Christianity has stood steadfastlyfor the sanctity of the individual. To imprison the humanspirit is the unpardonable sin, the attempt to make men auto-mata, to force them into the same mould. No means will everbe found to induce human beings finally to surrender them-selves, either body or soul, to a dictated felicity, to satisfactionschosen for them, whatever vulgar Caesars rule the world. Andupon this rock all forms of regimentation, of standardisedexistence will eventually shipwreck.

Every type of compulsion is hateful, always has been, andalways will be hateful, as long as men are men. Was this free-


dom about which the poets have raved since the world began,for which men have died in millions, worth the bones of asingle soldier? Have you ever asked yourself why men havefought for liberty? Not for amusement. Freedom they musthave, whether they know or not what to do with it, freedomto choose cause or party, order or disorder, the good or the bad,to steer each his own vessel to the port of his desire. Take awayhis choice, and you make of him, for all your benevolent inten-tions, a chattel or a slave. There is a rebel in every man; menwill revolt and demand again their freedom. As Dostoievskyexpressed it, when everything is smooth and ordered and per-fect, 'in the midst of this universal reason there will appear allof a sudden and unexpectedly some commonfaced, or rathercynical and sneering gentleman, who with his arms akimbo willsay to us, "Now then, you fellows, what about smashing allthis reason to bits, sending their logarithms to the devil, andliving according to our own silly will?"' And he will havefollowers in their thousands. Men desire the strangest and, intheir neighbours' eyes, the most incomprehensible, the mostirrational, the most preposterous things.

The astonishing thing about the human being is not somuch his intellect and bodily structure, profoundly mysteriousas they are. The astonishing and least comprehensible thingabout him is his range of vision; his gaze into the infinite dis-tance; his lonely passion for ideas and ideals, far removed fromhis material surroundings and animal activities, and in no waysuggested by them, yet for which, such is his affection, he iswilling to endure toils and privations, to sacrifice pleasures, todisdain griefs and frustrations, for which, rating them in valueabove his own life, he will stand till he dies, the profound con-viction he entertains that if nothing be worth dying for noth-ing is worth living for.

The inner truth is that every man is himself a creator, bybirth and nature, an artist, an architect and fashioner ofworlds. If this be madness — and if the universe be themachine some think it, a very ecstasy of madness it most mani-festly is — none the less it is the lunacy in which consists theromance of life, in which lies our chief glory and our onlyhope."


Inflation — Everybody'sResponsibility

Thoughtful people are gravely disturbed as Australiadrifts deeper into the inflationary morass. There seems to belittle leadership at government level and an almost totalabsence of restraint in many vital areas of the economy.

In order to obtain a better public understanding of theproblem the I.P.A. published in September, 1974, a specialbooklet "INFLATION — Everybody's Responsibility".

This has been designed for wide distribution among peoplein all walks of life, especially among industrial and office em-ployees, and for use by students and teachers. There havealready been requests for over 200,000 copies. This is an excep-tional reaction.

We have received orders from about 300 companies foremployee distribution. These orders varied from 50 to 5,000copies. In addition 23 companies contributed to the cost ofsending some 5,000 copies to schools for use in economicsclasses.

Three companies, Associated Pulp and Paper Mills Ltd.,BH South Ltd. and Western Mining Corporation, have beenso impressed with the value of the inflation booklet that theyhave sent a copy to each of their shareholders at the time ofposting their Chairman's Addresses or reports. We hope thatother companies will follow these examples.

Extracts from the booklet have been printed in manynewspapers and journals and we have been very gratified bythe many favourable comments received.

Australia and private enterprise are facing severe chal-lenges. The I.P.A. hopes that companies will help to achievethe widest possible distribution of the booklet. $100.00 willpay for 400 copies to be distributed to employees or classes inschools.

Success in the battle against inflation depends on thestrength of public resistance to it. In Sir Roland Wilson'swords "Every citizen must become a soldier." "INFLATION— Everybody's Responsibility" would be a valuable handbookfor the "soldiers" knap-sack.


"The Corporate Finance Crisis"by

SIR JOHN MARKS, C.B.E.

The author is the Chairman and Managing Director of Development FinanceCorporation Ltd. and Chairman of F. & T. Industries Ltd., as well as a memberof other company boards. He is a Commissioner of the Electricity Commission,N.S.W., and a member of the Council of Macquarie University.The progress made during the five

years ended 1969 made me confidentthat the Australian people were well onthe way towards attaining the higheststandard of living in the world, but inrecent years the growing number ofdemonstrations, confrontations and pro-tests would have made most of usaware that something had gone wrongbecause every section of our society ap-pears to be dissatisfied with, or angryat, something or someone.

Some of us may have been awarethat our policies and attitudes could onlylead to a painful day of reckoning, butI suggest that very few of us could haveanticipated that we would be debatinga "Corporate Finance Crisis" before theend of 1974.

As a trading nation our economymust be affected to some degree byworld economic conditions, but oureconomy is quite different from those ofless fortunate countries with whom weare being compared as an excuse forour current economic problems. We donot, as yet, have to import substantialquantities of oil; we are self-supportingin food, minerals and most rawmaterials; and we had a secondary in-dustry capable of meeting, if necessary,the greater part of our requirements formanufactured goods. We are indeed aprivileged nation and when one con-

siders the vastness of our continent, itsabundant wealth of resources and theopportunity we have of developing pro-jects which would provide self-satisfyingand rewarding employment, it is a sadstate of affairs that we are now contend-ing with growing unemployment, andunless policies and attitudes are changedpromptly many people will be cruellydisplaced from their life-time trade.

The health of the body corporate isnot in good shape. Escalating costshave taken away export markets and,worse still, destroyed its ability to com-pete successfully against imported goods..Other disturbing symptoms are its in-ability to cope with high interest ratesor conserve its working capital from therapid erosion that is taking place onaccount of inflation.

Make no mistake about it: the con-tinuing existence of our corporatestructures and for that matter our freeenterprise system are being threatenedby inflationary policies and attitudes. ,

Continuance of the current rate ofinflation would cut savings in half inapproximately four years and this, ineffect, means that a company to main-tain current levels of production would,before provision for taxation, requiresufficient earnings in two years to re-place its present total investment inproductive plant and current assets.

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"The Corporate Finance Crisis" (continued)

Inflation can be likened to an insidiousform of tax which if not checked willsocialise our free enterprise system andinevitably take away from our peopletheir freedom of choice on selection ofgoods and even selection of theiremployment.

This leads me to stress that realismin accounting is a vital national need asis the creation of wealth. If a companyfails to provide properly for replace-ment of fixed assets and, indeed, stock.before striking a figure for profits; or ifthe Government takes away in taxationa proportion of so-called profits whichwere never really profits at all; in eithercase the nation is eating the seedcornand deluding itself into thinking that itis making adequate provision for invest-ment when it is doing no such thing.

There are also dangers in inadequatepricing which prompts the thought in mymind to enquire whether the PricesJustification Tribunal in fixing pricesgives any consideration at all to thenecessity of preserving a company'scapital from the erosion that is cur-rently taking place.

Many economists have expressed theirviews on demand inflation, cost inflationand adequate warnings have been giventhat if Government endeavours to checkinflation by placing too much reliance onmonetary measures, the least difficult tohandle in a political sense, our countrywill surely suffer stagflation which hasalready destroyed the economies ofother nations.

However, for some time I have beenconvinced that the problem of inflationin the developed world is a politicaland social problem, rather than aneconomic one, because with our demo-cratic way of life we have been far tooprone to enquire why the Governmentdoesn't do this or the Government

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doesn't do that which has led to growingGovernment expenditure financed bygrowing taxation and the creation ofadditional credit. The Government, inproviding additional social services, hasbeen a major contributor to demandinflation because it has placed an addi-tional demand on our national resourcesbeyond what could be prudently madeavailable from the level of productivityachieved. I suggest the Government hasalso been a major contributor to costinflation in that far too little attentionhas been paid to the additional nationaloverhead that it has placed on theshoulders of our productive enterprises,both primary and secondary.

Figures available on final Govern-ment consumption expenditure indicatethat in the early '60's the Governmentshare represented 13% whilst four yearsago it represented 17% and last year ithad climbed to 19.4%. In money termsthe Government annual consumptionexpenditure has climbed from $1,323million in 1959/60 to $6,869 million,an increase of no less than $5,546million. The figures quoted cover Gov-ernment consumption, not Governmentcapital expenditure, so I suggest thatyou ponder on the so-called "free"services which are now costing thecommunity $132 million per week, orto put it another way, every man,woman and child over $500 per annum.You may then have a better appreciationof the heavy load that is being carriedby our real producers.

Where I, for one, believe that thosein receipt of income should make a faircontribution towards providing adequatesocial services to the aged and lessfortunate in our community, I lookforward to the day when our electoratebegins to appreciate that certain personalrequirements can be more economically


provided from their own personal sav-ings, enhanced by lower taxation, thanbeing provided by Government which,like any other enterprise, must coveroverhead items in costing out servicesprovided.

Continuance of current policies onlyincreases the propensity to spend whilstreducing the propensity to save, hencethe "Corporate Finance Crisis" becausesavings are inadequate to create invest-ment funds which are so necessary toprovide our people with rewarding em-ployment. No doubt we will one dayhear that Government participation isnecessary to meet industry's capitalrequirements. Unless we take urgentsteps to change the trend this willsurely be the case because our capitalmarket will be destroyed by Governmenthaving taken the nation's savings withthe thought that it can invest them morewisely than those who have provided thewherewithal.

Without wishing to • appear over-cynical, I fear that we may be providingmany people with education of a typefor which no suitable employment willbe available. We have already enjoyedhealth facilities equal to most nations,but I doubt whether the health of thenation can be improved to an extentthat people can happily live withoutshelter, because our housing industry,like other valuable industries whichwere developed for the nation's welfare,is now being rapidly dismantled by un-realistic attitudes and policies.

Australia is fortunate in havinghighly competent people in senior posi-tions in our public service and if thepolicy decision is made to reducenational overhead I have every con-fidence that our Treasury and seniorpublic servants in other departmentswill, if given the opportunity, evaluate

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the .cost and worth of many servicesthat have been built up during theyears and we will be on the way towardsreducing the excessive tax burden that isstifling the initiative and productivity ofthe nation.

The taxpayer is entitled to receivegreater protection from the whims andfancies proposed by numerous misguidedsocial reformers. Unfortunately there isno tax price tag attached to politicalpromises, or for that matter in electoralcampaigns are our people informed thattheir acceptance of some of the politicalpromises made could create economicconditions that lead to socialisation andfurther denial of their freedom of choice.

Those who have travelled overseashave sighted numerous instances of howthe so-called "welfare state" has des-troyed personal initiative, the enterpriseof the nation and lowered the standard ofliving. Do not let it happen in Aus-tralia. The sands of time are runningout fast and there is an urgent need forour people to understand the dangersthat confront them.

The initiative and competitive effici-ency of the corporate structure are whathave provided the world with the goodthings in life as well as the money fromemployment to buy them and it is es-sential that our people are made awareof what our free enterprise system hasachieved. The industrialist does notwant unemployment if only because thesuccess of the free enterprise system isdependent upon having a prosperouswork force to create an adequate marketfor the goods produced. National over-head carried by productive enterpriseshas increased substantially by the ap-parent desire to centralise Government


"The Corporate Finance Crisis" (continued)

at the National Capital and it has be-come painfully obvious that our eco-nomy and people have suffered un-necessarily by decisions made too faraway from the realities of the marketplace. We now have evidence that itwas the action of union leaders whichprompted Government to reverse deci-sions that_ had created unemploymentand hardship for our work force and topay more attention to the welfare ofour corporate structure.

Upon reflection you will appreciatethat the requirements of industry andcompetent union leaders are verysimilar; namely, they are seeking pro-ductive enterprises that can afford topay rewarding remuneration to ourwork force. It is no accident that ahigher standard of living exists in thosecountries where union leaders supportthe free enterprise system instead ofpursuing the socialist track which leadsto disaster.

Our future demands that business,both large and small, must strive toregain the spirit of independence thathas contributed so much towards thedevelopment of Australia. I suggestthat instead of requesting the Govern-ment to do something, the enlightenedindustrialist should strive to obtain abetter rapport with the enlightened unionleader because like corporations theother wealth producing sections of thecommunity are being bled white by in-flationary policies and excessive taxation.

The very survival of our corporatesystem and for that matter free enter-prise is dependent upon restoring aclimate which is rewarding to people

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who are prepared to work harder andto those who save to provide funds forinvestment in productive enterprises.

The socialist will argue that if heceases to create sufficient credit for hiswelfare programme or retrench hispeople engaged in soul-destroyingpastimes such as unnecessary frustratingsupervision or conducting a paper war-fare, unemployment will be increased.What utter nonsense in a country likeAustralia which is not over-populatedand has such abundant wealth ofresources to be put to use for the benefitof the world.

Prior to being starved for funds bythe National Government, our StateGovernments were accustomed to call-ing for competitive bids to create publicworks which improved our infrastructureand productivity. The socialist doesnot favour the competitive system norwould he consider granting incentiveby the provision of a personal tax credit,similar to an investment allowance to acorporation, to encourage some socialbenefit such as people owning their ownhome. This approach to our problemswould only tend to thwart his politicalambitions.

Stagflation and growing unemploy-ment will be with us whilst presentGovernment policies continue and thereis an urgent need to reduce Govern-ment consumption expenditure to makeavailable a greater proportion of fundsfor the productive sector. There is alsoan urgent need to establish more appro-priate priorities of what is expected ofGovernment, both Federal and State.I have the greatest respect for the soundcommon sense of the Australian peopleif the important issues involved are pre-sented to them- in a proper fashion.


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