This month's Bulletin

The National Liberal Coalition parties have not won a single new vote since John Howard was first elected Prime Minister in 1996. ...can anyone think that an already minority Coalition Government can reverse five years of steady national losses in the five months or so before this year's federal election? ...The decisive difference between the two major parties...is the different intensities of their commitment to economic rationalism... It is this difference... that links Labor with One Nation...which has now suppressed most of its racist rhetoric... Effectively, it is now operating as an anti-economic rationalist Labor surrogate. [Christopher Shell, (author of Water's Fall, Running the Risks with Economic Rationalism, Pluto Press, Sydney) in Australian Financial Review 14.2.01]

Peter Jonson, former R.B.A. economist, now a company director, considers that we are experiencing the first new-economy downturn. The speed of the swing in economic activity seems to be a natural consequence of the speed with which information now flows, with corresponding speeds of reaction by most businesses. Companies are more finely honed than ever before. They can run closer to full capacity, giving faster productivity growth. But by the same token, they are readier to cut costs if sales decline. And labour markets are far more flexible. Consequently, once a downturn starts, it accelerates more. The big question is whether this rapid new-economy downturn will reverse itself just as quickly? [AFR 8.2.01]

A United Nations paper on Mergers and Acquisitions (M & A) notes their main motivation relates to the need to grow quickly in global markets. The number of M & As has increased by 43% p.a. since the mid-1990s. They are now a crucial element in growth strategy to gain access to foreign markets and global production networks. Positive impacts include the transfer of managerial skills and new technologies and access to global markets but consequences also include downward pressure on wages and loss of jobs.

There is, however, concern about the erosion of the national enterprise sector, and consequently the economic sovereignty of the host country. It is also becoming increasingly difficult for local authorities to assess the effects of global deals on local markets. Consequently, UNCTAD was asked to undertake research on the impact of mergers and acquisitions. [UN Report on Mergers and Acquisitions, Geneva, 7.11.00]

Stan Wallis, AMP chairman and former chairman of the Business Council of Australia, thinks this is the biggest single issue facing major Australian companies - how our best companies can be persuaded to stay here, so that the nation can avoid becoming a New Zealand style branch-office economy. He said that over the next decade there would be scores of companies moving offshore:

The risk is that we lose the heartland of our leading companies, our skills base and the investments.

David Buckingham, executive director of the Business Council, said:

We don't have to resign ourselves to becoming a branch-office economy, and lose the sense of strategic decision making... -in effect, it is whether we take the New Zealand option.

The list of Australia's best-known companies that have moved their headquarters or merged, or are considering listing on foreign exchanges, includes Lend Lease, BHP, AMP, Pioneer, Brambles, and the National Australia Bank. [The Australian 10.2.01]

The Foreign Investment Review Board has become increasingly less relevant over the past 20 years, as our economy has been opened up and our reliance on foreign capital has increased, according to Stephen Bartholomeusz. He notes that it is difficult to recall the last time the FIRB actually recommended against a foreign takeover. [Sydney Morning Herald 10.2.01]

The Foreign Investment Review Bank's report for 1999-2000 shows that 4,003 proposals were made, of which 3,907 were approved. Proposed investment was $78 billion, 16% more than the previous year; $25 billion were in the service sector, $22 billion in manufacturing, and $10 billion in real estate. The USA accounted for 38% of the total, 15% came from the UK, and the next largest were Singapore, Hong Kong and S. Africa. [Press Release from the Assistant Treasurer's office, 21.12.00]

Australian-based firms borrowed over $47 billion in the year 2000. Much of this was in telecom related deals, a rapidly growing sector. Telstra, BHP, Texas Utilities, C & W Optus, and One.Tel led the borrowing. Telstra, for example, borrowed over a billion dollars through a consortium of lenders including Barclays, Danske Bank, J.P. Morgan and Westpac. Peter Brain, head of the National Institute of Economic research said the level of corporate borrowing showed the sector was not as strong as people think it is. He said the scale of borrowing reflected the difficulty many companies faced as they were unable to pass on the full impact of GST and other costs to consumers. [SMH 5.2.01]

The Australian Chamber of Commerce and Industry has produced its own Business Barometer which measures not only the direction of economic activity but also the relative strength of the economy at different points of time. The latest (Jan 01) shows a downturn which has been continuous throughout the year 2000, and continues into early 2001.[ACCI media release, 15.1.01

This is the headline of a recent news release of the Australian Bureau of Statistics [14.12.00]. There were 3,054 fewer businesses than in the previous year, mainly in smaller and medium sized ones. Operating profits increased by 9.2%, the most profitable being the finance and insurance industry, reaching $36,308 million, nearly three times that of manufacturing. [ABS 14.12.00]

Research commissioned by the Australian Made Campaign shows that 8 out of 10 Australians want Australian made goods. Product packaging is the most significant source of its country of origin: customers put most confidence in the Kangaroo Australian Made trade mark, in green and gold, which has a very high recognition level - over 90%. [Press Release from the Australian Made Campaign 10.1.01]

A former member of the Reserve Bank board, ANU economics professor Adrian Pagan, has called for radical changes in the bank. He says the present non-executive directors, drawn from business, do not have the expertise or resources to challenge the "house view" of the bank's insiders, making the board a mere rubber stamp. He thinks there should be more outside economic expertise to provide more rigorously based alternatives, and they should be full time members, paid accordingly. [Steve Burrell, SMH 3.2.01]

John Gilmour notes that: "As with so many other trades, shoemaking has been captured by bankers, accountants, marketers or self-appointed geniuses who are mostly intent on making money. They can produce brilliant business plans and talk the jargon of the stock exchange, and modern management, but they don't understand their products... Manufacturing is being dominated by people who do not understand their products and who lack the knowledge to improve them". [SMH 10.2.01]

The battle of Seattle showed that multinationals now operate under the critical gaze of the media, international organisations, and ordinary people. Public opinion is coming to believe that big corporations must respect human rights, the environment, and the wishes of local populations. Yet many companies shrug off these responsibilities. Increasingly however, they are being challenged. In the midd-90s campaigns were launched in the UK and the US to get the giant conglomerates to assume economic and social responsibilities.

Some progress has been made. Several transnationals have announce policies stressing human rights, and campaigns have been launched on the theme "Human rights is the business of business".[Roland-Pierre Paringaux, in AFR, 10.2.01, drawn from Le Monde Diplomatique]

The beginning of the 21st century is marked by a new assertiveness of people opposing the global spread of corporate power. Events at Seattle, Davos, Washington DC, and London have forced into the open the secretive manipulations of supra-national institutions, and their collusion with big business and governments. Peaceful demonstrations, attended by many thousands of people from a wide range of backgrounds, but all opposed to economic liberalism, were treated as subversives. Dissenters were confronted with the merciless brutality of state power. Seattle police and National Guard used tear gas and concussion grenades. The media labelled the marchers as `anarchists'.

Currently public relations specialists and the media are engaged in a massive public relations exercise seeking to convince the general public that the future of economic growth depends on selling out national assets, turning a blind eye to social injustice and impoverishment, and accepting environmental despoliation as the price of `progress'. Growing numbers of protesters have replied with a resounding `NO'. [Vera Butler, Australian International Studies Association Newsletter, February 2001]

Central to the annual World Economic Forum in Davos, Switzerland, this year was the backlash against globalisation. Corporate and political leaders debated with invited environmentalists, unionists and Third World activists. About 300 demonstrators tried to break the security cordon, but were quickly dispersed by police. The ACTU leader, Ms Sharan Burrow, told the conference that BHP and the Commonwealth Bank could face international shareholder campaigns, as part of the ACTU's fight to halt the spread of individual contracts. She said the union movement was fighting back against declining membership and an increasingly competitive labour market, by using globalisation to its own advantage, with international campaigns tarnishing a corporation's reputation with customers and investors. Anti-union stances Burrow said, would prove very short sighted. She referred to a campaign against Rio Tinto, in which the union movement attended its annual general meeting. This brought about a change in attitude by the company towards collective bargaining in Australia she said. [Lenore Taylor, AFR 29.1.01]

The Indian finance minister, Yashwant Sinha, said no-one in developing countries challenged the inevitability or the potential benefits of globalisation, but the rich countries needed to learn some facts of life: 1) It is impossible to achieve globalisation in an unequal world. 2) Environmental problems are not caused by consumption patterns in the South, but by lifestyles of people in the North. 3) The West had a skewed approach to migration; it involved poaching the brightest and best from poor countries, and putting up barriers for the rest. [Larry Elliott, Guardian Weekly, 1.2.2001]

The world's leading democracies are all mired in financial scandals... Little of it concerns old-fashioned back-handers. Most of it concerns raising private money for political parties or projects... Should democratic politicians be put into a position where they have to raise vast sums from rich men? [Polly Toynbee, Guardian Weekly, 1.2.01]

The World Bank is an institution in crisis with staff living in fear of its autocratic boss James Wolfensohn, according to a secret memo seen by The Guardian. It says he is isolated from reality, intolerant of dissent, and quick to humiliated senior managers, and does not welcome criticism.[Larry Elliott, Guardian Weekly 8.2.01]

The Worldwatch Institute stated last year that 40% of global ill-health is caused by environmental backlash. Pollution, water scarcity, inadequate sanitation, soil erosion, contaminated sites, endocrine disrupters, and toxic wastes are all candidates for our attention. The business of the environment provides the technology, goods, services, infrastructure and systems to combat many of these challenges. The global environment market is about $100 billion a year. At the forefront of the new industry ($8.6 billion in Australia) are: safe drinking water, waste-water treatment, air-quality improvement, river system management, and land rehabilitation. Increasingly, environmental protection is seen as important to economic well-being - just ask Hong Kong how pollution has affected investment. [Fiona Wain, Environment Business Australia, Turner, ACT, in AFR 23.1.01]

Globalisation requires a more flexible workforce because it makes many of today's jobs less secure. Real wage increases need not be a sufficient recompense for labourers in a more fearful, earnest, and sober, and workforce. Internationalisation can also be blamed for Australia's once easy culture becoming harsh. It has caused an increased disparity in incomes, as chief executives' salaries balloon. It has turned cultural activities into traded services: football codes are no longer amateur sports, but are part of international media empires; tennis and golf players are multimillionaires employed by international production firms.

Globalisation and the associated need for efficiency also affects governments. Tax regimes have to be internationally competitive, even at the expense of equity. Public services have become products to be provided on a cost-recovery basis. Charities have become businesses that must win government tenders, if they are to offer charitable works. To some, globalisation provides the resources needed for increased living standards. To others, it destroys cultural characteristics needed to maintain our lifestyle. Globalisation might be inevitable, it might even be preferable, but its opponents have a case. [Tony Harris, AFR 23.1.01]

The current chairman of the National Competition Council, (NCC), Graeme Samuel, is conducting a crusade against privilege, according to Adam Shand, writing in the Australian Financial Review (10.2.01). Samuel was a driving force in the campaign to break the cartel that controlled Australian stockbroking, and saw the lengths to which the establishment went to protect its own. Membership of the Melbourne Club was denied to him. According to Shand, Samuel is now trying to break up the last anti-competitive cliques not yet affected by the Trade Practices Act. Consequently he is not liked by certain people, such as the president of the Medical Association, who considers Samuel is bent on creating "class warfare" in his attempts to introduce competition into certain quarters which have so far avoided it. Critics have called for his dismissal, or the abolition of the NCC. [AFR 10.2.01]

During last year, Australia simply fell off the international investor screens. In a climate of free and open capital markets and global investors keen to eke out the highest and safest returns, Australia lacked a feature, be it policy driven or fundamentally based, that saw sufficient capital flows to support the $A...[Stephen Koukoulas in Journal of Australian Political Economy, No.46

And in the same journal Frank Stilwell writes that Economic well-being depends on having diversified, productive and sustainable industries. Exchange rate instability fuelled by speculative processes diverts attention from those more important priorities. It is symptomatic of the economic rationalist obsession with `free markets' at the expense of more secure economic foundations. The dive of the Australian dollar in the last year is further evidence of the neo-liberal experiment in economic policy.

"A spectre is haunting the Federal Government's political strategists as they prepare for this year's national election campaign: the spectre of local and single issue independents emerging across regional Australia to challenge Coalition incumbents in key marginal seats". [Geoffrey Barker, AFR 5.2.01]

The Howard government faces a crisis of confidence following the resounding defeat of the West Australian Coalition... with Labor surging to power boosted by a resurgent One Nation vote... The result swept Court's 8 year old Coalition government from office and has prompted near panic among federal Liberal and National Party members in marginal seats who are vulnerable to One Nation. [Tom Walker and Mark Drummond, AFR12.2.01]

Robert Manne argues that its emergence is due to the protests of those suffering from economic rationalism, who felt "that their country was being stolen from them by city based elites more interested in Aborigines and Asian migrants than what was happening to Aussie battlers. Over the past five years, the dream of Australia as a multicultural republic, enmeshed in the affairs of its region, and reconciled with its indigenous population, has gradually died. No new vision has taken its place. [SMH 5.2.01]

The voters of Western Australia abandoned the Coalition government of Richard Court in droves... They abandoned the political establishment entirely... They were unhappy it appears, with the pace of change in Australian society and the fact that they were being left behind. These are people to whom words like globalisation and competition policy and privatisation are toxic terms. They are people who feel they have lost control of their lives and hold big government, big business, and big media to blame.

What defines the shift in Australian politics... is no longer Left and Right, its have and have not, us and them. And unless the people who drive the economic reform agenda realise the need to more fairly distribute its benefits, they will find Australia becomes less and less governable. [Mike Seccombe, SMH 17.2.01]

The ACTU says that there is a widening gap between high and low-income Australians and many are angry because strong economic growth is passing them by. Its latest claim is on behalf of 1.7 million workers, whom it says are struggling to pay for basic necessities. Its annual yearbook shows that Australia is one of the most unequal countries in the Western world. The gap in after-tax income between high and low income households is the fourth highest of 21 Western countries.[The Age, reported in SMH 3.2.01]

New figures from the Bureau of Statistics show that, among the poorest fifth of Australia's wage-earners, 30,000 households had gone without meals and 31,000 had been unable to heat the house. Over a quarter of these poor working households felt they were worse off than two years ago. These half-million Australians find it hard to make ends meet. [Michael Bachelard, Australian 3.2.01]

Redistribution of wealth is Australia's most controversial challenge, according to Hugh Mackay. The widening chasm between rich and poor may not be culturally offensive in a country that made no claim to be egalitarian, but in Australia, it calls into question some of our fondest beliefs about ourselves.[Hugh Mackay, SMH 10.2.01]

Sol Encel notes that full-time, long-term employment is shrinking, especially among male older workers. Our life span is getting longer, but our working life is getting shorter. This aggravates the problem of old age dependency and rising social expenditures. The duration of such unemployment has climbed steadily since the 1970s, and now averages 2 years for persons over 55. Massive economic changes in post-industrial society have produced a work force in which only a minority can now expect to "have a career" [`Later Life Employment' in Journal of Aging and Social Policy Research Centre, UNSW, Sydney, Vol II (4) 2000]

The Australian Electoral Commission's funding figures for 1999-2000 showed a number of corporate interests -including the Packer organisation - abandoning the Coalition in favour of Labor. A Packer donation of $100,000 was made to the Victorian ALP in 1999; the brewer Lion Nathan also gave the ALP $75,000. Tobacco companies have also made major donations to both parties. "Front organisations" are being used to get around political disclosure laws. The Labor Party is said to have received $29.5 million last financial year, the Liberals $18.5 million, and the National Party $4.9 million.

The biggest donor to the Liberal Party was Richard Pratt, with $435.000; he also gave $140,000 to the ALP. Kerry Packer gave $175,000 to the ALP, and $35,000 to the Liberals. Property developer Lang Walker gave $57,000 to the ALP, and $4,000 to the Liberal Party, whose records are dominated by associated entities - donations from increasingly large pools of investment earnings set aside to support the party. These include the Cormack Foundation ($800,000), and the Free Enterprise Foundation ($478,000).

Labor's largest donor was John Curtin House Ltd, the company which receives rental income from the Auditor General; it provided $2.7 million. The second largest donor was Markson Sparks Pty Ltd., the public relations company which receives commissions for organising Labor funding events. The largest personal donor appears to be Ms Diana Gibson who donated $100,000 to the ALP; she is chairwoman of the William Angliss Charitable Trust. [Laura Tingle, SMH 2.2.01]

The present funding arrangements for our universities are patently regressive. They pour money raised by an ever less progressive taxation system into the pockets of the middle class. In the affluent capital city suburbs, 19-21 year olds are five times more likely to go to university than their counterparts at the bottom of the list... The key to a politically acceptable balance between equity and efficiency is a system of student loans which lets them defer paying the cost of their fees until they have the money. [Alan Mitchell, economic editor of AFR 7.2.01]

The accumulation of pressures on academics reflects the shifting culture in the universities towards a greater emphasis on the entrepreneurial. This began with the rapid increase in the number of universities, and the growth of fee-paying overseas students. Some of these have language problems, and many academics question the sense - and the morality - of taking money from students unfit to handle the courses for which they have paid fees. The shift to an entrepreneurial culture in the universities has been occurring long enough for a generational change to be felt. For younger academics, their only experience is of a university system driven by the need for each university to compete for students, to keep enrolments high, and to maximise full paying ones. Mr. Howard should heed the warnings and ensure that government policy, in the way it encourages entrepreneurial culture in the universities, does not undermine their essential value to society and the nation. [SMH 29.1.01, leading article]

A student who had his marks upgraded in 5 out of 10 degree subjects offered $2 million from his father's estate to set up a research centre at his university, according to Aban Contractor and Gerard Noonan of the Sydney Morning Herald (9.2.01). The offer was revealed in documents tabled in parliament by Labor's parliamentary secretary for education. They also showed that the student was a trader in the financial markets, and had offered consultancies to four of his teachers.

Over the past three years the university workforce has shrunk by about 3%, while the numbers of teaching staff employed on an hourly rate has more than doubled over the past decade, to comprise nearly 15% of the total academic workforce... The senate inquiry into higher education is one forum where parliamentary privilege and laws prohibiting harassment of witnesses, or attempts to influence submissions can protect those making submissions. The Federal government should act quickly to protect the quality of Australian higher education by restoring the $800 million it cut in 1996, and reduce dependence on the fee paying student dollar. [Julie Well, policy & research coordinator of the National Tertiary Education Union, SMH 24.1.01]

Since 1988, higher education in Australia has undergone a series of dramatic and drastic changes, most of them (from the academic's point of view) highly undesirable. These include cuts in government funding, reductions in job security, a relative decline in salaries, tighter government control over teaching and research budgets, the expansion of managerial authority at the expense of academic collegiality, and the growth of `marketing' activities by universities in an attempt to gain more finance. These negative outcomes represent the downside of a vast expansion of the university sector, reflected in an increased number of universities and a steep rise in the number of students.

It is salutary to recall the words of Thorstein Veblen, writing in 1918 to rebut the barbarous utilitarianism he saw around him. The pursuit of knowledge, he wrote, cannot be reduced to any known terms of subordination, obedience, or authoritative direction. The imposition of any appreciable measure of standardisation and accounting would weaken and vitiate the work of instruction. The true function of a university is to nourish the pursuit of idle curiosity. This pursuit, he wrote:

Remains today as the only unequivocal duty of the corporation of learning and stands out as the one characteristic trait without which no establishment can claim rank as a university... But...men of affairs have taken over the direction of the pursuit of knowledge...and utilitarian pressure has encouraged the notion of a university as a business house dealing in merchantable knowledge, placed under the government of a captain of erudition, whose office it is to turn the means in hand to account in the largest feasible output. [Thorstein Veblen, The Higher Learning in America: A Memorandum on the Conduct of Universities by Business Men (New York: B.W.Huebsch, 1918; Stanford Academic Reprints, 1954) p.85 [Sol Encel, `Universities do matter: Australian universities in crisis', Minerva 38:241-251, 2000]

The French government has launched an official inquiry into the teaching of economics in France's elite universities, following a rebellion by students and dissident professors who say the prevailing economic orthodoxy is divorced from the real world. Many students and professors have signed a petition protesting against the uncontrolled use of mathematics, the repressive domination of neoclassical theory, and a dogmatic teaching style which leaves no place for critical and reflective thought. The campaign has spread from France to Belgium, Italy, the UK and the USA. As the reporter, Stephen Long, points out, for many economics graduates in Australia, the French rebellion evokes a sense of deja vu. In the 1970s and 80s, some staff and students mounted a similar campaign at the University of Sydney, which, after years of struggle led to the establishment of separate courses in political economy, and eventually to a separate degree in economics as a social science. On this issue, the French are just so far behind the times.[AFR 15.1.01]

A new study from the University of Western Australia has found that recent Ph.D. students are less likely to support a pro-market approach than their predecessors. Students were more supportive of indirect funding from government to universities through scholarships than their professors. They also showed more support for a centralised labour market. Why are economist such slow learners? [Cherelle Murphy, AFR 161.01, except for the last sentence]

From money being a medium to facilitate trade in goods and services, it has now become primarily something to be bought and sold for speculative profit; goods and services now account for only 5% of financial transactions world wide. Constructive uses of capital are fighting a losing battle against the purely parasitic ones. One contributing factor to this state of affairs was the collapse of the Bretton Woods fixed exchange system, which freed the major world currencies to float against one another. But the crucial turning point probably came just a few years later with the development of accessible computing power, and high-speed global communications networks. From a structural point of view, what this means is that we now have an inherently unstable system with rapid response time and little damping - in short, a recipe for chaos.[Alan Marshall and Peter Furnell, Economic Reform Australia, Vol.2, No.16, Jan-Feb 2001]

A fourth member of the government`s Pharmaceutical Benefits Advisory Committee (PBAC), Martyn Goddard has resigned in protest at the appointment to the board of a former lobbyist for the drug industry. In refusing to serve, he joins three other experts, and accused the Health Minister, Dr. Woolridge, of debauching the Committee, which decides which drugs get government subsidies. [Mike Seccombe, SMH 3.2.01]

Four members of the government's drug subsidy advisory board have resigned in protest against the appointment of a former pharmaceutical lobbyist to the board which decides which medicines should be subsidised by the Government's $3.2 billion Pharmaceutical Benefits Scheme. The latest member to resign, Martyn Goddard, said that due to the lack of experience on the new committee, and the appointment of the former head of the Australian Pharmaceutical Manufacturers Association as chairman of the Board, he could no longer serve. Mr. Goddard said:

It is inappropriate to have an industry lobbyist on the main purchasing authority that is buying almost $4 billion worth of goods from the people he has so enthusiastically represented for so many years.

Three other senior members, including its former chairman have also refused to serve on the Board.[Chelsey Martin,AFR 3.2.01]

Professor Allan Fels, chairman of the Australian Competition and Consumer Commission (ACCC), said that competition regulators have increased their vigilance against international cartels, which have increased in recent years. The vitamin price fixing case was a spectacular example. During the 1990s certain cartels increased prices by about 70%; most firms were European and were later joined by the Japanese. Nearly all world vitamin producers now face massive fines. Already Roche has paid US$500 million, and total fines collected exceed $1 billion in the US alone. In Australia, a proposed settlement has been put before the Federal Court which would see penalties totalling A$26 million imposed. Professor Fels notes that cartels have a long history; e.g. in 1907 a US anti-trust case sought to end the tobacco cartel which divided up world markets. Any increase in global cartel activity is probably due to the impact of trade liberalisation. [Australian Competition & Consumer Commission, Media Release, December 2000]

Archer Daniels Midland paid $100 million in 1996 to settle US charges about price fixing in feed additives. Some executives were jailed. UCAR International pleaded guilty to participating in an international cartel which fixed prices and allocated market shares in the graphite electrodes industry. The US is currently investigating a number of other international cartels; to date there are over 25 Grand Jury investigations.[Source: Professor Allan Fels, Chairman, Australian Competition & Consumer Commission, Media Release 15.12.00]