Building prosperity: Australia's future as a global player

Australia is still a small and peripheral player. To be noted in the world's decision-making centres, we have to be more competitive and creative than those at the centre.

To attract investments, skills and knowledge, we have to offer more hospitable institutions, simpler and better laws that are reliably enforced. And legislation must not discriminate between citizens and classes of people.

Against this background one has to note the sad fact that the volume of Commonwealth legislation in the 1990s - the rhetoric about deregulation notwithstanding - has exceeded the cumulative page volume from 1901 to 1990! Quarterly Business Activity Statements and frequent tax returns are not the way to go.

Discriminatory redistribution schemes, specific subsidies to specific industries, R&D policies, political selection of what next-generation telecom we will be able to use and develop; these are not the way to become an attractive high-flier in the era of globalisation.

Our political leaders need to protect our economic freedom better.

And that means small government. The entire public sector should not claim more than 25 per cent of the national product, down from 32 per cent now, but very reasonable by historic standards.

Outright expropriation of private property is not an issue in this country, but property owners lack actionable rights for compensation if parliaments diminish the value of their property by regulation. Much international credibility could be gained by a strict regulatory constitution that subjects the visible hand to a new, strict discipline.

To make Australia fully 'globalisation fit', there is a need to impose formal, constitutional limits on the size of budget and deficits. Confining the Reserve Bank's task explicitly to the only job a central bank can nowadays do - producing stable money - would also be a good idea.

And while the Australian Constitution looks competitive, much historically grown, politically opportunistic overgrowth could profitably be pruned back. The centenary of Federation is a good opportunity to reflect about the big constitutional design by which we live.

There is also a need to think about how the judiciary can be made to return to cultivating the law and to desist from social engineering. Under globalisation, we need clear rules to proscribe harmful behaviour. We do not need prescriptive tinkering with market outcomes by ill-prepared judges.

In the open economy, government should concentrate on its protective function, defending the taxpayers against external assaults and cultivating sound general internal rules that lower the transaction costs of doing business.

There's still much room for cutting back the productive function of government by privatising schools, hospitals, health insurance, telecom, rail and other relics from an earlier era.

And the power of central government should be significantly curtailed. After all, the redistribution by coercive government has been the real growth industry of the late 20th century. This is now endangering the prosperity and governability of many Western welfare states.