National Development and the Constitution

Prior to Federation , the states of Australia operated as independent economies, virtually as separate countries. The Constitution was written to preserve that independence. It was never intended that the new Commonwealth Government would be granted powers to manage a national economy. At that time, a national economy did not exist.

Now, 100 years later, Australia is vulnerable because the Australian Government does not have sufficient powers to defend the national economy, or to plan and build for national development. This is the most serious problem facing the nation. The only major national infrastructure project in our history was the Snowy Mountains Scheme, started 50 years ago and authorised under the defence powers of the Commonwealth. There is now much to be done. The Australian Government has vital national responsibilities. The Commonwealth should have the powers to plan and build for national development.

An Historical Background

This is an interesting, exciting and challenging time to be a citizen of Australia. There is a strong mood of nationalism in the air. We are all concerned about global economic changes, and the impact on our nation. It is much like the mood in Australia immediately after the second world war, when we were faced with the tasks of re-building after the lost time of war.

Nationalism in Australia is a dynamic ideology, capturing our imagination. It is a vision of a future Australia as a sovereign state and with a united people. The current debate on a Republic encourages us to think about our national future.

Australia has never been a nation-state. Australia is more a loose federation of independent State Governments, working uneasily with a Federal Government having limited powers. Whitlam referred to the relationship between the various state governments and the federal government as one of ‘systematic entrenched procrastination’.

Over 100 years ago, prior to Federation, the States operated as virtually independent nations. The State Governments then collected their own revenue and controlled their own expenditures. They had their own postage systems and postage stamps, they collected customs duties at state borders. They even had their own defence forces.

It was the possible threat of a Russian invasion of Australia in the 1890’s that prompted the moves for the states of Australia to join together in a federation. The new Commonwealth government was given powers for defence, customs, overseas trade, and posts and telegraph.

After federation in 1900, the States continued to control their own revenues and expenditure. It was never intended that the new Commonwealth Government would have powers to manage the national economy, because a national economy did not exist.

Now, 100 years later, the Australian Government simply does not have the powers to manage the Australian economy in the interests of all Australians. This limitation of the constitutional authority of the Commonwealth government is now the most serious problem facing the nation.

It was only during World War II, when the nation was facing the threat of invasion from the Japanese, that the State governments finally relinquished their control over income taxes to adopt a system of uniform national taxation to be managed by the Australian Government.

Nevertheless, the States continued to assert their own sovereignty.

After the end of the second world war, the United Nations was established. The NSW Government sent a delegation to the United Nations to plead the case for NSW to be a member of the United Nations. They argued that the States of Australia were the sovereign economic units. The Australian Government had only limited powers. Fortunately, wiser counsels prevailed, and the federal government became the representative for Australia.

But state administrations, even today, are entering into direct commercial negotiations with foreign governments. A recent example is the ‘Memorandum of Understanding’ between the Chief Minister of the Northern Territory and the Premier of China on sale of natural gas and gas liquids. Such actions worry me.

The two decades after the end of the war were a period of great nation-building by the Commonwealth and the States. The State Governments, through their public instrumentalities, got on with major works in irrigation and water supply, sewerage and drainage systems, electricity supply, gas distribution, ports and, harbours and roads and so on. The tasks of management of these public enterprises attracted a notable range of very capable professionals, many of them engineers, some quite distinguished. ( it was the sort of professional leadership that these days has been filtered out!).

In 1949 the Commonwealth Government began to build the great Snowy Mountains Scheme. It was authorised under the defence powers. This was a multi-purpose project designed to divert the coastal flowing waters of the Snowy River to the inland for the benefit of people in Victoria, NSW and S.A. The objective was to serve the nation.

It was the first time in the history of Australia that a major project was undertaken in the interest of the nation rather than an individual state. The States later challenged the authority of the Commonwealth Government to undertake the work. It was only eight years after construction commenced that the States of New South Wales and Victoria agreed to authorize the construction of the project.

As we consider the prospect of the new republic of Australia, and the concept of Australia as a nation-state, we may contemplate what we may want to do if Australia was truly one nation. I have prepared conceptual plans for some major national infrastructure projects that could be put in hand if the national government was empowered to build national public works. These projects are to enable a massive increase in production in Australia. Funding is not a critical issue, as the projects are highly economic. The key factor is the constitutional authority of the Commonwealth to lead the development of the nation, rather than state governments, and to plan and build for national economic development.

The Economic Consequences of the Constitution.

Last year a Constitutional Convention was held to discuss the question of Head of State. But that was the only item allowed on the agenda. The Australian people were not given the opportunity to discuss the Constitution, at a Constitutional Convention! The consequent deliberations were then hailed as a great democratic achievement! Such deliberate thought control of a major national issue is really quite astonishing.

All citizens must now prepare to cast their votes on the question of the Head of State at a Constitutional referendum later this year. However, when we vote we will not be allowed to express our views on any of the issues that should be included in any review of the need for a new Constitution for Australia.

The move towards the nomination or election of a Head of State for the Commonwealth Government should only be regarded as a first step. It is a symbolic move, but not substantive. The critical problems of the managerial relationships between the State and Federal Governments remain and need to be addressed.

The Constitution now presents a major impediment to our national progress. It preserves the concept of sovereign states, each with their own laws and bureaucracies. It is an unreal concept in a world of globalisation and international financial manipulation, where the states could be quite vulnerable. There are many needlesss differences in laws from state to state which could be unified. There is a corresponding bureaucracy at national level, monitoring state expenditures. There is continued frustration of trade across state borders, and thereby, international trade, eg. separate state rail and port systems.

This incredible duplication of activities from state to state, and between the states and the Commonwealth, creates enormous costs, amounting to tens of billions of dollars each year. It is a burden of cost which is carried, through taxation, by every enterprise in Australia.

Measuring national progress.

Another major impediment to our national progress is the present structure of the Austalian economy. In essence, we have created a service economy, (now about 80% of GDP), which can no longer be supported by the production sector of the economy (20%). The production sector is exposed to international competition, and it is struggling. The services sector is protected from international competition, with some parts showing remarkable, but quite unsustainable, prosperity.

When the Treasury reports that the Gross Domestic Product is growing at 5% per annum, it is loudly inferred in political circles that national prosperity is increasing at that rate, but it is not mentioned that :-

The growth is all in financial services (eg. lawyers, bankers and accountants) and welfare.

The growth in output reflects the continuing devaluation of the Australian currency.( $AUD= 398 yen in 1970, and 75 yen today)

The rise in GDP reflects the sale of public assets by privatisations. Asset sales provide a windfall gain to governments, on top of the gain from repayment of debt. This enables substantial extra funds to be allocated to government services. But it is a one-off effect, (The total of all privatisations by Australian governments this decade is the largest in the world, followed by Brazil, Mexico and Argentina. The cash converters are contributing to our higher standard of living! There is panic in state governments if proposed privatisations are blocked by unions or Parliaments)

Our apparent growth is also funded by steadily increasing national debt

Our population is increasing, which raises the base.

As a consequence of all the above, and several other factors, the assessment of our national economic progress by governments is quite irrational, and serious errors are being made in policy decisions. There is an illusion of prosperity at government levels, federal and state, and despair in farms, mines and factories. At the heart of all this is the fact that the GDP is not anymore an effective measure of economic progress. This is an intellectual matter for the economists.

International Pressures on the Australian Economy

We are now entering turbulent times. The world economy is facing what could be the most dangerous financial emergency in modern history. The driving force behind the crisis is the manipulation of world markets by ‘institutional speculators’, who have created a new form of financial and economic warfare. The speculators have turned the world into a vast casino, according to Maurice Allais,( Nobel Prize for Economics, 1988). These days there is little need for invading armies. The conquest of nations can now proceed through financial manipulation from the other side of the world, and through complex transactions unknown to the nations concerned.

In the past year, the national economies of several Asian countries have been de-stabilised by financial manipulators, the reserves of their central banks pillaged, their industries plunged into a lethal chain of bankruptcies and then ‘rescued’ by foreign investors picking up bargains at a fraction of the previous value.

In these circumstances, in Australia, we are critically dependent on the capacity of the Australian Government to actually understand what is going on in world financial markets, and to have the powers and competence to defend our national economy, and indeed the state economies. The Constitution is an impediment, and as a consequence the Australian Government has insufficient authority to defend us against international financial pressures, which are becoming the commercial equivalent of war.

Australia has enormous potential. It is inevitable that others will be jealous of what we have. We have to be prepared to defend our nation in the international market-place. But the greatest danger we face may be within our own political and social institutions.

A Way Forward

In this paper I have endeavoured to show that the Australian Constitution was written to serve quite different circumstances to those which prevail today. It is now a national hazard, imposing a massive burden of costs on every person and enterprise in Australia. Despite all the emphasis in recent years on economic rationalism and global competitiveness, the glaring inefficiencies in the management of the nation have not been addressed. Is it because it is too hard for the normal political processes?

It would be possible, if all governments agreed, to appoint a substantial Royal Commission, with possibly up to 7 or 8 Commissioners, and give it the powers and time to thoroughly investigate the structure of government in Australia, and to recommend the desirable changes to the Constitution, and the relative powers and duties of national and state governments.

This would be a very large task, but quite achievable. Such an approach would enable the deliberations to be isolated from day-to-day politics, and would certainly attract thoughtful submissions. The potential benefits of such an enquiry are savings to taxpayers of the order of billions of dollars each year. It deserves our best efforts. This Academy could readily assist with submissions and proposals.