ST& Lñ. i ' iJEiGO Norito to be published or broadcast before 9 pm.
Monday, 29th February, 1960.
MANAGEMENT IN A DEVELOPING COUNTRY
Prime Minister's Address to Melbourne, 29th
Fe bruary_, I960_
One whose management of certain national affairs is
under daily criticism and is found most inadequate by 49% of the
electors may well claim some boldness in addressing you. But I
have several good excuses, One is that you invited me, at your
own risk. Another is that the business of politics is management
You may perhaps believe that we in politics interfere in your
management too much; but if we had no sense of management you
would properly condemn us. But my third excuse, the best of the
lot, is that we are living in an era in which management has
major responsibilities, and in which national success or failure
may well depend upon it, Any contribution which any of us can
make is therefore desirable.
I am encouraged by remembering that when I was a law
student at Melbourne, under that great and good man Professor
Harrison Moore, one of my friends in the back row ( a place
eminently designed for meditation) held his hand up and offered
an opinion disguised as a question, Harrison Mocre replied
blandly, " Your suggestion is wrong, Mr. X, but I beg of you not
to be disheartened, All suggestions, from however humble a
source, are to be encouraged!"
This is the 12th International Congress of Scientific
Management. It is organised by the Australian Institute. It
has attracted the attention of eminent men from many countries,
It has already focussed, and will continue to focus, the attention
of thoughtful people upon what is a vital problem,
The very phrase " scientific management" deserves
analysis. For we are all too much disposed to divide up the
activities of life into separate compartments, WJe sometimes think
of philosophers as those who engage in thought without experience;
of politicians as those who have words without substance; of
scientists as those who live strange lives among test tubes and
the piercing of the mysteries of natural elements and forces; of
business men as practical people who have experience w. thout
thought. All of this is, of course, nonsense. We cannot sensibly
subdivide the wcrld in this cynical way. For a. man without
a philosophy of his own is only part of. a man; a politidan
without substance in his mind is no more than a demagogue; a
scientist who fails to see the impact of his work upon humanity
is, quite possibly a menace; and a business man who has no
comprehensive and orderly, and therefore scientific, thoughts in
his mind will contribute little to the development of production
and commerce. My assignment is to speak to you of " Management in a
developing country". The very title is a recognition of the
basic fact that, like every other element in life, the problems
of management change with the years and with the circumstances,
Jhen I was first Prime Minister, over 20 years ago, the business
of government had only a fraction of the complexity which ipossesses
tody Wars, depjressions, booms, the increasing demands
made upon governments, a social revolution, have made their mark.
In the course of one normal working week quite recently, to quote
an actual example, I found myself trying to understand and do
something about Budgetary policy, central banking action and
monetary control., the protection and encouragement of industry.
social services, the wage structure and its machinery, mineral
development, foreign policy and relations with neighbouring
countries, the financial relations between Commonwealth and
States, the problems of inflation, and policies relating to
civil airlines. A developing country is a complex country. To
understand what is going on requires that we should have learned
to manage our own minds. This indeed, is the basic truth in all
management. When I undertook this task, it occurred to me that to
understand something about current and future develope nt it
would be useful to look back 50 years, to see something of the
changes that have occurred in Australia in that time. A study
of those fascinating volumes, the Year Books, has enabled me to
take a few key examples.
I find that 1910 was a year of economic simplicity for
governments, though not, of course, for many thousands of private
people. Taxes were low. There was no Commonwealth Income Tax:
the first world war produced that. The total Commonwealth
Revenues were about œ 20m. Today they are œ 1400m. Our population
was much less than half of what it is now. ife had 300,000 employed
in factaies; today we have well over a million. Our
overseas trade was made up of œ 60m. of imports and œ 74m. of exports.
The exchanges were normal. Nobody had heard of exchange
control or dollar shortages, or a two-currency world. The great
problem of overseas funds had not arisen. Today our overseas
trade has grown to œ 900m. of imports and over œ 900m. of exports.
Exchanges are controlled, we have been passing through a period
of the licensing of imports to protect our balances. ', ie are
living in an era of Trade Treaties, the General Agreement on
Tariffs and Trade, the European Common Market, and a score of
other arrangements of an international kind which have studded
what used to be the fairly plain road of trade with a myriad of
signposts and prohibitions.
There has been a social revolution. In 1910 there were
65,000 old age pensioners; today there are ovei 500,000. There
was no Invalid Pension; no Child Endowment; no Hosc" ' al Benefits;
no Repatriation Benefits; no Medical Health tcneme; no
Pharmaceutical Benefit Scheme; no Unemployment Insurance, We
paid œ 1,500,000 for Old Age Pensions. Today our Social Services
Bill alone is over œ 300m. Our Defence Bill in. 1910 was œ 3m.
Today, with no actual war on, it is œ 190m.
I have selected these few examples because the Social
Revolution has involved enormous increases in company and individual
Taxation, new indirect taxes, and a host of governmental
rules and reulations, all of which directly affect business and
therefore management. For in a complex world, with growing burdens,
the pressure on management is greater, and the need for
managerial skill more imperative.
Side by side with these things, there has been a vast
development in the power and significance of the Trades Unions.
In 1910 there were rather less than 360 000 morn' -s of Unions.
Today there must be very nearly 2,000,000. But the matter does
not end there. To meet the particular nature of the Commonwealth's
industrial powers, there has been a great development
of inter-state, i. e. nationally organised unions. Their weight,
both politically and industrially, is susbstantial. The percentage
of unionists to the total of wage and salary earners has
risen to a preponderating degree.
It follows from all this that business managerent has
been learning to accommodate itself to the pressure of organisations;
to recognise their value; to study their relationship
to problems of management; to secure better human relations and
man-management. But such problems cannot be solved by governments
alone. They call for good management and good work all round.
We in Australia pride ourselves on our independence and a degree
of irreverence about established persons or institutions. This
is very good, for other ise pomposity could well become the endemic
disease of politics, But this spirited attitude does
not prevent us from taking most of our problems to " the government",
as if that magnificent abstraction was all-powerful
( which, fortunately, it is not) and all-wise, which will be admitted
by nobody here tonight except myself. The sobe, truth is
that community problems cannot be solved except by community
effort. At a time like this, when we are not dealing with a
crisis, but are called upon to take sensible steps to prevent
one from arising, no good. citizen can hope to escape from his
own responsibilities. Employees have well-understood ambitions
for better pay and conditions, and security of employment, and a
full opportunity for their children. But they must, and I am
sure many thousands of them do, ealise that if wage increases
outstrip increased productivity the effect will be that demand
will exceed supply, prices will iise, and the value of rmoney will
fall. e-nployees, therefore, have a vested interest in increased
efficiency . nd production. It is by these means that real and
effective wages will rise and family interests be served.
On his side, the employer who simply passes on wage
increases into higheo prices is contribting to the in-flationary
spiral; rendering inevitable the next wage increas and cost
increase, and price increase. Vast numbers of orc_.: a.. y citizens
will suffer in the process, the export industries : i. ll be
penalised, and the national finances will be discrganised, The
task of the employer, who is for this prpose the manager, is
therefore to meet each upward movement of labour cost first, by
absorbing it as far as porsible, not regarding the currenit rate
of profit as sacrosanct, , nd second ( or should it be first) so
improving the efficiency of his operations as to reduce. or at
least stabilise, his unit costs of production. The crowing
availability of power, the rapid de'v . lopiuent of *. rliat we now call
automation, the rising levels of education and skiill? , hould pay
their o: ih dividends to ordinary mz; n nd women. If, chirefore,
there is on the face of it a conflict between th2 iprf-its of investment
and the upward pressure on wages, that conflicc be
seen as a challenge to increased efficiency on both: sides, I
short, the present period of our national cde'.. o. leent c ; n rroduce
a damaging inflation if we are to pass the labours of contributing
ingenuity to others and adopt as our mottc " E'ach for
himself, and the devil take -he hindmost". But if ore se the
problem and are prepared to understand nd deal with it, we ccan
make the decade of the 60' s in Austr:. lia even more dynamic and
productive than the last 10 years,
Because I believe that, I assert that the most important
Australians today are the mana; j ars. It is upon Their s" il I
imagination, and enterprise that the national futur' wil den
Against this background, political managers and business managers
confront what is, properly speaking, a common task.
It nmay perhaps induce a proper feeling of biothx ho. d
if I say to you that we both suffer from common . orms of teml tation.
You are tempted, and I hope you will net deny it, to regard
politicians as verbose ' fllows who don't i. nderstand business
and ought to keep their meddling fingers out of it. That sturdy
attitude of mind persists until it becomes necessary to ask a
government for a tariff, or bounty, or a trade promotion
organisation, or an immigration programmo,
Joe in politics are tempted to regard buriness men as
politically ill-informed, and as failing to see th fo. rst of
national economic policy for the trues of individual profit or
loss. But there is another form of temptation which is more
important. You are tempted to take short views; so are we. The
raising of prices, in a non-exporting and protected industry
seems in the short run to be calculated to protect this year s
trading account. In the long run, such a policy may involve the
busin ss in decline and loss.
Similarly, in politics, we are tempted to take the
popular measure of the moment " the electors will be pleased!"
forgetting that great economic policies seldom bear fruit in a
month or two, and may be bitterly unpopular before they achieve
a recognised success. In the long run, the short view may involve
the nation in decline and loss.
In both fields, therofore, clear intelligent imaginative,
and brave management is of the essence. Above . ll, if
people like you and me are to work together intelligently and
successfully for the nation, we must get, not only wisdom but
understanding. I will take one contentious mattor the licensing
of imports. A restriction of imports by means other than
customs tariffs is, under modern treaty and practice, permissible
only to protect our overseas balances. We could find ourselves
greatly embarrassed under GATT, and other international monetary
arrangements, if we failed to realiso this.
Time after time, my colleagues and I have wa: ned industry
that import licensing is not a measure designed to protect
Australian industry, but one designed to protect our overseas
funds. Yet in a real sense, this has boon a counsel of
perfection. If certain imports are, over a period of years,
excluded or limited in quantity, not by tariff but by licensing,
many people will begin or extend import-rcp. acing industries in
those fields, hoping that what is, by declaration, temporary will
turn out to be in practice, permanent. Yet, when the economic
foundation of import licensing begins to disappear, and licensing
with it, it will be hard for many to understand that the days of
competition have returned; that tariffs, though important, are
not the whole answer, and that management will have to carry the
main burden. In my philosophy, that is no bad thing. I believe in
free enterprise. That does not mean protected and monopoly enterprise,
sheltered from competitbn; but competitive free enterprise,
adequately protected by tariff against a cheap labour or
unfair competition, but not given an exclusive access to the
local market, irrespective of structure or efficiency.
Let n. e turn t: o another , eneral observation. The
current cant of C A P I T A L and L A B 0 U R is a great and
misleading oversimplification. It conjures up a picture of fat
capitalists and hungry workers, ungaged in a war to the knife.
This picture is out of dato. Like so many conceptions which are
thought to be radical and progressive, it is unreal and reactionary.
The jrowing task is that of M A N A GE M E N T, which
has to see that capital is put to the best use, and that labour
is most productively applied. 2o do the latte:, management must
regard the welfare of the employee and his human problems as of
growing importance. Human leadership is the greatest element in
productive management. There was a time wThen the capitalist was
the employoe: direct. Psychologies arose which, as I have indicated,
have persisted and are r', yed up. But in great modern
enterprises, the " capitalists" are many and unseen. A little of
their money m_-y form part of the great pool which supplies the
enterprise. But the employers in substance are the managers
employees themselves, who marry the money to the machine to the
man.
So true is this that I have no '. seitation in saying
that the development of Australia in the future will depend
more upon compotent management, ' ohether of farms or factories
or mines or . overnments or Trade Unions, than upon any other
factor. Pressure groups will not ensure or even aid progress,
for they seek power without responsibility. People rith money
and nothing more will not unsure it, for they are passive. A
badly managed factory worker will not ensure it, for he will fail
to identify himself and his work with the end in view. The vital
people are the managers, the loaders who plan for that end and
see how to attain it.
I now turn to some of the problems of true national
development. What are the principal characteristics of rapid development
in Australia? If we answer that question we will have a
better idea of the nature of the tasks of management and of the
difficulties which it will confront.
The greatest characteristics, as I see them, are these,
Wl ' i have a quickly increasing population, nearly half
of the increase being the direct result of governmental immigration
policies. This increase, while it stimulates optimism in
business circles, provides additional stores of productive manpower,
and adds to our national security, also creates its problems.
There is a greater capital demand for factories and
schools nd houses and servies, which in the short run is inflationary.
In many large factories which I have visited, the copresence
of hundreds of workers of different nationalities and
languages has presented problems of organization and management,
the handling of which excites my admiration.
But, taking all these things into accou-t, I think that
the outstanding effect of a fast growing populat-. jn is its psycho
-logical ofect upon enterprise. The retailer plans and buys for
an increasing number of customers. He is perhaps, less willing
to be " taken over", or more willing to " take over". Retail trade
is optimistic and increasing. Man-aacturing expands. The building
industry is active. The great basic industries are hard
pressed to cope with demand.
This atmosphere of optimism is admirable, and indeed
essential to growth. It is, indeed one of the act problems of
political judgment to preserve and encourage optimism while doing
what can be done to avoid excesses which may lead some day
to pessimism and unhappy results. For inflation is a common
dange: r; a flat rate tax upon the money of the poor as well as
of the rich; the enemy of thrift; the basic injustice , ainst
which we must all fight.
A severe and unchecked inflation would be. nationally
disastrous. I think it necessary to say something plain, but
not extravagant, on this point.
If costs rise ( as they are now rising) and prices rise
in consequence we have what we call a " cost-inflation". But if
the cost rises are primarily related to wage increases, the increase
in purchasing power soon produces a " domand-inflation".
-Jo need not, therfore, distinguish unduly betwe. en the two aspects
of what is one common problem.
Can costs go on rising, without national injury? Already,
one or two of the smallr, but not insignificantexport
industries are in trouble. Even the jreatest, like . iool and
wheat, must h.: ve occasional . pprehensions.
But there is another aspect of inflation which cannot
be ignored. As our population grows, so will our demand for
goods and services. That, as our economic history proves, will
be not m.-ely a demand capable of being satisfied by local production.
It will include a large demand for imports. In other
words, as Australia develops she -will become increasingly a
great international trade drawing upon the skills . nd products
of other lands. To pay for such things she will need increasing
exports. If she is to achieve the necessary volume and, in terms
of price, not be unduly vulnerable to changes in the price of
wool, she must add to the diversity of her exports. She must be
able to manufacture for export, and compete in the markets, particularly
of the politically " new wrorld".
There may be some who despair of such a result, though
I think that they will concede that without such a result there
will be a sharp limit to true Australian development.
So there is our problem. In a rapidly developing
country there will inevitably be inflationary pressures, Population
will be increasing; capital demands will be not only
largo but urgent; there will be an atmosphere of gr'owth and
prosperity; standards of living will rise; luxuries will become
necessaries; wages will rise; greater profits w ill be
sought and frequently achieved; there will be international investment;
public works programmes will grow.
Yet, if we yield to the inflationary pressures, and
say that their results do no great harm, we will check fixedinterest
investment; we will be forced to carry more : nd more
capital works on revenue; we will do grave injustice to those
who live on fixed incomes; we will upset Gove-nment Budgets and
move towards chronic deficit finance, thus dding inflation to
inflation; and, except to the extent that c. eavily protected industries
can live on the local market, price o-j: rselves out of the
world. Und.. such circumstances, what action can I; take, not
only as government but as people, to secure and confirm the enormous
advantages of expansion . nd growth while at the same time
maintaining that stability and security which always seems to
to be the pro-condition of the attraction of men, money, and
skill? The appropriate policies need not be sensational;
there is no occasion for extravagance in our thinking, ' Ie can
learn a great deal from our own experience and that of much
greater countries, most or all of which have encountered the
problems. Indeed, I should, to avoid sensational sm, make it
clear that our current problem in Australia is nuch loss acute
than that which follwed the Korean Jar,
I would now like to state quite briefly the nature of
some appropriate policies as we see them,
Our objective must be to check rises in costs, by all
means in our power, and to counteract :. owing monetary demand,
negatively by banking and monetary controls, positively by increasing
the supply of goods and services. The supply will be
increased by active and growing manufucturing industries, and by
imports on a scale that our exports will permit us to pay for.
We must preserve stability of mp uunnpemlopylomynmt ent is
nationally wasteful; so is over-. full employment, which inflation
is apt to create in the first instance. So far as possible we
should encourage savings so that there is adequate investment
out of true savings, in loans for developmental publi works and
in capital for private enterprise. . Je must attract investment,
not speculation, from overseas, But above all, anc this is where
John Citizen comes in, whether employer or employee or self-employed,
we must increase our productivity pe.. head. And, if we
desire the stimulus which would follow a reduction of, or a less
steep increase in, government expenditur, we can moderate our
demands upon GoveL. nments. Don't overlook that last observation.
In Australia we are apt to want the -bst of everything " at once,
if not sooner". Getting our costs down does not mean cutting wages.
It means getting better value for waes by increasing production,
improving processes . nd skills, and attaining a realisation all
round that wages and salaries are worth only what they will buy.
We estimate that the two decisions made last year, in the Basic
Jageo nd Margins cases, iill add something of the order of œ 165m.
to the annual wages bill. Does anybody suppose that employees
in Australia will be œ 165m. better off? If rises in costs and
pricus continue at their recent rate, and tend to grow, employees
may in the long run be no better off at all. : hat we need, for
everybody's sake, is a period of quiet on the wages front, so
that these increases may be digested, and so that industry generally
can, by improved efficiency, ave:.. t their impact upon
prices. It would be fatal to accept the folio circulairo of the
wage-prices spiral as inevitable.
On the side of _ ove: Lnment, the-e are two tasks to perform,
each of which has a bearing upon the other.
The first is to slow down the massive upward movement
of , overnment expenditure, which in the case of the Commonwualth,
has been rising of late at the rate of something like œ 100m. a
year. The second is to do all in our power to avoid further
deficit finance. How to do these things will be our greatest Budget
task later this year. And let nobody think that it will be easy.
It is difficult because management is the most important and the
most difficult element of all.
Thus it is that the problem of inflation presents perhaps
the greatest challenge to management. Take national management
first. The Industrial Tribunals, which exercise a great,
and in its nature uncontrolled and uncontrollable power over the
national economy, have been known to express a view that if
the-o is any inflationary consequence of any decision, " the govoznment"
has power to deal with them. This is, I fear, not
correct. Indeed, it is one of the facts of life that the two
most significant economic instruments, the Arbitration Commission
and the Tariff Board, are, in the first case absolutely and in
the second case for all practical prposes, independent bodies.
I think it a very sood thing that this should be the case. The
nation has good reason to appreciate the work that they have
done. But clearly the Commonwealth's anti-inflationary powers
are severely restricted in consequence. True, if we think that
there is a demand inflation, we can increase taxes, which I know
would give all of you great satisfaction! Interest rates, so
far as they fall within the Banking power or the authority of
the Loan Council, can be vuried. The Reserve Bank may call
Trading Bank funds to Roeserve Deposits. Subject to the state of
the overseas funds more imports may be admitted. Educational
campaigns can be carried on. The costs of government may be
reduced; this is quite a fashionable remedy, though, in the
case of the Commonwealth, the costs of administration amnount to
no mo.. e than of the total Budget.
Hire-purchase seems to be substantially beyond our
control. But the fact is that one of the great obstacles to
counter-inflationary action is that there are many people who
think a bit of inflction is a very good thing; that a cost and
prices rise of 3 or 5 per cent per annum makes for greator purchasing
power buoyancy of business, and of course, if I may so
so impertinently, a decline in the burden of overdrafts and of
fixed indebtedness. Such a view pays little heed to the position
of those on fixed incomes; and no heed whatover to the continuing
and growing need to finance, by public borrowings at fixed
rates of interest, great programme of public works, the completion
of which is absolutely vital, through transport and water
and power and housing and schools and universities, to the expansion
of industry , nd commerce and the maintenance of employmont.
Before I conclude, I would like to say a little more
about import licensing, the impending winding-up of which has
recently been announced, with, naturally, a mixed reception.
A restriction of imports by licensing, if it reduces
the actual quantity of goods available for local purchase, is inflationary
up to the time at which local production roplaces the
deficiency, if it ever does. But in an inflationary period, as
we have seen in the past, boom conditions tend to develop, and
with them over-full employment, bidding up for labour a rapid
turnover of labour, and a loss of efficiency which still further
adds to rising costs. One way of counteracting this is not to
restrict imports, but to purmit them, so that demand does not
overwhelm supply.
But no remedy is simple, particularly in Australia,
where the balance of our international trde can change quite
quickly and drastically. Thus, the year 1953/ 54 was a thriving
year, with employment and production rising and a tolerably good
export income œ 812m. Early in the following year, 1954/ 55,
however, the familiar signs of inflation (-ppoared. Labour shortages
became rath_ r acute, prices began to rise fairly rapidly and,
with local productive capacity fully taxed, the rising demand for
goods spilt over into demand for imports.
Unfortunately, it happened that our exports fell alay
in that ye. r, and our overseas reserves began to decline rapidly.
They had boon œ 571m. at the beginning of the year. By the end of
the year they had fallen to œ 428m. and wore obviously destined to
go a good deal lower. Therefore, instead of being able to meet
the additional demand for imports we actually had to restrict imports
as in fact re did in April 1955 and again in October195.
I mention this piece of history because it illustrates
how constant and complicated the problems of management can be.
Our recent decision in respect of import licensing, made against
the background of buyant overseas reserves, will impose fresh
tasks of management and increased tariff-making activity. This is
not because lice. nsing was a protective measure; we always made it
clear that it was not; but because in the nature of things the
exclusion of imports by non-tariff means tended to give a feeling
of security to a variety of import-replacing industries in Australia.
Some of these industries will now set about justifying a
tariff protection. All of them will meet the challenge of competition,
which is the great challenge to managoonent.
I wish your conference well. Mine has been a small and
inadequate contribution. But the subject is so vast and significant
that all thought about it is to the good.
29th February, 1960.