One in six children lives in a jobless household - this statistic is often quoted by Melbourne Institute director Peter Dawkins.  It was the most important statistic quoted at the Melbourne Institute-Australian "Pursuing Opportunity and Prosperity" conference this year.

Despite the welcome fall in the measured rate of unemployment to 5.6 %, unemployment is still a critical problem. Hidden unemployment is high, there are far too many jobless households and this is a major reason (with grossly excessive executive salaries) for high (and rising) inequalities of income and wealth. This government has been around for too long now to admit these difficult facts. 
 
Peter Dawkins again: "I think there are now two major priorities for the nation. First, we need ongoing economic reform and investment in human capital and innovation to sustain our productivity growth. One immediate test here is the fate of Brendan Nelson's university reform package. Second, we need to raise labour force participation and get jobs into jobless households. It is disappointing that the ideas about reforming welfare and wages discussed at last year's conference have not yet advanced into policy."

As Paul Kelly put it in summing up: "The Howard Government's record is equivocal. Howard is a cautious reformer alert to interest group pacification. He has never been the economic neo-liberal so bizarrely depicted by many of his critics. The reform momentum has been undermined by a complex set of forces that include complacency, breakdown of political agreement, the Senate as guardian of special interests, the demise of institutional support for a common "change" agenda, alarm about the fate of losers and the de-legitimising idea that economic reform spells the death of Australian egalitarianism."

Director of the National Centre for Social and Economic Modelling Ann Harding reports that over the six years to 2000-01 the income share of the top one-fifth rose from 37.8 to 38.5 per cent and the share for the bottom two-fifths fell from 20.7 to 20.1 per cent. But the wealth effect is sharper. Harding shows that between 1986 and 2001 the top 5 per cent saw a lift in their portion of the cake from 29 to 32 per cent while the bottom 50 per cent saw their size of the cake grow from only 6 to 7 per cent.

The yawning gap between the rich and the poor needs to be addressed. 

Prominent reforming economist, Ross Garnaut, said:  "In the macro-economy we have done very well since the 1991 recession. We have sustained economic growth unbroken for longer than we have before and you cannot say this about any other developed economy. We have been at the top of the OECD (Organisation of Economic Co-operation and Development) and we were not able to do this over our first 90 years as a nation. Relative performance is better than ever. However growth for the past three years has been based upon domestic demand and without growth in exports. This is a different pattern from the mid-1980s. Unless this imbalance between export growth and growth in domestic demand is corrected then it will not be possible to keep total growth at the rate of recent years. This is now becoming a big story.

"It is a reminder we can't drop our focus on productivity-raising reforms. The market orientated elements of the Nelson university package, without the heavy-handed bureaucratic intrusion, are necessary for Australians to stay at the forefront of innovation and high performance."

Garnaut is a strong supporter of multilateral free trade rather than the multiple bilateralism being pursued by virtually all countries.  He also worries about Australia's low participation rates which are "the source of large social problems and of significant economic waste".

Mark Latham outlined New Labor's economic policies.  "We opened up the economy" was his basic pitch -  "we are the party of reform." 

New Labor's policies are in five parts.
1.  Labor will introduce a "second generation" of economic reform - based on the "twin carburetters" of education and spending on R&D.  Labor will also address the "missing link" of early childhood exposure, which sounds hard.
2.  Competition policy will be applied to the private sector - Woolies and Coles have 80% of their markets, Qantas is scooping up market share, trade practices generally need attention.
3.  Labor will address national saving, which is far too low, and "break the cycle of deficits and debt."
4.  Labor will be serious about tax reform.  The Coalition has presided over a "taxathon" since 1996. 
* 4.1  Working people are paying too much tax. (Right on! Henry was heard to exclaim.) 
* 4.2.  People on welfare face 60 % or higher marginal rates when they get paying jobs. 
* 4.3.  The tax system is riddled with inequality - eg half the building workers pay 48.5 % tax and half pay at the corporate rate.  Some rich people pay no tax.  
* 4.4  The tax law is excessively complex, which encourages sharp practices by tax evaders and gives averyone headaches. 
* 4.5.  the GST has not reduced tax avoidance and needs ... (Henry's attention wavered here, but he agrees that the BAS is a Bastard!)
5.  All this will be paid for by some old fashioned "fiscal discipline."  Labor's "razor gang has already found $ 6 billion of savings and are hard at work."  The Coalition's 1996 budget was good but spendoing has blown out by $90 billion since then.

Labor would introduce a "new enterprise culture" and generally clean up the place.

Several probing questions were answered directly and well.  For example: "We would make the Reserve Bank more independant and its decisions more transparent."

Indigenous Australians featured prominantly on the conference agenda.  This group suffers the problems of poverty and lack of opportunity in a highly disproportionate manner.  The biggest and most obvious gap is that indigenous Australians on average live 20 years less than other Australians - this is almost as disgraceful as the way in which we treat asylum seekers.  (An issue on which the government was again forced to admit to grossly misleading Australians this week.) 

Gary Banks, Chair of the Productivity Commission, released a report called "Overcoming Indigenous Disadvantage: Key Indicators" to coincide with the conference, as well as speaking powerfully in the relevant session.  His "personal observations" included the following:
*  "The first thing I learned ...  was how little I knew."
*  Sometimes programs designed with the best intentions actually had peverse effects."
*  Good policy ... generally requires consultation with those affected"
*  "Equality of opportunity  ...  is unlikely to be achieved merely through equality of treatment."
*  "The ultimate responsibility for ensuring that children are well looked after and attend school lies with their parents" - (quoting Noel Pearson "man cannot live by service delivery alone.")
*  "On the evidence of this Report, governments have yet to reach ... demanding standards in policies towards Indigenous people."

For me the star of the conference was Gerhardt Pearson, since 1997 Executive Director of the Balkunu Cape York Development Corporation - "People from the little red flying fox area."   Pearson began by noting that the findings of the Productivity Commission Report were very similar to those of the 1991 Royal Commission into Black Deaths in Custody.  Lots of money has been thrown at the problems, but in Cape York "Simple and fundamental mistakes were made."

Pearson is well aware of the corrosive effects of welfare dependancy.  Substance abuse is a big problem his people are determined to do something about - "we will confront sly groggers, drug dealers and consumers."  Poverty can be overcome, passivity cannot.  The hope is with the kids.  The community is determined to get the kids educated.  "The immediate priority is primary school."  The first step is to fix schooling up to year 7, then "we will send the kids south to Australia's best boarding schools."  This will not be simple - one senses that the big issue for this group is how best to intervene when home life is disasterous or merely unsatisfactory.  (Our middle class circle in Melbourne is grappling with just such an issue, incidentally, and there are no simple answers.)  "We are not going to stuff about with the routine public school swill we get sent to our kids."  And:  "I will go down on my knees to beg that our kids get places in the great private schools."

The longer term strategy must include economic development of the homelands, but the people will develop an "Orbit" strategy.  They will increasingly spend time in the areas of global opportunity - Cairns, Brisbane, New York, London, etc, but keep one foot in their homeland, returning periodically to help those who remain and to refresh their spirits.

This spirit of robust self-help should be an inspiration to all Australians. There is a long way to go but one suspects that the decisive first steps have been taken.

Another highlight of the conference were the contributions by Treasury Secretary Ken Henry and Reserve Bank Governor Ian Macfarlane.  Ken Henry developed the themes from Treasury's 2002 Intergenerational Report.  This report was widely seen as a wake up call about the implications of Australia's aging population and the pressure this would place on government  budgets.  However, all is not lost: "Ongoing miscroeconomic reform could deliver higher rates  of productivity growth than assumed in the Intergenerational Report."   Much of the strong productivity performance of the past 10 years is "a pay-off from two decades of reform."  Continued reforms will be needed "that free-up economic activity, enhance labor market flexibility, strengthen competition, promote efficient resource allocation, and continue to develpo a more innovative and dynamic society."

Phew! - but Dr Henry is right on the button. "The task is truly never ending."

The Reserve Bank Governor also spoke (during the Conference dinner) about Australia's long-run future.  The big news is that Ian Macfarlane is an optimist, and notes our proximity to Asia, an apparent reversal of the long decline in the terms of trade and a degree of economic "flexibility" as reasons for optimism.

However, the governor is worried about possible "intergenerational conflict" as people like him own all the houses that our kids will be unable to buy because of the 30 years of asset price inflation created, he failed to point out, by 30 years of lax monetary policy combined with absurd tax incentives to over-invest in property.  But the governor has promised to do better - "investment returns will be far lower in future!"  Our kids won't be lighting candles in cathedrals for this bloke (Paul Keating's fantasy), more likely lighting bonfires at the top end of Martin Place.

During question time Macfarlane strayed from the script to answer questions from Alan Wood of the Oz and former RBA Board member, Bob Gregory.  He was described on the 10 pm news that night as "defending his decision to raise interest rates."  No-one serious at the Conference - including at least two former Secretaries to the Treasury -  was convinced about the reasons for the  RBA's interest increase, and the big Mac acknowledged that the bank hadn't explained the rate increase well.  His attempt to do so after a fine dinner dinner was a convoluted argument that inflation will rise "well above, correction above" the current 2.5 % rate when the exchange rate stops rising, but Macfarlane also admited that forecasting inflation was very difficult.  "So action has to be taken well before we can be sure about the outcome."

One might observe that the power to set interest rates needs to be accompanied by the responsibility to explain decisions with total clarity.  Certainly that is the perspective of both politicians and company directors, both groups who receive 7/24 scrutiny these days.

Apart from Ken Henry's relentless rationalist economic reform, the other route to high productivity is through "Innovation and commercialisation."  (These words are often used interchangably - as session Chair I defined "Innovation" as "Useful bright ideas" and "Commercialisation" as "Making money from bright ideas," a distinction often lost on Australia's scientists and technologists).  Three papers were presented, all calling for Australian scientists and companies to do more "commercialisation." Easier said than done, but like indigenous Australia and the aging population, this is another vital but previously neglected area now getting onto the mainstream agenda.

Overall, this conference is another triumph for the organisers.  The power of Australia's leading national newspaper allied with Australia's most serious economic and social thinktank is truly awesome. I look forward to the book, and hope this event becomes a regular part of the national policy calender.

[Ed:  The first in this series is Reviewed Here.  A related article is Here.]