|Malcolm Fraser and Margaret Simons From: The Australian February 22, 2010 12:00AM
Was Malcolm Fraser the founding father of our modern economy? Was John Howard a frustrated reformer? Fraser, in an exclusive extract from his forthcoming memoir, reveals who was the activist in his government
WHAT would have happened if Malcolm Fraser's Coalition had won the March 1983 election and a fourth term?
John Rose, Fraser's principal economic adviser in his private office from early 1977, believes, and the documentary record would seem to suggest, that had Fraser held power, all or most of the financial deregulation achieved by Labor's Bob Hawke and Paul Keating would still have occurred.
By the mid-1980s, Australia had moved from a system of rigid control further and faster towards a deregulated economy than many comparable countries.
In this story, the role of the Fraser government was one of transition and education at a time when the key financial institutions of government had not been convinced of the need for change. The laying of the foundations for the new financial era was the achievement of Fraser and his advisers.
It seems certain that foreign banks would have been allowed in at about the same time as Hawke and Keating made the same move. Bank and interest rate regulation would almost certainly have been further relaxed.
Within two months of taking office, Hawke and Keating held their own inquiry -- the Martin Review Group -- which rapidly endorsed the recommendations of Fraser's inquiry into financial reform headed by businessman Keith Campbell.
That led to the deregulation of the stock exchange, the entry of foreign banks, the removal of remaining ceilings on bank loan interest rates and, most important of all, the floating of the dollar.
In 1983, and for some years afterwards, Fraser was opposed to this last move. Would Fraser have done the same if he had been prime minister? Fraser thinks it more likely that he would have continued to move the "dirty float" to become ever more flexible, while maintaining an element of government control, but "I would have taken advice and made a pragmatic decision on the evidence and the arguments, and certainly people around me were arguing for a float".
When it comes to the other arms of deregulation -- tariffs and the labour market -- the Fraser government has less to show. On wages, Fraser was a supporter of arbitration. As for tariffs, he believed that if Australia were to go further in dropping tariffs on manufactured goods, "which we certainly needed to do", it should be in return for better access to markets for agricultural produce.
So what were the differences between the Fraser government and that of Hawke and Keating on deregulation? One difference was surely the presence of an activist treasurer, prepared to take strong positions and argue for them. Another difference was that by the time Keating was pushing the agenda, the economy was recovering and the drought had broken.
In the last year of the Fraser government, treasurer John Howard aligned himself with the "dry" faction. Since then, Howard has allowed a version of history to emerge, and at times has even promoted a version, in which he is remembered as the brave man pushing for deregulation against a controlling and rigid Fraser.
In this narrative, Fraser is characterised as a conservative farmer at heart, enmeshed with his Country Party (now the Nationals) friends and colleagues, suspicious of banks and big business and determined to resist financial deregulation at all costs.
Elements in the Liberal Party had a vested interest in promoting the narrative, and it has proved astonishingly persistent, despite being contradicted by the documentary record and the memories of those involved in decisions.
There were four main reforms in the late 1970s and early 80s that together formed what has been described as the "revolution" of financial deregulation.
They were the surrendering of controls over the exchange rate, deregulation of interest rates, foreign bank entry and abolishing exchange control over movements of capital inside and outside Australia. All of these advanced under Fraser. Key moves were made because of his initiative and support. During the Fraser years, deregulation was resisted by Treasury and the Reserve Bank of Australia; the initiatives came from Fraser's department and his personal staff.
It has been suggested that Howard was convinced through informal talks with Fraser that making cabinet submissions pushing for more deregulation would be a waste of time because of Fraser's resistance. Fraser remembers no such conversations.
In any case, the documentary record shows that cabinet was wrestling with the possibility of floating the dollar as early as 1976, before Howard was treasurer, and the issue remained alive before cabinet for the remainder of the Fraser government, with the prime minister leading initiatives to introduce more