January 27th 2001

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Articles from this issue:

Cover Story: What George W. Bush will mean for Australia

Editorial: Defence - "hype" and reality

Canberra Observed: The year of the elections

Victoria: Liberals in trouble - independent MP

Women: Different work patterns require a variety of policies

Straws in the Wind

Documentation: Globalism has slowed world economy

The Media

Letter: Australian Democrats leader replies

Immigration: The end of the White Australia Policy

Comment: Small business - not whingers, just forgotten

As the World Turns

Philosophy: Peter Singer - Jekyll and Hyde

Economics: Economic doubters multiply in USA

Books: 'The Gifts of the Jews: How a Tribe of Desert Nomads Changed the Way Everyone Thinks and Feels', by Thomas Cahill

Books: 'HITLER 1936-1945: Nemesis', by Ian Kershaw

Letter: Selective indignation

Letter: Major parties are different

Books promotion page

Comment: Small business - not whingers, just forgotten

by Frank Lindsey

News Weekly, January 27, 2001
A major newspaper last year called the small business sector "whingers". Frank Lindsey believes that a more fitting label would be the "forgotten people", a term once used by Sir Robert Menzies to describe the artisan-farmer-shopkeeper class which he argued was the prime constituency of his Liberal Party. One thing hasn't changed: in 2001, it seems, they are still forgotten.

The major parties "are becoming increasingly irrelevant and unresponsive to the needs of the country", wrote the former Commonwealth Solicitor-General in the Fraser Government, Mr R. J. Ellicott, QC, in an article published in 1991.

Mr Ellicott concluded that "the problem is so urgent and the likelihood of reform within those parties so remote that the only sensible alternative is a new mainstream political party".

When Sir Robert Menzies formed the Liberal Party he claimed as its constituency the "forgotten people", whom he defined as the salary earners, small business proprietors, artisans, professionals and farmers who desired to own "one little piece of this earth".

In later years the forgotten people, like the working class formerly represented by the ALP, have been abandoned in favour of a higher bidder.

The extent of the Liberals' betrayal can be measured by the effects of their industrial relations 'reforms', the decline in financial support to families and the unrelenting process of corporate agglomeration, which has destroyed thousands of small businesses.

The results bear witness to the validity of Menzies' warning that 'laissez-faire capitalism' would "destroy the weak, impoverish the poor, and reduce the dignity of the individual".

At both State and Federal levels the Liberals have weakened the mediating institutions which have traditionally stood between employees and the market; first the unions and then the industrial tribunals.

The consequent weakening of the bargaining power of employees has facilitated an increase in the casualisation of employment from 15.4% in 1984 to 26% in 1996 and, for many, a decline in real earnings.

Professor Bob Gregory, of the Australian National University, argues that the average male now earns some $91,000 less in real terms by age 34, compared to his counterpart of 20 years ago.

And, whereas Menzies believed that the well-being of the family "determines the health of society", the latest research indicates that those couples whose early working lives coincided with the Menzies era were approximately $270,000 better off than today's equivalents.

And, whereas Menzies sought to safeguard the interests of small business proprietors against those of predatory big business, today's Liberal Party has demonstrated by its actions that it shares the attitude of The Australian's editorial writers who claimed (June 15, 2000) that "small business is the sector of the economy that whinges most".

Last August, the Federal Parliament's Joint Select Committee on the Retailing Sector issued a report which noted that

"over the past twenty years or so, Australia has seen the demise of hundreds of small grocery stores, butchers, bakers ... as a result of the continuous expansion of major supermarket chains and major speciality retailers, often subsidiaries of the same conglomerate".

This has resulted in "the three major chains [doubling] their share of the national retail grocery market over the past twenty years from 40% to in excess of 80%".

This market domination has resulted in suppliers being forced to sell into an oligopolistic market on the chains' terms.

The Committee noted, for example, that the chains could buy a 1.25 litre bottle of Coca-Cola at a wholesale price of $1 whereas small retailers paid $1.80.

Furthermore, small retailers in shopping centres are forced to cross-subsidise the chains by paying up to three times more per square metre for space.


If small business is guilty of whinging as accused, then I believe they have just cause, for the economic playing field has been tilted against them in favour of large public companies able to effectively use the privilege of limited liability, ever since the passage of the Joint Stock Companies Act (JSCA) by the British Parliament in 1856.

This Act introduced two revolutionary principles into corporate law, firstly limited liability and secondly, it split the idea of property.

The privilege of limited liability, which is in practice only available to large publicly listed corporations, provides a preferred legal structure for investors by transferring a large part of the investment risk from the investor to the creditor.

The long-term consequence has been to ensure that the large corporations so structured find access to capital for expansion both easier to obtain and at lower cost than is available to their competitors.

Prior to 1856 'property' had been a concept that involved the simultaneous co-existence of beneficial ownership and directive control (usually) in the one person.

The JSCA split the concept of 'property' between ownership and control, resulting, with the passage of time, in the proprietor being transformed to the shareholder and, more recently, fund member, devoid of any identification with their investment.

The proprietor turned fund member has in turn facilitated the formation of the large corporation by effectively passing control of their share portfolios over to fund managers, only a few of whom a predator need convince to sell in order to gain control of the target company.

It is via the process of agglomeration, made possible by the widespread incorporation into corporate law of the principles embodied in the JSCA, that the world's 50 largest corporations have been able to acquire asset's amounting to 60% of global productive capital.

Corporate tax

To this writer it does not seem unreasonable that publicly listed corporations which benefit from the privilege of limited liability should have to pay for it. By July 2002 Australia's rate of corporate tax will have fallen to 30%, the seventh lowest in the OECD, some 4% below those of the US and some 6% below those of Japan.

By restoring our corporate tax rate to that comparable with Japan the additional revenues generated could be used to insure creditors (including employees, trade creditors and financiers) against default and to reduce the cost structure of small business by way of financing loans at rates below those prevailing in the market.

With these fundamental injustices at the core of our economic and social system, the best the Liberals can do is give us a GST.

Menzies had the foresight to recognise the increasing irrelevance of his party (of which Ellicott later wrote), and in 1974 confided that he had not voted for the Liberals at the previous Federal election.

If Menzies could deny his vote to the Party he formed, it should come as no surprise if the 'forgotten people' come to a similar conclusion.

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