State Socialism in Victoria (Review)

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6 April 2011
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In 1932, Victoria was in financial and political crisis. A vast debt had arisen from vast and unwieldy schemes of state development; noble causes and awful execution. The state enterprises had been captured by the unions and their management hamstrung by the un- willingness of politicians to consider efficiencies, fare and tariff adjustments, and the necessity to employ modern management practices.

The bonds of civil society were weakening as the state crowded out the private sector, and leadership and responsibility among the population were lacking.

Now was the time, said one who had been a minister in a previous administration, to consider a revolution in the way the finances of the state were managed and its great enterprises brought under control. The generation and distribution assets of the State Electricity Commission should be split and ideally privatised, and the railways and tram system should be leased to the private sector.

Agricultural protection should be wound back and remaining government business enterprises run along the lines of their private sec- tor counterparts. The enormous state debt should be consolidated and paid off as soon as possible.

This could have been Jeff Kennett in 1992, but it was Frederic Eggleston in 1933. Eggleston himself looked back to the depression of the 1890s, and had foreseen that the state finances were in no shape to handle any kind of economic downturn. Chastened by his experience as a minister in the 1920s, and having then lost his seat in a voter backlash, he would not have been surprised to find that the great cycle of degeneracy in state finances would return sixty years on. Nor indeed would he have been surprised to see that during the period of the Cain and Kirner governments the capital of the State Bank of Victoria had been entirely wiped out, since he had warned:

… the Government has guaranteed the debentures and deposits in the Bank … but a Government guarantee is not as satisfactory as it appears to be on the surface, for it relaxes responsibility, and those enjoying its support usually become extravagant.

State Socialism in Victoria is a curious but nevertheless remarkable book. It reflects the Deakinite liberalism of its author, but is informed by contemporary American sociology and British political science. Its comprehensive financial statements are the fruits of many months of toil unravelling the accounts of the state and its major enterprises, but Eggleston manages to draw from the dry figures a gripping narrative of parochialism, log-rolling, and wilful neglect.

Its subject was not socialism per se but rather the institution of ‘State Socialism’. In this model, governments had taken on responsibility for vast economic undertakings which in other countries were (then) the preserve of the private sector, but had also removed them from the day to day interference of ministers and parliaments. Eggleston made the claim, not without foundation, that:

… in proportion to the size and economic standing of the community, they (the State enterprises) constitute possibly the largest and most comprehensive use of State power outside Russia.

The functions undertaken by the state included banking, closer settlement, electricity generation and distribution, rural water supply, irrigation, road building, agricultural extension services and, dominating all others at the time, the railways. In addition the state was responsible for what he called the ‘municipal undertakings’ which serviced Melbourne, the Tramways Board, the Board of Works (water and sewage), the Harbour Trust, and the Fire Brigades Board (of these latter organisations Eggleston was somewhat fond, since the commissioners were competent and jealous of their autonomy, and the rural interests in the parliament had—for once—a vested interest in maintaining them on a sound financial footing).

The model of autonomous commissioners was agreed to by the Victorian parliament in the 1880s and 1890s in response to the growing financial losses of the railways and the consequent pressure on the state budget. Each individual politician had contributed to the original mess by ceaseless pursuit of special favours for their constituents or favoured interests, and realised that only by a collective agreement to remove themselves from day-to-day administration could there be any hope of disciplined financial and operational management.

In absence of this model, managers had no protection from the five types of political interference identified by Eggleston: in the set- ting of strategy; in matters of administration; in the setting of rates and charges; in financial management, and in the management of staff.

As Victoria recovered from the depression of the 1890s the expansion of the state had resumed, but this time following the model of the statutory corporation inaugurated by the railways. In the relatively prosperous Edwardian era there seemed no limit to what socialism, in this form, could achieve.

During this period, Eggleston, a successful lawyer, was an active participant in the political and literary soirees and societies we now associate with the liberal protectionist politician and later prime minister, Alfred Deakin. Although firmly grounded in the commercial life of his state and more laissez-faire than not, Eggleston shared the progressive aspirations of the Deakinites and had no in-principle objection to state action. In accordance with progressive thinking each great extension of the State was seen as an ‘experiment’, to be given a chance of success. Also, as he noted, laissez-faire never had much traction in a country founded by state action and always in need of ‘development’; a vast country where the British financial markets could only be accessed by sovereign governments and widely dispersed populations demanded state provision of infrastructure.

It is Eggleston’s genuinely open mind that gives so much credibility to his conclusion that: ‘State Socialism in Victoria is, on the whole, a failure, has demoralised politics and is impeding social progress.’ Eggleston describes his experience as Minister for Railways which ‘converted the author from believer in State control of all common services to an advocate of private enterprise wherever possible.’

Closer settlement under the Land Purchase and Management Board was ‘a failure under all conditions’, doomed to failure by human nature. In the private sector bankers make judgements about the prospective farmers to whom they provide capital, and those farmers— firmly facing the consequences of those loans—never borrow more than absolutely necessary to establish the farm. When the lender is the government however, then ‘everything conspires to take away from the settler the consciousness that he is responsible for his own success.’

Undertakings like the State Electricity Commission provide evidence that ‘engineers who work for the State seem to be aware that if they announce the whole cost likely to be incurred, schemes will not go through’. The railways, the debts of which almost sent the Victorian government into default in both the 1890s and 1930s, are described as a ‘Tragi-Comedy of Political Interference’. Even if a case could be built that some subsidy would always be necessary to operate the railway system, the problem is that ‘a pubic utility which loses money rarely, if ever, maintains its efficiency’.

Eggleston is disappointed with his own conclusion that the model of the statutory corporation ultimately provides no protection against the depredations of politicians, while introducing new issues of ac- countability. As he noted, Australia long ago parted company with the model of ministerial responsibility developed at Westminster in the nineteenth century.

Certainly in modern Australia (and particularly in New South Wales) we often have the worst of all worlds: ministers surreptitiously directing supposedly independent boards of statutory corporations, while selectively using them as shields against accusations of incompetence when the fruits of that interference are revealed to the public.

The intellectual class was no help either since the ‘intellectual is no more astute than the politician in bringing about a real revolution in social affairs by a change in conduct. He, too, usually choses the same obvious instrument—the State.’ Eggleston takes aim at the neo-Hegelian notion of the state as some kind of mystical entity with a unique ability to create a better society.

This commentary by Scott Hargreaves was originally published in the IPA’s 100 Great Books of Liberty (2011).

Image courtesy of State Library of Victoria.

“Bourke Street looking to Parliament House, Melbourne, Vic.”

Author / Creator: Rose Stereograph Co., photographer.

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