Do you want to know why Australia’s economy looks this way?

If so, you’ll need to learn about “think tanks.” 

These strange little organisations played a crucial role in pushing Australia’s policymakers to adopt a much more pro-market orientation from the mid-1970s.

They were influential cheerleaders for financial deregulation, privatisation, and the destruction of union power.

And they achieved their influence in a unique way: they learned how to massage the “climate of opinion.”

Does that sounds too abstract?

Don’t be fooled. Ideas can be powerful. And once you learn how to put them into peoples’ heads you can start a revolution.

A ’30-year war’?

We were reminded of the phenomenon last week.

Sally McManus, the secretary of the Australian Council of Trade Unions, talked about it in her speech to the National Press Club on Wednesday.

Ms McManus said there had been a “30-year war” against Australia’s unions and that war hadn’t ended.

That startling phrase was a reference to a 2014 speech by Eric Abetz, the then-employment minister in the Abbott Coalition Government.

His speech was titled “Industrial Relations after the Thirty Years War.”

Senator Abetz had spoken approvingly, in that speech, of the battles that had been fought against unions since the 1980s, and he’d lamented how total victory hadn’t been achieved yet.

He also warned that Australia could see a “wages explosion” if employers didn’t stop caving in to unreasonable union demands.

But let’s not get side-tracked.

I want to talk about the H.R. Nicholls Society, since Sally McManus singled them out.

She said they had been major players in the “30-year war” and she was right.

The H.R. Nicholls Society was formed over 1985 and early 1986 by a group of men who strongly opposed Australia’s arbitration and centralised wage fixing system at the time.

They wanted to see major change. 

The group were Peter Costello (now the Nine chairman), former treasury secretary John Stone, the director of the Australian Wool Selling Brokers Employers’ Federation, Barrie Purvis, and Western Mining Corporation’s Ray Evans.

Two years earlier, a public servant called Gerard Henderson, who was working inside the Department of Employment and Industrial Relations, wrote an article entitled “The Industrial Relations Club“.

Mr Henderson said members of the “IR Club” included the Conciliation and Arbitration Commission, the ACTU, the Confederation of Australian Industry, and the Department of Employment and Industrial Relations.

He said the system needed an overhaul — and the men of the H.R. Nicholls Society agreed.

They believed the cosy “IR Club” was preventing Australia’s businesses from thriving, and it was causing higher-than-necessary unemployment by enforcing artificially-high wages on the country without any regard for the economic damage they were doing.

They laid some blame on minimum wages and unions.

As John Stone argued (while still treasury secretary), labour markets were not special; they ought to be subject to the same laws of supply and demand as any other market, but they were being prevented from operating freely by artificial impediments (like minimum wages and unions).

The men set out to change public opinion about the entire system.

Single-issue advocacy groups

I’ll have to fast-forward through the rest of the history.

But the group was extremely successful at changing policymakers’ attitudes about centralised wage fixing and other elements of the old system.

A key moment came in 1993 when the Keating Labor government adopted formal “enterprise bargaining” (with union support) which made it much harder for wage gains in one corner of the economy to flow to workers in other parts of the economy.

You can read more about the history in a book by Dominic Kelly, called “Political Troglodytes and Economic Lunatics.”

It explains how the H.R. Nicholls Society was actually one of four single-issue lobby groups, or think tanks, that were established by the same two men from the 1980s onwards.

Those men were Ray Evans (who you’ve already met), and Hugh Morgan, who was chief executive of Western Mining Corporation.

The two of them (with help from others) also created the Samuel Griffith Society (in 1992, to focus on constitutional issues), the Bennelong Society (in 2000, to focus on Indigenous affairs), and the Lavoisier Group (in 2000, to challenge the science of climate change).

“These four organisations did much more than argue for specific policy reforms — they set out to change the way Australians thought,” Mr Kelly writes.

Mr Kelly says those single-issue advocacy groups were a “new organisational form” in Australian politics, and they played a forceful role in the country’s “general shift to the right.”

The history of those groups also provides more context for Sally McManus’s reference last week to the “30-year war” in industrial relations.

There has been a decades-long war in Australia on multiple fronts (over economic ideas, and over culture), and think-tanks have been leading the ideological charge.

But you won’t read much about them in standard economics textbooks.

Why? Because even though they’ve made a documented impact on Australia’s “political economy” – and the economy itself – they’re the type of phenomenon that’s ignored by neoclassical models.

How do you squeeze culture into a model?

So what exactly is a ‘think tank’?

You can think of “think tanks” as small organisations of people who trade in ideas.

They try to get their ideas circulating widely in the community in the belief that it’s an effective way of changing society.

For them, a key part of the battle is about getting their ideas to become “common sense.” If they can do that, a large part of the battle has been won.

The history of Centre for Independent Studies (CIS) illustrates that point.

The CIS was started by a young maths teacher called Greg Lindsay in 1976. Mr Lindsay set the think tank up in the backyard shed of his Pennant Hills home in Sydney.

At teachers college, he’d been introduced to Ayn Rand, the libertarian philosopher and novelist, by the film critic Bill Collins. That led him to thinkers like Friedrich Hayek and Ludwig von Mises.

In 1975, Mr Lindsay read Hayek’s essay “The Intellectuals and Socialism,” and it made a huge impact on him.

In that essay, written in 1949, Hayek argued that socialists had been able to change the world because they understood that “intellectuals” were in a unique position to spread ideas widely through the masses.

“It is the intellectuals in this sense who decide what views and opinions are to reach us, which facts are important enough to be told to us, and in what form and from what angle they are to be presented,” Hayek wrote.

The lesson was obvious.

It convinced Mr Lindsay to set up a think-tank to promote the kinds of ideas and principles he believed in: free markets, the rights of individuals, smaller government, and tax reform.

In 1979, he got in contact with Hugh Morgan (there’s that name again) who arranged some vital funding for Lindsay’s think tank, amounting to about $40,000 a year for five years.

That seed funding came from companies like Santos, Shell, BHP, and Morgan’s Western Mining Corporation, among others, and helped to get the CIS moving in its early years.

That same year, Lindsay wrote an article in the IPA Review titled “Rekindling the Flame – the Revival of Liberalism.“

“In the past people have underestimated the power of the intellectuals in social change,” he wrote in that article.

How do think tanks measure success?

At any rate, let’s jump to 2022. How successful has the CIS been as a think tank, all these years later?

There are plenty of ways to measure “success”, but one would have to do with how seriously you’re taken by policymakers.

And on that score, the CIS has done well.

Look at the current board of the Reserve Bank of Australia.

The CIS has one of its board members (Mark Barnaba, of Fortescue Metals Group), and one of its non-executive directors (Alison Watkins, Chancellor of the University of Tasmania) on the RBA’s nine-person board right now.

One had originally been chosen by Scott Morrison, when he was treasurer, and the other was chosen by Josh Frydenberg.

The RBA board discusses what to do with interest rates every month.