Lesson One: Break the Regulatory Shackles
It needs to be said at the outset that no government in the U.S., not even Detroit’s, has ever imposed the kind of crushing regulations that the Indian government imposed during the height of the notorious License Raj in the mid-’50s. Key industries—steel, telecommunications, airlines—were nationalized, but even more harmful was the Kafkaesque web of regulations that the remaining private businesses had to endure in the name of ensuring a “rational allocation of resources.”
Every move of private industry, big or small, was subject to licensing. Forget setting up a new plant or a factory. If an enterprise wanted to buy or import equipment, change its product mix, or even produce more than its allotted quota for a product, it had to first obtain permission from the Directorate General of Technical Development, a process that could take years and a small fortune in bribes, points out Gurcharan Das, author of India Unbound and former CEO of Procter & Gamble, India. “Large business houses set up parallel bureaucracies in Delhi to follow up on files, organize bribes, and win licenses,” he recalls.
Confronted with a massive fiscal crisis and the prospect of defaulting on its international debt obligations, the Indian government dismantled much of this ridiculous licensing regime in 1991. In a bid to boost exports to replenish the country’s empty foreign exchange reserves, it also eliminated all import licensing and slashed tariffs on capital goods. Both were relics of India’s import-substitution days, when manufacturers were discouraged from buying equipment from abroad in order to build the domestic industry. This jacked up production costs and made the country’s exports hopelessly uncompetitive.
Lesson Two: Remove Destructive Taxes
Bangalore has benefited not just from the central government’s efforts to reduce onerous bureaucracy and red tape but from its radical reform of the federal tax system, once among the most punitive and complicated in the free world. Now Indian states also have started to simplify their tax schemes, something neither Michigan nor Detroit has found the will to do.
In 1933, a referendum was held in Western Australia. By 21st century standards, the question put to voters was well outside the confines of socially acceptable discourse. Voters were asked whether WA should secede from the Commonwealth and become an independent nation. Amazingly, a sizable majority — 68 per cent — decided in favour of breaking away from the federal government.
There are few better examples of the distinctively rugged spirit of the West. Yet despite the sentiment in favour of seceding, WA’s plea was denied by the Australian government and the British Parliament in no uncertain terms. The powers that be were not about to stand for such intransigence.
For the most part, Western Australians appear to have resigned themselves to their fate. But worsening economic conditions have in recent years re-ignited the debate over secession.
Reasons to Secede
WA’s Mines Minister Norman Moore has openly advocated that the state secede and rely on alliances with China and the US for its defence needs. The Labor Opposition has ridiculed such talk, labelling it the work of a “lunatic, right-wing fringe in the Liberal Party.”
Such hyperbole is hardly justified given that WA has legitimate grievances. Take for instance, the carbon tax introduced in July 2012, or Julia Gillard’s mineral resource rent tax, both of which will create uncertainty among the Western Australian business community. Moreover, as Moore points out, other states in the federation parasitically live off the revenue generated by WA’s booming economy. How is this fair?
In general, secession can be expected to result in less internal conflict within the state that has seceded. This makes sense because communities that come together to secede are usually homogenous in important respects (such as ethnicity). Also, another political benefit of secession lies in the emergence of governments that are closer to the people they represent and are consequently more accountable.
The Legality of Secession
Already we can see that there are several reasons why WA would be better off as an independent country. An important question arises, however. Does Australia’s Constitution permit secession in the first place? Professor George Williams of the University of New South Wales does not think so. “The constitution simply does not contemplate any part of the nation breaking away,” he writes, “with no state having the right to unilaterally leave the federation.” Williams suggests that “the only viable legal path to secession is by way of a national referendum. This could change the constitution to permit Western Australia to leave.” In his book Secession: The Ultimate States’ Right, Greg Craven — one of Australia’s leading constitutional experts — reaches a similar conclusion.
The legality or otherwise of secession is a moot point. If secession is to occur, it will never happen with the High Court’s approval, simply because the court is appointed and funded by the federal government and will therefore tend to rule in favour of Canberra. Hence, in an important sense the legal arguments of Williams and Craven are irrelevant to the issue at hand. The debate over secession must occur primarily in the political rather than the legal arena.
That said, is the legal case against secession really as strong as Williams and Craven say it is? The answer is no. When Australia’s colonies agreed to come together as a federation under the Constitution, they did so on the assumption that the federal government would be limited to the powers enumerated in section 51, and that the states would retain their reserved powers. Common-sense, not to mention elementary contractual principles, dictates that if the federal government oversteps its bounds and encroaches into areas of state responsibility then a state is justified in exiting the constitutional compact.
The compact theory of the Constitution derives from American statesman Thomas Jefferson. Jefferson argued, essentially, that for federalism to mean anything in practice, the states must have the ability to hold the central government to account. Or as Clyde Wilson puts it, “Federalism implies states’ rights, and states’ rights imply a right of secession.”
Craven considers Jefferson’s theory and dismisses it on the grounds that the circumstances of Australia’s legal framework differ substantively from the US because, unlike the Americans, Australians were a part of the British Empire at the time of federation. If readers are interested however, an excellent collection promoted by the Mises Institute entitled Secession, State and Liberty more than adequately defends the theory.
We may sum up by emphasising that secession is not a radical idea. In fact, many Western nations were borne out of secession. Consider, for instance, the fact that the American revolutionaries fought to secede from the British Empire. And Australia has over the past 100 years effected a peaceful secession from Britain as it has gradually become more independent and republican sentiment has grown.
As more people become aware of the positive effects of secession, let it not be said that it is an idea only supported by the “loony right”. Secession is an idea whose time has come.