11. Make up your own sentences using the words and word combinations given below.

To spirit away the proceeds of crime, a haven for money-launderers, to be used for legitimate purposes, to conceal ill-gotten gains, to preserve anonymity, to impose standards, to enforce rules, to facilitate money-laundering, to curb money-laundering, to cut off funding, to apply standards.

8. In groups discuss the following.

The chairman of Sears Roebuck and Co., Edward Brennan, believes that the company has all the parts it needs to offer a total financial package to consumers. This may be so, but the task of marketing this financial empire is yet to be completed. Sears has been called a financial supermarket because you can go there to buy life insurance, stocks, bonds, mutual funds, and consumer goods with Sears’ own Discover credit card.

Sears is uniquely positioned to offer such services because it has such a huge customer base and is located in so many towns and cities. Furthermore, Sears has a reputation for dependability. Will Sears’ reputation carry over into its financial operations? Can one company be so many things to so many people and still be effective?

Decision Questions

1. What do you perceive as the advantages and disadvantages of having Sears as your broker?

2. Can you imagine other retail stores joining Sears in moving into financial services? Will such financial supermarkets provide a real challenge to traditional banks, brokers, and real estate firms?

3. Is it healthy for the economy to have a few, large firms dominant in both retailing and financial services? Why or why not?

In pairs make up a dialogue between a journalist and a local bank officer. Ask what the current interest rate is and what rate small businesses would pay for short- and long-term loans.

ECONOMIC ISSUE: BUREAUCRACY

FINANCIAL TIMES OCTOBER 28 2004

The federation is 'over-governed'

Tensions arise between Australia's six states which each have their own parliament and a premier, writes Virginia Marsh

In Albury-Wodonga, the twin city that straddles the border between New South Wales and Victoria, the headlamps on school buses must flash when the doors open on one side of the River Murray but not on the other, while the amber lights required in the two halves of town are different.

As a result of these and other regulations, the local bus company has to operate two fleets of school buses, one for Victoria and one for NSW.

Some 1,400km further north on NSW's border with Queensland, the citizens of Coolangatta and Tweed Heads, share similar frustrations.

Here, for half the year, the community operates in two time zones because NSW changes its clocks in summer time whereas Queensland does not. As a result, people living on one side of border but working on the other can arrive at the office before leaving home.

These headaches for individuals and inefficiencies for business result from Australia’s federal system.

Created just over a century ago, in 1901, the federation grew out of the administrative system established by the British who ran Australia as six separate colonies.

Back then, Australia was seen as the new New World, the next America, and a land that, it was confidently pre­dicted, would hold a population of 100m by the millennium.

Hindered by its geographical isolation from the northern hemisphere and by its arid environment, Australia has not lived up to those hopes. Its population has grown to just 20m.

“We are over-governed,” says Jeremy Duffield who heads the local operations of Vanguard, the US fund manager. “Do you really need six state governments, as well as the commonwealth government, for a population of this size?”

The six states each have their own parliament and a premier, and since federation Australia has added two other administrative areas: the Northern Territory and the Australian Capital Territory which covers Canberra, the national capital. The territories also have their own legislature and a chief minister.

The commonwealth government levies and collects most taxes, including those on income, companies and sales. But the states are primarily responsible for some of the biggest areas of spending, notably in education, health and infrastructure. They have some fiscal powers but much of their funding comes in the form of grants from Canberra.

This funding system has created several problems. First, there is a mismatch between what a state provides in revenues and the amount it receives back. This is creating increasing tension between states.

Second, the varying taxes levied around the country are confusing for business. Third, state and central government responsibilities overlap in some areas, created incoherence in policy-making.

“If taxing rights and responsibilities were more closely aligned, the system would work much better,” says Chris Richardson, head of Access Economics, a leading private consultancy. “As a result of the federal system and the shifting around of responsibilities, you get lots of bad policy.”

Implicit in federation was the idea that the richer states would help the poorer, less populated ones, partly because of the higher cost of providing services in rural Australia. In the Northern Territory, for example, about 200,000 people are scattered over an area the size of France, Spain and Italy combined.

But in recent years, New South Wales, the largest state in terms of population and economy, has become increasingly unhappy that it subsidises other states, particularly Queensland. It argues that the Sunshine state, which has enjoyed rapid economic growth in recent years, is no longer in need of handouts.

Earlier this year, it asked its lawyers to draft a challenge to the federal grant system, following what it termed an “unfair and arbitrary” decision to cut A$1.8bn in funding for the state.

There is also intense competition for private sector investment although Garry Draffin, chief executive of Invest Australia, the national inward investment body, says it is not as destructive as it was in the past when it weakened Australia’s efforts to market itself internationally.

Companies have also been able to play states off against each other.

NSW, for example, gave up to A$107m in concessions to Rupert Murdoch's News Corp and others to secure the A$430m Fox Studios film and entertainment complex for Sydney, only to see part of its mothballed within two years of opening.

“The level of inter-state rivalry has dropped away quite significantly,” Mr Draffin says, citing as an example a recent agreement not to poach established businesses from each other. All states signed the pact except for Queensland.

The states’ narrow tax base also presents problems, including conflicts of interest. Gambling is widely seen as one of Australia's most serious social problems. Yet the states are financially dependent on it – gambling taxes account for between 8 and 15 per cent of revenues. Without them, state governments argue, they cannot fund spiralling health and education costs.

But it is in the policy area that federation appears to pose the greatest challenge because of the way responsibilities are shared. Developing long-term strategies in health, for example, is difficult, because the federal government funds Medicare, the national health system, and some community-care, while hospitals are state-run.

The creation of a well-functioning national infrastructure, from roads to rail and energy, and of solutions to Australia’s growing environmental problems, meanwhile, has been held up by competing state interests.

In water, for example, farmers and consumers in South Australia, NSW and Victoria all compete for the resources of the Murray-Darling river system.

In energy, Victoria and South Australia have privatised whereas Queensland and New South Wales have not.

“There are more and more problems that require multi-government solutions,” says Allan Fels, dean of the Australia and New Zealand School of Government at Melbourne University.

Federation has its advantages, adds Prof Fels, such as allowing scope for experimentation and providing a form of government, namely state-based administration, that is closer to the community and more responsive to local needs than a central government.

But he says greater effort is needed to overcome the difficulties inherent in federation and that progress is slow.

“There is a lot of misunderstanding between the different governments and an unduly high level of suspicion of Australians working for other state governments,” he adds.

“It is hard to govern well within a federation. Australia's could be made to work better.”