Why neoliberals could be allies in the fight against income management

Don Arthur

Beginning in a handful of trial sites, income management has been expanded to cover targeted groups of income support recipients across the whole of the Northern Territory. Chances are the expansion will not stop there. As opposition leader, Tony Abbott spoke repeatedly about expanding income management to welfare dependent families with children (2009) and to long-term unemployed people (Australian Broadcasting Corporation 2011) across the whole of Australia.

Rather than making support conditional on some change in behaviour, income management changes the form that support takes. It marks a shift away from cash towards in-kind support. To date there is little hard evidence that the policy is meeting its objectives (Buckmaster & Ey 2012). Critics regard it as wasteful, ineffective and stigmatising.

According to social work academic Philip Mendes, the policy is driven by the philosophy of neoliberalism, an ideology inspired by the classical liberal doctrines of Adam Smith, Friedrich Hayek and Milton Friedman (Mendes 2011, 2008, p. 44). However, at least one of these thinkers, Milton Friedman, explicitly argued against policies that provide in-kind support rather than cash. He favoured replacing existing in-kind supports like the American food stamps program with a negative income tax. Were Friedman alive today, it is almost certain he would oppose the Australian government’s income management policy.

Classical liberals and conservatives have different approaches to welfare reform.

Critics like Mendes conflate the classical liberalism of economists like Friedman and Hayek with the big government conservatism of thinkers like Lawrence Mead and the Centre for Independent Studies’ Peter Saunders. While allied on many issues, classical liberals and conservatives have different approaches to welfare reform. Classical liberals tend to support policies like Friedman’s negative income tax, which replace in-kind support with cash transfers. And when it comes to encouraging work, they place more emphasis on financial incentives than on conservative policies like workfare that make support conditional on behaviour.

In a fight against income management, neoliberals’ preference for cash over in-kind support makes them potential allies for social democrats like Mendes. As American political journalist Conor Friedersdorf writes: ‘Someone who agrees with you 1 percent of the time, on just a single issue, is someone you can work with in good faith on that issue. And if you do, odds are they’ll listen more closely to your other ideas’ (2013).


Few political terms are as hard to pin down as ‘neoliberalism’. Writing for the Centre for Independent Studies, Oliver Hartwich says the term has become ‘an almost meaningless insult’ (2009). While the term is often used in a vague way, Mendes does attempt to spell out what he means by it. He states that neoliberalism is a philosophy based ‘on the classical liberal doctrines of eighteenth-century anti-collectivist philosopher and economist Adam Smith, the Austrian theorist Friedrich Hayek and the American economist Milton Friedman’ (Mendes 2008, p. 44). Of these three thinkers, only Friedman had much to say about welfare reform. Hayek set out some general principles about government funded services and supported a guaranteed minimum income but did not go into detail (Arthur 2007). And Smith’s work pre-dates the modern welfare state. What unites Smith, Hayek and Friedman is that they were all both economists and liberals. As economists, they saw the central political problem as how to structure society so that individuals are best able to pursue their own ends. According to Friedman:

The key insight of Adam Smith’s Wealth of Nations is misleadingly simple: if an exchange between two parties is voluntary, it will not take place unless both believe they will benefit from it.

… Adam Smith’s flash of genius was his recognition that the prices that emerged from voluntary transactions between buyers and sellers—for short, in a free market—could coordinate the activity of millions of people, each seeking his own interest, in such a way as to make everyone better off (Friedman & Friedman 1980, pp. 31–32).

To some extent, both Friedman’s and Hayek’s liberalism flowed from their economics. In their view, allowing people to freely co-operate within a set of market institutions is the most effective way to satisfy preferences. The government’s role is to maintain a stable framework of laws and institutions that enable the market to work.

Because the price mechanism plays such an important role in co-ordinating activity in a free market, neoliberals like Hayek and Friedman argue that governments should avoid tampering with it. When governments want to help people in poverty and those on low incomes, they should do so outside the market. This is why neoliberals prefer cash transfers to policies such as minimum wages and rent control. While liberal economists have no in-principle objection to government providing cash and other assistance to people in need, they strongly object to policies that tamper with the price mechanism to give particular groups of people the prices or incomes they think they deserve (Hayek 1978). For example, if dairy farmers complain that the price supermarkets are paying for milk is unfair, neoliberals will urge government to do nothing. Liberal economists are also wary of governments taking people’s money in taxes and returning it in the form of goods and services. They argue that while consumers sometimes make mistakes, most of the time they make better choices for themselves that governments would make for them (Cassidy 2010; Friedman & Friedman 1980).

Both Friedman’s and Hayek’s liberalism flowed from their economics.

Aside from complaining about how much it costs, most liberal economists have little to say about social policy. For them, the main game is persuading governments to step back and let the market do its work. Ending tariff protection and industry subsidies, privatising government owned enterprises and deregulating the labour market have always mattered more than social policy. In recent decades, the gap has been filled by conservatives. Since the 1980s, the dominance of neoliberalism in right-of-centre think tanks has waned. As think tanks turned their attention to social policy, conservative thinkers like Lawrence Mead and Peter Saunders have played a more important role.


Income management shifts assistance away from cash towards in-kind support. Assistance lies along a continuum with cash at one end and the direct provision of goods and services at the other. Somewhere between the two are programs like school vouchers that give recipients a degree of choice about what they purchase and where. The shift away from cash is a different issue from conditionality. Conditionality is about what recipients have to do in order to remain eligible for support. The shift away from cash towards in-kind assistance is about the form that support takes.

In practice the distinction is not so clear cut. In the Northern Territory income management has an element of conditionality. Some of the groups targeted for income management—young people and long-term welfare recipients—are able to apply for exemptions. These exemptions serve two purposes. The first is to refine the targeting of income management by excluding individuals who are unlikely to benefit from it. The second is to use access to cash support as a carrot to encourage recipients to participate in education, find part-time work and make sure their children are immunised and attend school regularly.

The extent to which income management can be described as conditional welfare depends on whether the policy is primarily intended to persuade people to change their behaviour in an effort to retain access to cash assistance or whether the benefit is meant to flow from managing people’s incomes. When the Labor government introduced legislation to extend income management to the whole of the Northern Territory, Indigenous affairs minister Jenny Macklin explained (2009):

Income management helps people to order their lives and provide for their children. It operates at the day-to-day level of people’s lives, giving them access to the basics of life by reducing the amount of welfare funds available for substance abuse and other risky behaviours. This in turn provides a pathway for their participation in the broader economy and society.

This suggests that the government intended a major benefit of income management to flow from actually managing people’s incomes.


In the early 1960s, Friedman proposed an anti-poverty initiative that he said would ‘help eliminate the present demoralizing situation under which some people—the bureaucrats administering programs—run other people’s lives’ (Friedman & Friedman 1980). In Friedman’s plan, the negative income tax would sweep aside existing welfare services and in-kind supports and tackle the problem of poverty by simply giving poor people cash. Friedman had no interest in supervising people to make sure they spent ‘taxpayers’ money’ responsibly. He assumed, as most liberal economists do, that individuals are the best judge of their own interests. The negative income tax would provide unconditional support, allowing recipients to work or not work as they chose. And because it would be distributed as cash, the assistance would be theirs to spend as they wished.

The shift away from cash is a different issue from conditionality.

The debate over income management in Australia today covers much the same ground as the debate over Friedman’s negative income tax proposal in America during the 1960s. And given that Mendes and other critics identify neoliberal philosophy so closely with Friedman’s ideas, it is worth looking at the negative income tax debate to see what it reveals about neoliberal ideas about welfare.

Friedman argued that the existing welfare system was causing rather than alleviating poverty. In his view, the major problem was the way means testing undermined financial incentives to work. Having multiple programs with multiple means tests made the problem worse. His negative income tax was designed to provide a guaranteed minimum while ensuring that recipients were always better off taking a job and working more hours (Friedman 2002, p. 192). Ideally it would replace all existing means tested programs including in-kind supports such as food stamps and housing assistance (Moynihan 1973, pp. 370–371).

Conservatives argued that many welfare recipients were too dysfunctional to spend cash assistance responsibly. As a result, they supported schemes that provided in-kind support rather than cash. The debate played out in an interview Friedman gave to conservative commentator William F. Buckley in 1968. Friedman began by outlining how his proposal would work:

The proposal for a negative income tax is a proposal to help poor people by giving them money which is what they need rather than as now by requiring them to come before a governmental official detail all their assets and their liabilities and be told that you may spend x dollars on rent, y dollars on food et cetera and then be given a hand out. The idea of the negative income tax is to treat people who are poor in the same way we treat people who are rich. Both groups would have to file income tax returns and both groups would be treated in a parallel way (Friedman 1968).

Buckley countered with the problem of the ‘disorganised poor’, who spend their money on things like drugs and gambling rather than on food or housing. He said that case workers at welfare agencies in New York sometimes dealt with the problem by making direct payments to landlords or grocers instead of handing out cash. Friedman was not convinced. ‘Let’s not underestimate the ingenuity of the poor people in converting what they get from the relief into what they want’, he replied and insisted that this kind of in-kind assistance was wasteful. ‘They would be far better off if we just gave them the money and let them spend it’, he said.

Friedman was wary about designing the welfare system around the circumstances of a small number of dysfunctional individuals. He argued:

I think a great defect of welfare programs and arrangements is that we have been too contemptuous of the poor. Our welfare—people who propose these programs have treated the poor as if they were incompetent people who had to be managed by their betters. I don’t believe that’s the case. Most of the poor people are perfectly responsible, respectable people who, given half a chance don’t want to be on welfare any more than you or I want to be. You’ve got to give them a chance to get off (Friedman 1968).

For those who misuse their income, Friedman argued a negative income tax would give them an opportunity to learn how to behave more responsibly. After all, the most serious consequences of irresponsible spending would fall on the individual themselves. And for those who really did need supervision, Friedman argued that private charity was better able to help than government bureaucracy.

The 1970s marked the high point of economists’ influence on welfare reform.

Friedman also argued that the existing welfare system interfered with people’s freedoms. In an interview for Playboy he quoted a young man he met who was writing a book on welfare programs in Harlem: ‘They can’t move from one place to another without the permission of their welfare worker’, said the man. ‘They can’t buy dishes for their kitchen without getting a purchase order. Their whole lives are controlled by the welfare workers’ (Friedman 1975, pp. 27–28). Friedman agreed. He argued that, whatever the motivation, these kinds of policies were a bad idea if we wanted people to take responsibility for their own actions.

During the 1960s and 70s, the Washington policy community took up Friedman’s negative income tax proposal. His work inspired the Nixon administration’s unsuccessful effort to establish the Family Assistance Plan (FAP). The FAP was a heavily modified version of the negative income tax and came surprisingly close to creating a guaranteed minimum income program in America (Davies 1996; Moynihan 1973).

The 1970s marked the high point of economists’ influence on welfare reform. In Australia, the Henderson Commission of Inquiry into Poverty proposed a guaranteed minimum income scheme that shared many of the features of the negative income tax (Henderson 1975). At least one newspaper report at the time linked the Henderson proposal to Friedman’s negative income tax proposal (Barnes 1975).

In 1980, a group of Australian economists including Wolfgang Kasper continued the debate their book Australia at the Crossroads (Kasper, Blandy, Freebairn, Hocking & O’Neill 1980). The economists argued that a negative income tax would allow the government to stop spending money on welfare services and job programs for the unemployed. The negative income tax would ‘enable the needy to buy whatever welfare or job advice they actually wanted from fee-charging experts and agencies’ (Kasper et al. 1980, p. 213). The book’s authors referred to their policy alternative ‘libertarian’ stating that this should ‘be understood in the tradition of such social philosophers as Adam Smith, Friedrich Hayek, and Milton Friedman’ (Kasper et al. 1980, p. 180). In his book, The End of Certainty, Paul Kelly identifies the Crossroads group as an important part of a free market counter-establishment that emerged in the 1980s (Kelly 1994, pp. 40–42).

By the end of the 1980s the idea that a negative income tax could replace in-kind support had moved to the fringes. In 2005 the Centre for Independent Studies published a paper by John Humphreys that advocates replacing the welfare system with a negative income tax (Humphreys 2005). But Humphreys seems to be the proposal’s only supporter within the Centre for Independent Studies. He is the founder of the Australian Liberal Democratic Party and the party has adopted the negative income tax as part of its policy platform (Australian Liberal Democratic Party n.d.). Within the major parties or the bureaucracy, the idea seems to have attracted little interest. In the United States, libertarian writer Charles Murray proposed a guaranteed minimum income as a replacement for the welfare state in a book published by the American Enterprise Institute (Murray 2006). But again the idea seems to have had little influence outside of the world of think tanks and commentators.


In a recent paper on income management Mendes writes that:

Neoliberals believe the government should act to motivate and discipline welfare recipients, and reintegrate them with mainstream social values and morality, such as self-reliance and the work ethic. Income security should shift from being a right or entitlement to a privilege. Welfare-reliant individuals should be pressured to choose employment over welfare (Mendes 2013, pp. 495–496).

As a statement about what the followers of Smith, Hayek and Friedman believe, this is wrong. But as a statement about the policies Australia’s so called neoliberal think tanks support it is exactly right. Aside from the paper by Humphreys in 2005, Australia’s so-called neoliberal think tanks have done little to promote the kind of reforms that Friedman supported. Instead they have pushed for conservative policies that direct increasing amounts of money and effort into controlling the lives of people on income support.

Most neoliberals are relatively uninterested in social policy.

There are two major reasons why think tanks like the Centre for Independent Studies and the Institute of Public Affairs do not publicly oppose income management. The first is that neoliberals no longer dominate these think tanks. Most of the work on welfare policy is done by conservatives. The second is that most neoliberals are relatively uninterested in social policy. They just do not care enough to start a fight with their conservative colleagues.


At the end of World War II and into the 1950s, socialism still seemed like a major threat to thinkers on the right. Left of centre political parties still spoke about state planning and nationalisation and most of the big issues were economic. By the end of the 1970s, socialists seemed to have lost the argument. And with the rise of the new left and a range of new social movements, people on the right became preoccupied with a different set of issues. The new radicals on the left were questioning the work ethic, consumerism and the goal of endless economic growth. They were attacking the legitimacy of the political system and traditional religious institutions and questioned all forms of moral authority. For many conservatives, it was a collapse of moral authority that was behind the increasing numbers of single parent families, the rise in the welfare rolls, the problems of crime and drug addiction, and the riots and protests in the cities.

In the United States, a new group of philanthropists responded to these developments by channelling money to support conservative academics, think tank intellectuals and journals. According to the Olin Foundation’s James Piereson:

It began to take shape in the mid-1970s through the work of a handful of donors, especially the John M. Olin and Smith Richardson foundations and, later, the Bradley Foundation. The Scaife Trusts of Pittsburgh were also involved to a certain degree.

These funders were more self-consciously conservative than libertarian. While sympathetic to the writings of Hayek and the ideals of classical liberalism, they adopted a broader intellectual framework encompassing fields beyond economics: pre-eminently religion, foreign policy and the traditional humanities. In contrast to Hayek and his followers, they were also prepared to engage the world of politics and policy and to wage the war of ideas in a direct and aggressive style (Piereson 2005).

While the first wave of donors and think tank researchers had focused on economic issues, the second wave turned to social and cultural issues. By neglecting the humanities and social sciences, conservatives feared they had allowed their opponents to dominate the world of ideas. Rather than attack intellectualism, philanthropic foundation leaders like Michael Joyce sought to create their own conservative ‘counter-intelligentsia’ (Joyce 2003).

The foundations and think tanks turned to neoconservatives such as Irving Kristol for ideas. For thinkers like Kristol, economists like Hayek and Friedman were partly to blame for the collapse in moral authority (Kristol 1999, pp. 102–103). Economics makes a firm distinction between facts and values. There are facts about people’s preferences and facts about the most efficient way of organising society to satisfy them. But are no facts about what preferences people ought to have. From the neoconservative perspective, the economists’ focus on satisfying preferences neglected the idea of virtue.

America’s neoconservatives answered a need.

Both the 60s counterculture and capitalist consumerism encouraged the idea that individuals should be liberated from traditional roles and morality and encouraged to do whatever it was they wanted to do. And corporations were only too happy to cash in on self actualisation and rebellion if there was a profit to be made. But without the anchor of traditional morality and religion, there was no guarantee the ‘true selves’ actualised by liberated individuals would be compatible with capitalism or any successfully organised society. According to neoconservatives like Kristol, the combination of the counterculture’s relentless questioning of values, consumer society’s amoral culture industries and value free social science was more likely to lead to nihilism and social collapse than self actualisation and utopia. As British sociologist Peter Saunders writes:

Capitalism needs a shared moral framework within which to operate. It needs individuals to be motivated to act in certain ways, it needs symbols to legitimate the inequalities of condition which arise from market transactions, and it needs a core set of values which can bind people together through ties of mutual obligation and social responsibility (1995, p. 119).

While economic argument was an effective defence against socialism and state planning, it was no use at all against what neoconservatives saw as dangerously naïve views about liberation and social progress.

America’s neoconservatives answered a need. In the electorate, many conservatively inclined voters were anxious about the social and cultural changes unleashed in the 60s. Politicians were open to ideas about how to respond. And there was a group of conservative business leaders willing to bank roll conservative thinkers in war of ideas.

In Australia, the Centre for Independent Studies shifted from its focus on economic policy to include a stronger focus on social policy issues such as welfare reform (Norton & Lindsay 1996; Devine & Lindsay 2001; Duffy 2005). Work on welfare policy included Lucy Sullivan’s publications for the centre’s ‘Taking Children Seriously’ program (Sullivan 2000) and Peter Saunders’ publications for the Social Policy Program from 2002 to 2008. Neither Sullivan nor Saunders can fairly be described as neoliberal.

Today the term ‘neoconservative’ is often used to refer to American foreign policy intellectuals like Richard Perle who supported US involvement in the war in Iraq. But the label first appears in a 1973 article by anti-poverty campaigner Michael Harrington. He applied it to a group of former liberals who were critical of America’s war on poverty and prospects for the welfare state (Harrington 1974).

In his discussion of think tanks, Mendes often uses the label ‘neoconservative’ interchangeably with ‘neoliberal’ (2003, p. 189). This obscures the important intellectual shift that occurred during the 1970s and makes it difficult to understand the role think tanks now play in the debate over welfare reform.


The neoliberal approach to welfare reform relies primarily on self interest as a motivator. Moving recipients from welfare to work is about getting the financial incentives right. In contrast, the conservative approach to welfare reform relies on moralising and conditionality.

For neoconservative Mead, work is an obligation of citizenship.

Neoliberals who follow Friedman seek to promote work among the poor by removing structural barriers to job creation in the labour market (such as minimum wages), and by removing disincentives to work from the welfare system. Because neoliberals assume that income support recipients are rationally self-interested, there is no reason to pressure them into choosing work over welfare.

According to conservative political scientist Lawrence Mead support for measures like a negative income tax has more to do with training in economics than with political philosophy. He writes:

Some welfare programs like food stamps and public housing gave recipients benefits ‘in kind’ rather than in cash, thus constraining their freedom to spend their income as they wished. The restrictions all reflected moral judgments that the poor were in some ways less deserving or competent than other people. The abstract psychology of economics eschewed such judgments. To an economist, all individuals are self-seeking, the poor no more than the better-off, and each is the best judge of what serves his or her own interest. Economists assumed that, if the dependent did not work, the reason must be that it was not worth their while. The solution was work incentives or some other device such as a wage subsidy that would strengthen recipients’ economic interest in jobs. Work requirements, which mandated that recipients work or look for work on pain of cuts in their grants, were bound to be unenforceable, because they tried to make people work against their interest. Such tests were bound to cost more to administer than they would save in welfare (Mead 1986).

Mead takes issue with the economic approach for two reasons. First he does not assume that people who are reliant on income support are competent to act in their own self-interest (Mead 1997, pp. 23–24). And second, he argues that government should expect welfare recipients to work, even if it is not in their interest to do so. He argues that work should be treated as an obligation of citizenship. Just as the government expects citizens to pay taxes and obey the law, it should expect able-bodied welfare recipients to work (Mead 1986).


The increasing influence of conservatives creates a dilemma for those who follow in the tradition of Smith, Hayek and Friedman. As Peter Saunders asked in a lecture he gave to the Centre for Independent Studies in 2000:

How are classical liberals to respond to this new moral agenda in family and welfare policy? Are we to throw our weight behind the conservatives, who look to government to take a pro-active lead in prescribing appropriate ways of living and defining the obligations that we owe to the collectivity? Or are we to line up the socialists and feminists … who, despite favouring government intervention in economic affairs, are resolute in resisting the encroachment of government into the ‘personal’ lives of individuals? And if neither of these options looks attractive, are we simply to remain silent?

As a sociologist rather than an economist, Saunders was never much of a neoliberal. He chose conservatism. Most neoliberals in right-of-centre think tanks seem to have chosen silence. How they choose to react in the future may depend on what government does next. If the government decides to roll out income management across Australia and apply it in a blanket fashion to groups like the long term unemployed, then neoliberals could choose to break with conservatives.


For neoliberals the problem is not so much the existing income management scheme, but the threat of an expanded scheme. As opposition leader Tony Abbott said that ‘taxpayers have a right to expect that the money they provide to welfare recipients is being appropriately used’ (Australian Broadcasting Corporation 2011). If that becomes the rationale for income management then it is difficult to see why it should be restricted a small number of locations.

If it becomes a focus of media interest, expanding income management could turn out to be a politically popular move for government. But public opinion is only one potential source or pressure to expand the scheme.

Income management depends on the BasicsCard, an electronic funds transfer card that enables people to spend the income managed portion of their payments at supermarkets and other stores. The system also has the potential to enable government to monitor where and when income support recipients spend their benefits. As a source of data, the BasicsCard is attractive to the bureaucracy. And it is also attractive to the private companies that compete to manage the system on behalf of government.

Income management ought to be objectionable to neoliberals for a range of reasons.

In the United States Peter Schweizer (a fellow at the libertarian Hoover Institution) argues that government programs like food stamps that rely on electronic benefits transfer cards have become ‘cash cows for powerful corporate interests’ (Schweizer 2012). Across the world, financial services companies are looking for new ways to use their card technologies. In the United Kingdom, MasterCard has partnered with left-of-centre think tank Demos to look at opportunities that could include income management like schemes using pre-paid cards (Wood & Salter 2013). And in Australia there are signs that financial services providers such as Visa see an expanded income management as a business opportunity (Deloitte Access Economics 2012).

While an expanded income management system would be good news for the companies that run the payment systems, it could turn out to be bad news for retailers. Currently the rules about what recipients can and cannot buy with the BasicsCard are fairly simple. But in the future there may be pressure to add additional restrictions. For example, public health activists could push the government to exclude soft drinks and other junk food. Adding new categories to the excluded goods list would place an extra burden on retailers. They would need to devote more time to training their staff and updating their point of sale systems. And a more complicated set of rules could lead to confusion, increasing the time it takes to complete transactions and the potential for disputes at the checkout.

Government departments may also be tempted to use technology as way of policing retailers and gathering data on recipients’ spending habits. Media reports in 2009 suggested the government was looking at ways of ‘incorporating product barcode data as a means of creating a computerised record of purchases made on an individual’s card’ (Dearne 2009). While data collection at that level might not be feasible, the drive to collect more data than is available under the current system could end with the government insisting retailers install new point-of-sale equipment at their own expense if they want to continue accepting BasicsCard payments. There is some reason to think retailers are already concerned about this possibility (Australian Merchant Payments Forum 2011).

Income management ought to be objectionable to neoliberals for a range of reasons. As Friedman argued about the use of in-kind benefits during the 1960s, it treats competent people as incompetent, discourages people from taking responsibility for their own decisions and wastes money. If expanded across Australia, income management could waste vast amounts of money and impose an unnecessary administrative burden on retailers.


As long as income management was confined to remote Indigenous communities, neoliberals found it relatively easy to ignore. But an expanded scheme might be harder to overlook. In an environment where governments are looking to prune wasteful spending, neoliberals ought to be concerned about income management.

Critics like Mendes often write as if all the talk about freedom and efficiency is smokescreen for neoliberalism’s real agenda: ‘which appears to be to redistribute income from the poorest to the most affluent, from the most needy in society to the least needy’ (Mendes 2008, p. 63). If that is true then there is little hope of an alliance between neoliberals and social democrats on the income management issue. But what if the assumption of bad faith is wrong? Social democrats and neoliberals do not have to agree about everything to agree about this one issue. Political alliances are usually formed in the face of shared enemy rather than a shared vision (Arthur 2008). And opening up a dialogue with neoliberals may well reveal other issues on which both groups are opposed to conservatives and their agenda.


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Don Arthur’s work has previously been published by the Evatt Foundation and in the Centre for Independent Studies’ Policy magazine. The views expressed here are his own.

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