So capitalism turned out to be too important to be left to the capitalists.

Economic and political theory will take some time to adjust to what just happened. It turns out regulation isn’t some nanny-state impediment to the efficient, if brutal, functioning of markets; it doesn’t comprise the Lilliputians’ ropes tying down the Gullivers of capitalism, but a critical element in maintaining market stability.

Though that’s not the world-changing thing. It’s the role of governments as economic backstops, the last-resort investors when all else fails — that’s what’s new. Nationalisation went from being the sort of thing we mocked in Venezuela to sound economic policy, even in a Republican Administration, in the blink of an eye.

Government is back, and small government types, libertarians, deregulationists, will have to cop it sweet.

Paradoxically, however, in Australia, that sentiment might play out in quite the opposite fashion.

During the 2020 Summit — which now has an altogether antediluvian feel to it — there was a high level of malice toward the entire state level of government. You’d expect nothing less from the progressives and GetUp types that dominated that event, who are genetically centralist. That sentiment may have spread more widely. In last night’s televisual town hall meeting, the Prime Minister was confronted directly with this when a questioner was cheered when he proposed the removal of state governments.

You can tell where this has come from — particularly in NSW, where there is profound contempt for a wholly inept State Government and a resentment that the Coalition has been unelectable for years, depriving voters of a genuine choice.

Maybe the ALP has engaged in a long-term plot to so thoroughly trash the reputation of the second tier of government that Australians vote to get rid of it.

Rudd’s response was to emphasise trying to get the Federation to work more efficiently. Not enough, his interrogator responded — we should get rid of the states. Rudd admitted, when David Koch picked up on the issue, that Australia was “unintelligently governed in the structures we’ve got”. Mark Riley pointed out that the transcript from the PM’s office rendered this as “intelligently”, completely changing the meaning of Rudd’s remarks. Transcripts frequently come with errors, so the change might have been accidental. But it was a significant statement by the Prime Minister.

Koch made a good point, in that the corporate sector and households were being asked to become more efficient, and that the same requirement should apply to governments. This is where the financial crisis complements the long-term disaffection of voters toward inept state governments. The performance of the Commonwealth has been strong. Voters felt that the Howard Government had been a strong economic manager even as they voted it out of office. Rudd in his turn is perceived as handling the crisis very well. Voters know that there is now a long tradition of strong economic management from both sides at the Federal level, even if Keating still gets the blame for the last recession.

In contrast, the states are considered a bunch of drop-kicks who couldn’t even manage properly during the boom times.

That’s a hopeless generalisation, and doubtless truer in some states than others, but you feel that a lot of ordinary Australians have contempt for state politicians, especially those from the major parties. And the more we centralise government and take policy responsibilities away from the states, the fewer will be the state MPs with any talent. State politics is already halfway to being a backwater for the lesser lights of both sides.

The trick for the Government is to turn this malice toward the states into politically-useful pressure on Premiers and Chief Ministers to cooperate with the Commonwealth’s reform agenda. Rudd has not so far demonstrated too many smarts in dealing with the likes of John Brumby. Maybe he should take a few ordinary voters along to the next COAG meeting.

Peter Fray

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