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Federal

Oct 27, 2011

Who killed economic reform? Maybe we all did

There's plenty of blame to go around for the death of the economic reform project. But was popular resentment of its impacts the ultimate killer?

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So far, there have been two competing theories about why the economic reform project has died in Australia: the media blames the politicians, and the politicians blame the media.

The first, favoured by some media critics as well, is that reform has been made much harder by the dumbing down of politics and a media obsessed with gotcha journalism that discourages risk-taking among our leaders. The response, mainly from the media and economists, is that the current crop of politicians are duds, and no match in reforming vigour for Hawke, Keating and the early John Howard.

“The solution doesn’t lie with the media. Politicians need to grow a backbone,” insisted Laurie Oakes last week, specifically criticising Lindsay Tanner’s Sideshow. To be fair to Tanner, he didn’t blame all the media; indeed he specifically singled out some shockjocks for being more prepared to connect large audiences to policy issues than the political journalism professionals.

Given politicians are the ones who end up being the agents of reform, there’s a self-evident logic in blaming them. And it’s hard to see how the media can be blamed at all for some aspects of the retreat from economic rationalism. It was the major political parties — first the Coalition, then Labor — who turned against our long and successful history of high immigration last year, unprompted by anything other than focus groups and political cynicism. It’s also significant that the current government doesn’t have the potent one-two combination that the Hawke government had — a popular prime minister who provided reassurance to voters and an aggressive Treasurer who provided reform momentum. The Howard government had that, as well, though not as much.

Political failure has been more subtle than that, too. If the momentum behind reform stalled under John Howard, Kevin Rudd failed to restore it, talking consistently about reform but not delivering, most painfully on carbon pricing but on tax reform and housing affordability as well. Rudd even had the dubious gift of a global economic crisis to jolt Australians out of any reform complacency they might have had, but failed to use it.

But Australia’s economists share some of that blame as well. They, too, have failed to sell the case for continuing reform. They’ve also been lukewarm in their support for the reforms that politicians have embraced. Ken Henry pointed this out last year when he complained about the constant sniping of academic economists following the mining tax controversy. Economists as diverse as Joshua Gans, Judith Sloan and Warwick McKibbin reacted furiously to Henry’s remarks. But Ross Gittins nailed them when responded that economists demanding perfect policy had no right to complain about politicians lacking the will for reform.

If anything, the culpability of the economics profession has become greater this year. Recall the 1980s, and the sense of urgency policy makers and economists were able to engender in the wider community. Even without Keating’s famous “banana republic” line, the conviction that Australia needed to reform, and now, pervaded debate, as if our very future was at stake. Move forward to 2011, and what’s the issue economists are trying to inspire us with? What urgent national task do we need to address? Erm, productivity — a problem economists themselves still struggle to diagnose properly and one that we share with most developed countries anyway.

Typically, the business community, which has a long history of only supporting major reforms that benefit the bottom line of business, have seized on productivity to argue for the need to return to IR deregulation. That’s despite it being repeatedly demonstrated that the last round of IR reform, WorkChoices, actually undermined labour productivity (as forecast by Treasury). Then again, that’s OK if you bear in mind business is focused not on the national interest, but on easy ways to cut costs.

And like economists, business has failed to do its bit to back even the limited reforms undertaken by politicians. Most of the business community — the superannuation sector honourably excepted — stayed silent while the mining industry mugged the Rudd government last year. Some business leaders then had the hide to whinge when the newly installed Gillard government rushed a deal with the miners that halved the corporate tax cut linked to the mining tax.

What about the public? Tanner also suggested the long years of economic growth had sapped the public will for hard reform. Is it just complacency, or is it something more? Earlier this week, Essential Research released some data on questions it asked about support for key elements of the economic reform program of the past 30 years.

Only compulsory super and Medicare (which was instrumental in Labor’s selling of reform to the union movement and voters) get majority support. Other key reforms such as the floating of the dollar and the GST are now more widely regarded as good for the economy than bad, and reversing them is not supported. But privatisation, a key element of the reform project, is still regarded with hostility by voters and they would happily see the Commonwealth Bank, Qantas and Telstra all returned to public ownership.

This isn’t just dewy-eyed nostalgia. After years of interest rate hikes, diminishing service quality and gouging, such a result is hardly unexpected from voters, who were originally sold privatisation on the basis that it would improve efficiency and service quality because the private sector did those things so much better than the public sector. Instead, the dominant perception is of massive executive salaries built on doing over customers.

This ties into the perception that the rules of the economic game are now rigged in favour of large corporations and wealthy executives — the pointy end of which are the #occupy protests and Alan Jones’s railing against coal-seam gas. Executive remuneration is one of the focal points of this latent hostility in the community, with wage earners constantly being told to accept real wage cuts or negligible increases while executives reward themselves with double-digit annual increases.

From this point of view, more economic reform seems to many people to simply represent a worsening of the current imbalance in the economy.

For some in the community, it goes further. Resentment about the changing nature of the Australian economy, away from manufacturing towards services industries, has been driving a form of regional populism since the days of One Nation. It’s a sentiment that most recently found expression in the anti-carbon tax rallies, composed more or less of the losers from a generation of economic reform, older white people and particularly males, who in previous generations were guaranteed employment for life and an inviolable social status, but who now find they have to compete along with everyone else for economic and social status. Barnaby Joyce and Bob Katter have been effective at tapping this sentiment.

Such people — the class that used to benefit from the socio-economic system, now thrown on hard times — are easily mocked but are simply the most vocal expression of dismay at the atomisation inherent in the liberal economic reform project. What the economists and politicians and advocates of reform (and I’m one) never point out is that economic reform comes with a trade-off — higher economic growth, lower inflation and more jobs, but in exchange for a drastic curbing of the role of government, and a replacement of non-economic values with those of the market. In the world created by economic reform, your only value is as a functioning isolated member of a market economy, as a productive employee and big-spending consumer, and you shouldn’t rely on the community to soften that reality — except if you run a large corporation, in which case you can expect the rules of the game to be altered in your favour.

In such an atmosphere, voters may well wonder whether it’s time not merely that economic reform ended, but that it be reversed.

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