Menu lock

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?

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.

We recommend

From around the web

Powered by Taboola

33 comments

Leave a comment

33 thoughts on “Who killed economic reform? Maybe we all did

  1. Suzanne Blake

    Bernard,

    No one trusts politicans anymore. The backroom deals with minor parties, where we don’t get to see the agreements, the lie regarding the carbon tax, the horse trading with the big miners on the mining tax, the list is endless.

  2. Scott

    Economic reform is not dead. It’s just on hold until a government is elected with enough political capital (Hawke, Howard) or ego (Keating) to drive unpopular reforms through.

  3. Jimmy

    This article laments the lack of economic reform and points to Rudd not delivering on “carbon pricing but on tax reform and housing affordability”, businesses lack of support for the mining tax and businesses call for IR reform in response to productivity increases.

    The article itself points out the issues regarding the IR reform demands, a carbon price and a mining tax (more than likely) will be introduced next year. “Tax reform” is a particularly broad request and always requires long lead times to implement (look at the GST) and the Henry review and even the recent summit are steps along a long and difficult road.

    The only issue to which absolutely no action has been taken is “housing affordability” (although the market does seem to be addressing that itself in recent times).

  4. Ben Shurman

    Think you need to clarify what you mean by economic reform as compared to a change of practice e.g. indirect tax practice change – a bunch of ill-defined ill-targetted hot potch of indirect taxes to a f#*k youse all [GST] tax is an administrative reform and the only thing economist might be interested in is cost, efficiency, incidence, etc.

    Again the privatizations you mention are not economic reforms. and give me a break on this productivity nonsense. Bernard how are you individually going to improve your productivity? Work longer hours?

    But a general comment consumers are supposedly rational. Many, except the 1% are yet to feel, experience the benefits of these so-called economic reforms. What’s that saying you can follow some of the people some of the time…

  5. cpobke

    Though provoking article as always Bernard.
    However, i can’t see how the big ticket economic reforms you point to result in the kind of souless atomisation reffered to in the concluding paragraph.

    “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”

    It seems a bit too dramatic to suggest that because the Australian government does not own and operate an airline (or because the taxes paid on manufactured goods produced overseas are lower now than they were in the past) Australians find no (or less) value in the work they do, their family and other relationships, the recreational activies they pursue and the various ways they engage with their community.

  6. Jimmy

    “Thought provoking article as always Bernard” Yes a vast improvement on the poll talk of recent times.

  7. Joe Magill

    Even though I own a small business, I believe that business and business organisations are quick to criticise any reform which has any (perceived) negative impact. The SA state government recently introduced changes to OHS legislation as part of a national OHS standard, a negotiating process which took many years. Local business, particulalrly housing, immediately launched a campaign against the changes, arguing, just for a change, that “jobs will be lost” and “more red tape”.

    Business is also quick to duck for cover when reforming support is needed. Again in SA the local business lobby BusinessSA lobbied vociferously against the mining tax even though most of its members would have gained from the resulting cut in corporate tax rates.

    Sure today’s crop of politicians doesn’t have the ability to deliver the reform argument to the public, and sure, the media in general is not really interested in covering stories as much as capturing those gotcha moments, and sure, the academics are reluctant to loudly and proudly advance the case for reform. But to my mind the major failure is big business and big business organisations who vigourously pursue their very short term interest and refuse to engage in debates which may well be for their long term benefit.

    The group which you have not referred to are the unions – where do they stand in the reform debate?

  8. arunta

    Wait a minute Bernard, Im excited about all the reforms that an Abbott govt. will bring in.
    #Dismantle the NBN
    #Repeal the Carbon tax
    #Repeal the MRRT
    #Repeal plain packaging of cigarettes
    #Repeal the Pokies legislation …… the list of potential achievements is spectacular.

  9. jeebus

    I don’t understand how anyone can say economic reform is “killed”. There is more to reform than flogging off public assets. If anything, it seems that the pendulum is starting to swing away from the laissez-faire economic rationalism that has led to staggering and unproductive wealth concentration, erosion of the middle class engine, and de-industrialisation of the west.

    Three examples of big economic reforms under the current government – NBN, carbon tax, mining tax.

    If a private monopoly owned all the roads in Australia imagine with all of the tolls how big a drag that would impose on the national economy. Should the NBN rollout proceed uninterrupted, and the infrastructure remains a public asset dedicated to selling low cost wholesale data to any and all private companies with equal favour, then as the foundation for Australia’s digital economy, it will ultimately be seen as a worthy reform indeed.

    The carbon tax will bring Australia to the renewables investment tipping point a lot sooner than would otherwise have happened, which will be a very transformative force in the economy. Whether Australian businesses seize the opportunity to innovate and improve their energy usage & environmental sustainability, or to whinge and price gouge is another question altogether.

    Finally, the mining tax is another big reform that is aimed at fixing Australia’s Dutch disease. Would have been much more effective under Rudd’s original plan, though. Can’t say he didn’t try!

  10. Jimmy

    Jeebus – Agree completely, you could also add on to those more social “reforms” (for want of a better word) like a disability insurance scheme and Paid parental leave.

    “Finally, the mining tax is another big reform that is aimed at fixing Australia’s Dutch disease. Would have been much more effective under Rudd’s original plan, though. Can’t say he didn’t try!” And saying it isn’t a worthwhile reform would come under the area Bernard himself recognised “economists demanding perfect policy had no right to complain about politicians lacking the will for reform.”

Leave a comment