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Apr 27, 2016

Keane: neoliberalism is fine, but what we have is crony capitalism

The business community in Australia are fair-weather neoliberals whose only real commitment is to "reform" that suits them, and many politicians are no better.

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While there’s been considerable discussion about why “economic reform” has ground to halt — even, perhaps, under the agile, innovative Turnbull government — less attention has been paid to the increasingly open dissonance between any economically rational reform program and the interests of those promoting “reform”.

Let’s take a step back to consider the fundamentals of the economic reform project since the 1980s. Australia’s embrace of economic neoliberalism since then has been, by material standards, very successful. The core of the Australian reform process has been fiscal discipline, independent monetary policy, deregulation (including financial deregulation), privatisation and an abandonment of centralised industrial relations and protectionism. Voters may not like elements of that (they hate privatisation) but by and large Australians are far wealthier — if not happier — than they were in the 1970s.

The core of this program was an abandonment of a more communitarian economic policy in favour of a more individualist one. “You’re on your own now” was the key message of neoliberalism to Australians (unless you were a select group favoured by governments). Government support, ownership and protection would be curbed in favour of greater economic freedom that allowed individuals to make the most of their economic opportunities. Crucially — and despite the rhetoric from conservatives — this didn’t mean the overall level of government activity in the economy was reduced. Between 1978 and 1983, government spending averaged 24.1% of GDP — and that includes spending in then-treasurer John Howard’s recession of the early 1980s. Spending in the last five years of John Howard’s time as prime minister also averaged 24.1%. Under the Abbott and Turnbull governments, it’s now nearly 26%.

Much of this neoliberal agenda, however, remains unfinished. The more obvious reforms have been completed: financial deregulation, tariff elimination, industrial relations reform, independent monetary policy, competition policy, privatisation — all are mostly done, and the main questions remain marginal or, in the case of the financial sector, whether there should be some degree of re-regulation. But the other part of the agenda — enabling individuals to make the most of economic opportunities — has always received less attention and remains very much unfinished business.

This agenda centres around health, education, participation and skills, or what used to be called the “human capital” agenda — in which obstacles to full economic participation like poor health, lack of education or skills, disability or inability to find childcare are identified and removed. Once these obstacles are removed, the individual, as worker and producer, can, theoretically, then be left truly “on their own”, fully responsible for their economic fate, needing little or no support from government, even including in retirement, courtesy of compulsory superannuation.

On health, we’ve been relatively successful. The Hawke government wisely understood that a universal health scheme was an important economic reform, in ensuring all Australians would have access to a high-quality health system regardless of wealth. The results, in health terms, have been impressive — despite constant whining from the public health lobby, Australia spends just below the OECD average on health as a proportion of GDP, but we’re among the longest-living people in the world.

On education, however, Australia’s performance of recent decades began deteriorating in the 2000s, primarily as a result of underfunding of disadvantaged students who needed the most investment to improve their performance. The funding reforms recommended by the Gonski review were intended to address this problem. But there are other problems in education: the vocational training system in now in crisis, particularly in Victoria, courtesy of a bipartisan policy of deregulation and contestability (a classic example of what damage a poorly implemented neoliberal reform can inflict). And Australia is working on its own, smaller version of the student debt burden that is a major and growing problem in the United States.

We’ve made some progress in developing an effective policy to maximise female participation in the workforce through childcare and parental leave arrangements. However, there are few cheap wins left in this space — a 2015 report by the Productivity Commission suggested that reforms within current funding arrangements were unlikely to deliver significant participation gains.

Without effective, efficient health, childcare and education systems, the full economic reform agenda can never be achieved, because these systems represent potentially serious impediments to individuals making the most of their economic opportunities. They also represent a major fiscal and workforce challenge: in addition to their significant budget cost, education, health and aged care and childcare now, together, employ just over one in five Australians.

Infrastructure and social amenity are also critical aspects of this agenda. Transport congestion, for example, is not merely a major economic cost, but undermines quality of life and skews employment and education choices. High housing prices in Sydney and Melbourne similarly impede our workforce from making the most of opportunities.

To the credit of the communique writers, many of these reform challenges were identified in the now-forgotten national reform summit last year. But they are all far more complex problems than simply privatising a government enterprise or cutting tariffs. Moreover, the bipartisan consensus around the “easy” parts of the neoliberal agenda — even Medicare, which the right is constantly flirting with undermining but could never bring itself to dismantle — doesn’t apply to the same extent.

Unlike for the bulk of the deregulatory reform program of the last three decades, in education and health, the ideological instincts of Labor and the Coalition diverge. While Labor’s reflexive ideology of public sector support has its flaws, the Coalition’s ideological instincts twists the conservative side of politics into a neoliberal pretzel.

Take investment in schools: because the Coalition’s instinct is to favour religious schools, under John Howard it dramatically ramped up funding for private schools, with the result that investment in disadvantaged students — who necessarily tend to end up in the public system — fell away. In 2013, then-education minister Christopher Pyne flagged that he wanted to abandon the Gonski funding formula in favour of the Howard government’s pro-private school SES funding model.

Worse was childcare, which the Howard government turned into a bizarre hybrid public-private industry to which shonks and spivs were lured by the promise of government subsidies, only for the model to fall apart the moment credit conditions tightened. And on health, the Coalition has been obsessed with supporting another inefficient hybrid industry — private health insurance — wasting billions of taxpayer dollars that would have been far more effective being invested in either the hospital system or in primary care.

This is similar, by the way, to the Coalition’s obsession with supporting another economic reform-related industry riddled with shonks: retail superannuation (with the additional ideological overlay of its ferocious loathing of trade unions).

In each case, the Coalition’s desire to support industry sectors it perceived as friendly meant improving the efficiency and effectiveness of health, education and childcare (or retirement incomes) became second to looking after mates — otherwise known as crony capitalism. The same logic lay behind removing an efficient carbon pricing system, which addressed the costs currently imposed on the rest of the community by large carbon polluters. And the same logic is behind the Coalition’s opposition to fixing what even Scott Morrison acknowledges is “excessive” use of negative gearing.

The story isn’t always so clear-cut, though. On participation, Labor led the way in establishing a national paid parental leave scheme but Tony Abbott, unusually, wanted to go further, only to be cruelled by internal opposition and his own political ineptitude.

On infrastructure, the problem has been bipartisan, with both sides reluctant to direct high tax revenues to (before the financial crisis) or borrow for (since then) major infrastructure projects, preferring to attempt to magic their way out of the problem of funding infrastructure through permutations of public/private funding that left first governments, then investors, badly out of pocket. One of the few achievements of Joe Hockey as treasurer was to establish a potential model for ongoing infrastructure funding using asset sales, but it will never be big enough to address the overall funding challenge, nor has it prevented public infrastructure spending from collapsing since 2013.

In the meantime, the chief spruikers of “economic reform” in the business community have persisted in pushing the crony capitalist model, in which governments would hand them favours that would boost their bottom lines with no regard for the national interest. Central to this version of “reform” is cutting company taxes while increasing the tax burden on low- and middle-income earners via consumption taxes, and stripping industrial relations laws of basic protections for employees at a time when the current system is delivering wage-jobs trade-offs, record-low industrial disputation and productivity growth.

Other elements of human capital agenda can be found on, say, the website of the Business Council of Australia, but they’re buried in ancient position papers and inquiry submissions. It’s tax cuts and cutting wages and entitlements that get the juices flowing for the business lobby. Like the Coalition, the likes of the Business Council are dead keen on deregulatory reforms that directly benefit business, but less enthusiastic about the kinds of investments and policies that are needed to maximise individual opportunity — unless they can be funnelled into business via subsidies. And the unfolding debacle of the vocational training sector — so bad that even business groups are expressing dismay at the havoc being wreaked — shows that Labor is hardly immune to such thinking either.

The advocacy of much of the economic reform brigade is thus not support for a genuine neoliberal agenda of individualism but a crony capitalist agenda of self-interest, one readily supported by the Coalition and even, on occasion, Labor. For business, this actually becomes, in the long run, self-defeating: voters’ sense that “reform” equals a more challenging economic environment for themselves while corporations get it ever easier from governments undermines support for both specific reform measures and governments that seek to implement them.

Unless the business sector is prepared to put as much energy into advocating the human capital agenda as it puts into calling for tax cuts and IR reform, and is prepared to pressure the Coalition to do likewise, it will remain open to the criticism that it is a supporter of economic reform only when it serves to the bottom line of companies and not the wealth and welfare of the community.

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