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.

Bernard Keane — Politics editor

Bernard Keane

Politics editor

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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43 thoughts on “Keane: neoliberalism is fine, but what we have is crony capitalism

  1. Norm

    thoughtful article Bernard, thanks

  2. Jack Robertson

    Superbly acute summary of the economic-ideological state-of-play. Along with yesterday’s on generational/fiscal policy divergence, a cracking opening contextualization of the election stakes. Bravs.

  3. Dog's Breakfast

    Exactly Bernard. Even many things refereed to as reforms don’t cut the mustard, with no better example than Costello’s ‘reforms’ to superannuation and capital gains, which were terrible public policy at the time, and seen to be so by those not in the government’s pockets, and will now require genuine reform to undo the stupidity.

    But the vast bulk of reforms since Hawke and Keating have been a generic class warfare by the right leaving the average Joe exposed to market forces, while big business is largely de-regulated and exempted from carrying the costs of their business, whether by carbon taxes unwound, taxes avoided through corporate tax avoidance methods, and reasonable corporate behaviours not being enforced by largely useless and/or de-funded regulators, or incredible government decisions to allow coal seam gas or old style coal mines on land that should be quarantined for farming or for mines that are not being rehabilitated as companies go into bankruptcy just as the clean-up bill arrives.

    The neocon edifice is coming down and none too soon. In so many ways the community is baring the cost of rapacious corporate behaviour, and like kids in a lolly shop they never seem to notice that too much of a good thing is bad for them longer term.

    The entire capitalist system is in question, and quite frankly, I look forward to its demise. Wholesale capitalism inevitably leads to this, the people versus the money, and that never ends well.

    1. David Hand

      I understand that “Capitalism” describes such things as private ownership of assets, the freedom to start and run a business, the opportunity to own something through owning shares in it.
      What part of this do you think is in question? Or do you think capitalism means something else?

      1. rhwombat

        The problem is not Capitalism – it’s Capitalists.

      2. Jaybuoy

        Does your version of capitalism take into account that it died in 2009 and the spivs lobbied themselves a get out of jail free card via government intervention.. this deluded attempt to avoid taking their losses and it’s inevitable repercussions has yet to work it’s way fully through the will..

        1. wellsy32

          Spot on. Usually in a collapse like the GFC everyone takes their lumps and things gradually recover. The financial industry via political plants such as Turnbull negotiated full repayment of liar loans after the Great Recession. Debt service is killing the world economy.

    2. Duncan Gilbey

      “The entire capitalist system is in question, and quite frankly, I look forward to its demise.”
      Careful what you wish for there, DB.

    3. Jack Robertson

      Spot on DB

      1. loz

        Government is for the people by the people, when it becomes the conduit for Capitalism then something like a Revolution will take place. Capitalists have too much say in what the government does and a LNP government bends over backwards for corporations and businesses thinking they will magically create wealth and employment for the people.
        Businesses and Corps should be able to make money depending on market forces at the time. It is not the job of Government to enhance their chances because market forces don’t suit their business styles. If we are in a depression businesses will go bust and others will pop up not because of what the government does but what suits market forces and the people at the time.

  4. Jezza

    While this is an excellent summary of what has happened to the economic reform agenda for me there is one significant omission; the environment. Natural capital is as critical an asset as human capital and we know that our whole social-ecological system will not operate well without attention to all of the five capitals. A major challenge for economists to overcome is finding better ways to measure the depletion of our natural capital and not just use dollars as the default measurement. Economic reform will not be complete until it addresses the challenges of optimising our use of all five capitals.
    Thanks for the article. Jezza

    1. Jack Robertson

      Mezzanine, yesterday’s BK piece on neg gearing/generational fiscal choices addresses the environment at apposite length.

      1. Jack Robertson

        Sorry, Jezza…curse spellcheck!

  5. David Hand

    This is a good contribution to the current debate. I reckon that, “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 all in the social spending zone whereas there is no comment at all in the article about reducing spending. Keane points out that government spending is 26% of GDP under Abbott and Turnbull, which is unsustainably high and the “human capital’ initiatives will merely add to it, blowing out the deficit even more. Those arguing for higher taxes don’t for one minute believe that it should apply to them, pointing instead to that amorphous creature, “the rich”.
    In the meanwhile, the group of people living off the taxpayer teat grows ever larger and we’ve reached the point where it is now political suicide to do anything about it.
    Finally, in spite of banging on about business rent seekers, Keane deftly avoids mentioning how that Union interests drive so much of Labor policy to the detriment of everyone else.

    1. Saugoof

      ” Those arguing for higher taxes don’t for one minute believe that it should apply to them” – Rubbish. I earn more than the average Australian salary. I would be happy to be taxed higher. I can afford it. I would much prefer that to services being cut.

    2. Buddy

      What coddswollop. Our family are happy to pay more tax where the revenue is spent to fund universal healthcare, provide appropriate level of resourcing to our public schools, build infastrucute and fund social and community services that address social issues that end up costing all of us in much more than early intervention. I see what lack of opportunity, lack of resources and opportunities and a lack of care by the community and state do to children and families. I’m happy to pay more tax so my grandchildren and their peers have the sort of future we all want for them.

      1. Venise Alstergren

        Are you also happy that the churches don’t have to pay tax? That the environment is poisoned, our infrastructure was basically built in the 1890s and the baby bonus is handed out to any family who has more than two children?

        1. klewso

          I see taxes as a lay-by to pay for services, some of which I may or may not need down the road – services I probably wouldn’t be able to afford if I had to pay for them myself.
          I may not need some of them but they’re there if I or someone else does – if I don’t need them someone else will. I’m subsidising someone else’s requirements and vice versa.
          And those services have to be funded sufficiently with taxes – managed with a fiduciary imperative, not a political one.

      2. Pollietragic

        Oz Survey after survey shows, like David Hand’s comment, Australians are happy to accept increased taxes IF Govt services are improved / expanded. I may well be in that category too, BUT, our taxation system, and related capacity for a Govt to spend, is totally undermined by corporations avoiding paying Billions in tax.
        BEFORE we pursue conversations about our willingness to pay more tax, we should be exhausting efforts to pursue corporations to pay their fair share of tax, and closing legislative loopholes.

        1. Pollietragic

          Ooops – Above comment refers to comments by Buddy, not David Hand.

    3. danger_monkey

      Keane points out that government spending is 26% of GDP under Abbott and Turnbull, which is unsustainably high and the “human capital’ initiatives will merely add to it, blowing out the deficit even more.
      Wait, what? There is no consensus that 26% of GDP is unsustainable, and don’t even bother quoting OECD statistics at me, because it doesn’t prove anything to talk about relative spending levels.

      Finally, in spite of banging on about business rent seekers, Keane deftly avoids mentioning how that Union interests drive so much of Labor policy to the detriment of everyone else.
      Well, I think BK does an admirable job of pointing out that Labor often as not creates policy that is favorable to business, so I don’t think your appeal to a lack of balance has any merits.

    4. wellsy32

      What debt worriers like you forget is that the state of the world economy and Australia’s economy is not usual. We have so many business leeches like the banking industry dragging on our economy and people such as you who think a deficit is somehow detrimental. The non government sector is not spending so it is right that our government should spend to maintain employment.

      In an economic downturn cutting government spending is stupid.

    5. AR

      OneHand – I wish that creatures like the mudorc, Packer jnr & Rhinohide were indeed ‘amorphous’ – unfortunately the sight of them lumbering around the country seriously offends my delicate sensibilities, not to mention my hope that we could have a decent society.
      BTW, the topic was ‘crony’ capitalism, not the warm’n’fuzzy ‘mums&dads’ version trotted out by apologists like Morriscum and…err, you.

    6. drsmithy

      Keane points out that government spending is 26% of GDP under Abbott and Turnbull, which is unsustainably high […]

      According to whom ?

      Those arguing for higher taxes don’t for one minute believe that it should apply to them, pointing instead to that amorphous creature, “the rich”.

      Mostly lies, as usual, though any tax increases should absolutely introduce more brackets at higher rates to reflect and capture the growing income gaps of CEOs, bankers, etc, while leaving the bulk of workers in the $150k and under bracket untouched.

      In the meanwhile, the group of people living off the taxpayer teat grows ever larger and we’ve reached the point where it is now political suicide to do anything about it.

      Despite persistent neoliberal mythology, there’s no huge cache of dole bludgers hiding in the system. Most people want to work, because being poor sucks. The problem is not enough jobs, and no amount of treating the unemployed like crap will help them find work that doesn’t exist.

  6. Popeye

    ‘By and large Australians are far wealthier — if not happier — than they were in the 1970s.’

    Are they indeed. This rather heroic assertion needs a little more evidence to convince me. Some Australians are clearly wealthier than we were during the 1970s. But changes to the distribution of income since that time suggests that the neoliberal tide hasn’t floated all boats. On the contrary I would have thought.

    1. ZA

      ‘‘By and large Australians are far wealthier — if not happier — than they were in the 1970s.’”
      its not my memory of the 1970s…
      We have a far more hollowed out, rustbelt economy now and is much more indebted. Usually Bernard writes well, but his assertion is rather…. rash… for him to make…. He should know better and proof read more closely….

    2. drsmithy

      Bernard is presumably forgetting to take the net position by subtracting the enormous mortgage debt a substantial chunk of the population have looming over, or in front of, them.

  7. Duncan Gilbey

    Great article, Bernard,
    Ship of fools indeed…

  8. JMNO

    Very good article.
    The for-profit private sector does many things well but I do not think it should be involved in delivering government-funded human services because the need to make a profit and grow takes precedence over the delivery of good quality services – so we see the private sector buying nursing homes and then cutting staff and services to unacceptably low levels whilst still taking Federal Government money to deliver those services. Keep them in government or not-for-profit sector hands.

  9. Decorum

    Very nice piece, Bernard. A useful litmus test for economic small-l liberals is antidumping, something you discussed recently. It’s no surprise to find that BCA types who fiercely promote the virtues of competition for others balk strongly at the idea of removing this naked instrument of protection. As you suggest, the claimed commitment to economic rationalism is just a cloak, to be worn when it suits the wearer.

    (Lest this be misunderstood, I would be considered by most to be an ‘economic rationalist’, or whatever today’s label is, and my objection is to those who purport to argue from economic principle but, in fact, do no such thing.)

  10. Venise Alstergren

    Still no promises as to how our government would reduce their spending. Taxing the churches would be a start and ceasing to fund any family for having more than two children would be another start.

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