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Federal

Sep 15, 2017

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“This will be a thoroughly Liberal Government. It will be a thoroughly Liberal Government committed to freedom, the individual and the market.”

How long ago 14 September 2015 seems, and what a different world. Pre-Trump, pre-Brexit, pre-Hanson, at a time when the verities of the Age of Neoliberalism seemed eternal. Malcolm Turnbull’s promise the night he became Prime Minister to lead a “thoroughly Liberal government” (the capitalisation was his own) was rapidly broken, and not at all because of some negligence or malice on Turnbull’s part, but because the world in which his commitment was made was rapidly ending. “The hour is late,” he said more than once that night, and he was right in ways that he couldn’t possibly know.

But reflect on those words. Freedom. The individual. The market. Turnbull offered a kinder, gentler neoliberalism — not in an economic sense; if anything, he was (initially) all about embracing change and disruption, and the early focus from new Treasurer Scott Morrison was on the spending problem he had inherited from Tony Abbott and Joe Hockey. But in a social sense: gone would be Tony Abbott’s strident social conservatism and his bitted hatred of modernity, replaced with a genuine commitment to the social logic of individualism, the liberalism that Turnbull had always espoused, that saw him long ago embrace marriage equality, republicanism, that saw him take his cue from Margaret Thatcher on climate action. The government Turnbull would lead would be the iron fist of the market enclosed in the leather jacket of Q&A Malcolm.

Two years later, the insults and abuse fly in a marriage equality postal survey imposed on him by party reactionaries (Turnbull having eloquently demolished both postal surveys and plebiscites in times past), the deficit is still $30 billion, government intervention is de rigueur and Turnbull spruiks the virtues of coal-fired power.

Turnbull hasn’t merely been trapped by the far right of his own party– the equality and climate denialists — and his inability to assert his authority; he’s been wrongfooted by the unexpectedly quick death of neoliberalism and the populist resentment that has driven it across the west. This has frequently made for an ill fit for Turnbull — one day assailing Bill Shorten as a Corbyn-style socialist threat, the next day lambasting Shorten’s business links while himself engaging in a de facto nationalisation of power plants and gas supplies. Nor is Turnbull at all consistent: he has embraced big-government interventionism not merely on power but on manufacturing, via the defence budget and an ever-more aggressive anti-dumping regime, while spruiking a tax cut for the world’s biggest corporations, trying to slash higher education funding and increase student debt and urging wage cuts for low income earners.

No government is ever ideologically pure, of course, and the best governments are marked by pragmatism, but Turnbull’s government is more accurately described as deeply confused than pragmatic. Not merely is it crippled by a divide between conservatives and liberals (imagine the media coverage if a Labor government by its own acknowledgment couldn’t devise an energy policy because the Left was holding it hostage?), but it is intellectually divided in its own view of the world. Is it 2015, when the market was still something to be celebrated, or 2017, when corporations are regarded with seething hatred by voters? Is it the age before Trump and Brexit, or is it the era of staggering incompetence in the White House and Number 10?

At no stage has Turnbull sought to try to address the electorate’s disaffection for market economics; neither he nor his Treasurer have ever attempted to explain to, to educate, voters about the virtues of markets. And, contrary to the views of business leaders who still think all a return to neoliberalism requires is some 80s-style “leadership”, it would have been a fool’s errand, because it’s not the 1980s, and Turnbull is certainly no Paul Keating. The electorate has a pretty solid understanding of the market, thank you very much, because they see it in their stagnant wages and their soaring power bills and in the media week after week as ever more corporate scandals erupt out of the business pages and onto the front page. Any politician looking to “explain” the virtues of neoliberalism to voters would be lucky to escape tarring and feathering, or at least the social media version thereof.

Turnbull is thus stuck with the question “what comes next?” If we retreat from neoliberalism, where do we go? Back to a Keynesian past of interventionism? Back to an era fondly remembered for full employment that masked a dramatically lower participation rate, the economic disempowerment of women and an uncompetitive economy? After two years, it’s not clear that Turnbull understands that this question needs a coherent answer rather than the apparently arbitrary policy positioning that has marked his time in government.

Economy

Sep 14, 2017

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A resources-reliant economy that’s steadily adding hundreds of thousands of jobs to push its unemployment rate down — while its workers put up with the worst wages growth since 1998. Say hello to … Canada.

Yep, the Canadians are in the same boat as us. According to the June jobs report in Canada, unemployment fell there to 6.5%, over 350,000 jobs had been created during the year (most of them full time). But wages in the year to March grew by just 1.1% — the lowest level of growth since 1998.

If that sounds familiar, it’s because the current level of private sector wages growth in Australia is the lowest ever recorded since the series began in 1998, too. Overall wages growth (i.e. including the public sector) here isn’t much better here — at just 1.9%, or 1.8% if you’re in the private sector — despite unemployment dropping to 5.6%.

Are things any better across the Tasman? No. Despite unemployment below 5%, wages growth has been stuck at 1.6% for the past two years in New Zealand — a growth rate which is now below the rising level of inflation there.

And the Brits? Much worse than us. Real wages fell for much of 2016. In fact, real wages fell in the UK between 2008 and 2014, before making a modest recovery that petered out last year and worsened this year.

Similarly, in the United States, real wages fell between 2009 and 2014, before recovering strongly into 2016. But wages growth faltered this year, slipping back to 2.5%, despite continued strong jobs growth that has pushed unemployment in the US well below 5%.

Nor is it an Anglophone disease: wage growth in France has fallen since 2012 to the lowest level since the 1990s. Japan earliest this year experienced a return to falling real wages, with real wages falling at their fastest rate since 2015. In Germany, wages grew at their strongest level since the 1990s in 2015-16 — but that’s not saying much, because German workers and employers have, under Germany’s non-government, industry-level bargaining process — cut deals to keep wages growth down below productivity growth levels for years. Real wages growth in Germany reached 2.7% — but has since fallen back below 1%, despite unemployment falling below 4%. This has led to economic policymakers calling for German workers to take substantially higher pay rises in order to reduce Germany’s trade surplus — but workers are reluctant.

A wide diversity of economies, all suffering a similar problem of stagnant wages despite, except in the case of France, strong employment growth. And, noticeably, a wide diversity of company tax rates. Let’s use the US Congressional Budget Office’s recent comparison of international corporate tax rates to have a look. The United States: 39% statutory rate, 29% average rate (the total amount of corporate income taxes that companies pay relative to their income). Japan 37% statutory rate, 27.9%. So, wage stagnation in economies with relatively high company tax rates. The United Kingdom, statutory rate of 24% — now reduced to 19% — and average rate of 10.1%. Canada, statutory rate of 26.1%, average rate of 16.2%. Wage stagnation in economies with relatively low company tax rates. And Australia, 30% tax rate for large companies, average rate of 17% — wage stagnation here as well.

Whatever lowering company tax rates does, there’s no evidence that they have any effect on wages growth — indeed, the British experience appears to suggest a correlation between lowering company tax rates and falling real wages, not the opposite.

This is the core failing of neoliberalism, and why it is now dying. Households across the west were ready, if not overly happy, to accept the central trade-off of neoliberalism: that the rich, and companies, would become significantly wealthier and more powerful as long as everyone else also enjoyed rising income levels too. But market economies — or at least the increasingly bastardised version of market economics delivered in many countries — is now failing to meet its side of the bargain.

Companies

Sep 13, 2017

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In another sign that the age of neoliberal economics is ending, developing countries are going after mining giants, no longer in fear that they’ll be punished by markets. In a remarkable contrast to eight years ago, when major mining companies helped drive an Australian Prime Minister from office amid cries of “sovereign risk”, large mining companies are having to swallow their pride as governments of developing countries target them.

Bloomberg recently collected a number of examples where mining multinationals had to buckle to local governments, including US mining company Freeport, which was recently forced to sell a majority stake in its massive Papuan copper and gold mine to Indonesian investors. Significantly, the list includes another clash between Zambia and one of the world’s worst tax dodgers, Glencore, which in 2011 was revealed to be rorting the Zambian tax system of more than US$100 million a year through transfer pricing. The Australian mining industry had repeatedly held up Zambia as a model for Australia in relation to taxation of mining companies. In August, the Glencore-owned Zambian subsidiary refused to pay higher electricity prices and threatened to fire nearly 5,000 workers, but recently caved in and agreed to pay more.

Until recently, such behaviour from a developing country government would have incurred the wrath of markets and mining industry analysts like the far-right Fraser Institute of Canada. Now, however, in the words of one analyst “we’re seeing the rise of more nationalistic governments everywhere.”

That of course includes the Australian government, which has been engaged in a shameless attempt to de facto nationalise the assets of a power company that has incurred its wrath, while imposing a domestic gas reservation policy.

Speaking of which, Crikey was tickled by Chris Bowen yesterday pointing out Josh Frydenberg yesterday claimed that Labor had never had a domestic gas reservation policy after attacking Labor’s domestic gas reservation policy in 2016. In fact, if you check Frydenberg’s 2016 speech, it now looks deeply ironic for a government that in June gave itself the power to reserve gas for domestic use:

…just two weeks ago we saw Chris Bowen and the head of the Australian Workers Union launch a gas reservation policy. We know that such a policy would be disastrous. It will kill investment, destroy jobs and ultimately lead to less gas supply.
Those in this room will know that gas reservation policies have been ridiculed by the last two Labor energy ministers with Martin Ferguson describing it as an “investment killer” and Gary Gray explicitly stating that “a reservation policy could not lead to lower gas prices or more gas.” Labor’s policy flies in the face of the ACCC’s explicit recommendation that gas reservation policies should not be introduced, given their likely detrimental effect on already uncertain supply.
No one should be fooled by Chris Bowen when he tries to differentiate between a national interest test and a gas reservation policy. The ACCC couldn’t have been clearer when it stated in its report that gas reservation policies include “export controls…such as a national interest test”.
Life comes at you fast when neoliberalism is collapsing.

Companies

Sep 7, 2017

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A recurring theme of the 30-year reign of neoliberalism is the gross inconsistency of many of its advocates. Socially conservative economic liberals live this inconsistency every moment of their lives: they’re all for letting corporations and investors do what they like, unburdened by the dead hand of government, untaxed and unregulated to the extent that democratic politics will allow, but very keen to use government to control individuals. Companies should be able to do as they please, but anyone not a heterosexual white Christian male is to be tightly regulated in their reproductive, relationship and social behaviours. It’s the sort of mentality that leads to occupational health and safety rules that protect employees from dying in their workplaces as annoying red tape, but also pushes to ban abortion and prevent euthanasia.

[Welcome to Honest Mal’s Used Coal-Fired Power Plants]

But even many economic liberals who consistently apply their liberalism when it comes to social issues are also prone to another inconsistency. They’re all for letting the market, as the repository of all wisdom, operate unencumbered — until it produces outcomes they don’t like. At that point, the cry goes up for regulation. We saw this spectacularly during the mining investment boom when some of the world’s biggest companies poured billions into the construction of new mining and extraction projects all at once, bidding against each other to pick up engineering and construction talent from around the country. Strangely enough, this surge in demand for workers prompted the price of labour to rise significantly — just as the surge in Chinese steel manufacturing had prompted a surge in the price of iron ore. But the surge in wages was apparently an outrage that required government intervention, as mining companies and their industry peak bodies demanded government intervention against greedy unions trying to inflate the price of mining projects. “Australia is a high cost place to do business,” they moaned as one, along with their cheerleaders in the national newspapers. “Industrial relations deregulation is needed urgently.”

Ditto when Australian National University decided to divest itself of some fossil fuel companies. Investors, surely, can make their own decisions about where they wish to invest? Isn’t it a free market in which investors pick and choose what they want to fund? Apparently not: Tony Abbott and his ministers lined up to give ANU a kicking for divesting in Santos, labelling the ANU decision “stupid”. That was about a month before the Santos share price fell of a cliff, at the bottom of which it has remained ever since.

[The Australian’s clean coal magic trick]

Now AGL is copping the same treatment. AGL owns Liddell power station, an ancient and nearly dead coal-fired plant that the company intends to close in 2022. Conservatives are normally the most solid supporters of private property, and look aghast at any unmerited policy that in any way, shape or form could be construed as infringing on the rights of a property owner to use their property as they see fit.

But AGL is being savaged by conservatives for planning to close a power station at the end of its life. David Leyonhjelm, usually to be found enthusiastically supporting freedom, deregulation and allowing people to do what they bloody well like, took to Sky News yesterday to condemn AGL. “I’ll be closing my AGL account and going elsewhere,” he piously intoned, before moving out of the Sky studio to give a media conference to reannounce his boycott (alas, no one showed up because he’d called it at the same time as Scott Morrison was holding a presser, but never mind). Leyonhjelm is normally the type to mock consumer boycotts as the antics of childish twitterati. Suddenly he’s gung-ho for them. Ditto Cory Bernardi, that paragon of conservatism who suddenly has as much of a problem with a company taking a commercial decision as he does with LGBTI Australians taking relationship decisions. Australia’s least-trusted newspaper, The Daily Telegraph, joined in to attack AGL, but we don’t expect consistency from News Corp’s junior journalists even within the same article, let alone as a company philosophy.

Guess it just goes to show that neoliberalism really is dead when even its stoutest defenders are calling for some good old-fashioned economic Stalinism.

Companies

Aug 8, 2017

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Here is why neoliberalism, whatever economic benefits it may have delivered to households since the 1980s, is inherently unstable and can only ever end in tears: the corporate sector never knows when to stop demanding that the rest of the community be forced to hand over resources to it. The demands for corporate tax cuts will never stop; the demands for punitive industrial relations reform aimed at cutting wages and curbing unions’ already limited power will never stop.

Step forward the most rapacious, parasitic business lobby in the country, the Minerals Council of Australia, which has taken a break from spruiking the virtues of eating coal to issue a new call for industrial relations reform. Its campaign will be fronted by former Labor MP Martin Ferguson, who’ll mumble his way through a list of demands today. The only surprise about Ferguson’s involvement, Labor MPs would note, is that the whole thing wasn’t leaked to The Australian the moment it was agreed.

The MCA wants a return to individual contracts, more curbs on the power of unions to meet with workers, and a dramatic narrowing of the matters that unions can bargain over, further curbing their ability to access authorised industrial action. It would amount to the greatest attack on workers since WorkChoices, particularly in its aim to prevent unions from getting access to workers, which makes it extraordinarily difficult to represent their interests effectively.

But surely the MCA wouldn’t be calling for such a massive assault on workers unless things were really crook in the mining sector, with rampant unions destroying productivity and blowing out wages? According to the Productivity Commission’s most recent annual productivity update for 2014-15, published last year, mining labour productivity growth under the inflexible, pro-union, uninnovative Fair Work Act, was 22.4% (yes, 22.4%) compared to economy-wide labour productivity growth of 1.9%, and three times the growth of the next highest sector, utilities.

Needless to say, the productivity surge is partly the result of the massive investment in mining undertaken by companies — but it’s a bit odd that Ferguson claims there’s a need to “boost productivity” in the sector.

As for wages growth, yep, it’s definitely out of control in mining — in the four quarters to March, wage price index growth in mining was a total of 0.7%, compared to 1.7% across the whole private sector. The next lowest growth rate was 1.3% in real estate and property services.

This isn’t irony or inconsistency, this is how the corporate sector works under neoliberalism: workers must always be squeezed further, no matter how low wages fall, or how much of the wage share of income has shifted to companies. Similarly, company taxes must always be cut, no matter how little tax companies already pay.

In case you think the MCA is unrepresentative of the wider corporate sector, today Woolworths is angry that the Fair Work Commission has blocked retail sector enterprise agreements that make individual workers worse off and complaining about “uncertainty”. It also wants penalty rate cuts imposed immediately, rather than phased in, also because of “uncertainty”.

Wage price index growth in the retail sector over the year to March? Well, that’s also out of control — a whopping 1.8%, compared to CPI of 2.1% for that period. Real wages cuts are apparently insufficient for Woolworths — it wants to cut wages harder.

And it will always want to cut wages, no matter how much damage it does to demand throughout the economy, no matter how much alienation and disaffection toward market economics that it engenders in ordinary households. No amount of wealth transfer from households to the corporate sector will ever be enough.

Companies

Jul 27, 2017

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BCA chair Grant King with Prime Minister Malcolm Turnbull

One of the best traditions of the Australian Financial Review is when it holds a “roundtable” of business executives and report, as if bringing down tablets from the mountain, the views of such gatherings, no matter how bizarre. Personally, I enjoy reading such collections while listening to the third movement of Beethoven’s “Pastoral” Symphony No. 6 in F Major, “Merry gathering of rentseekers”.

For a sector that is faintly starting to realise something has gone seriously wrong with the neoliberal agenda that has delivered higher profits, lower taxes and more compliant, less expensive labour for decades, such gatherings have a particular resonance at the moment — especially around the issue of how business retrieves its reputation with the community out of the toilet.

The strategy, apparently, is to hit the flush button a few dozen more times.

Today’s effort was from the Business Council, the nation’s most powerful big business lobby group. How, the reader might wonder, would the council address the problem of wage stagnation, which is responsible for much the alienation toward our economic system felt across the electorate?

Well, if I rephrased the question to “what is the Business Council’s solution to anything?”, would that give you a hint?

According to BCA chair Grant King — that’s Grant King who performed so brilliantly at Origin Energy — the answer is, yes, company tax cuts.

“All we can rely on is productivity growth. Productivity growth is inhibited by excess regulation, by a whole bunch of things that cause doubt for businesses to invest … The Treasury, any economist, will tell you what drives productivity: it’s investment. So all roads lead back to business investment … We need investment to drive income growth. The only lever to pull is taxes to change, you know, the economics and investment.”

This is “give us a tax cut or the puppy gets it” approach to public policy. No one will get a pay rise until we give Grant and his mates at the Business Council a whopping big tax cut.

Don’t forget that the members of the Business Council only pay just over 24% in tax now, rather than the legal 30% rate. And the only reason it’s that high is that the big banks, almost uniquely, pay close to 30%, lifting the much lower rate of the rest of the BCA membership, which includes some of Australia’s most brazen major tax dodgers like News Corp, BHP, Google and Uber.

Of course, if you guessed that the answer would be “industrial relations deregulation”, you’d only be half right — the BCA have given up on IR for the moment because, according to Richard Goyder, “we’re certainly not holding our breath that we’ll get significant reform from any political party”. By the way Goyder is the one who thinks there’s no problem with high executive remuneration, saying about his Wesfarmers successor “my sincere hope is that he maxes out on his incentives every year”. Love your sincerity, Richard. Other participants, at least, had the good grace to mumble something about transparency or even, in one case, suggest that smaller pay packets might be a good idea.

So it’s fun to point out the utter cluelessness of these plutocrats, sure, but there’s a serious point. These people, with their facile, neoliberalism-as-usual approach, are strengthening the hand of populists and people who would pull the entire economic system down on their heads. Every demand for a company tax cut, every lamentation about the lack of industrial relations reform, adds to the backlash against companies, against politicians who support them, against an economic system that makes their interests the priority over those of workers and consumers.

If the Business Council wants a Corbyn, if it wants a Sanders, it’s going the right way about it. Attacking Bill Shorten and Labor for failing to be insufficiently worshipful of the business agenda misses the point: if Labor (or the Coalition) doesn’t shift to match the sentiment of the electorate, then someone else, from outside mainstream politics, will — someone whose idea of changing the system won’t involve a fairer tax system and a banking royal commission, but driving a truck through the whole show.

Business, evidently, needs saving from itself again. Pity the clown car on display in the pages of the Fin does so little to make the case for why anyone should bother.

Economy

Jul 25, 2017

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Rising inequality, says the Leader of the Opposition, is a terrible fact of Australian life. Rising inequality, says the Treasurer, is a non-fact that opposition leaders evoke when what they really want to do is stunt economic growth. The Herald Sun says that everyone should just shut up about rising inequality, because causing people to worry about what they don’t have and can’t get is a destructive “politics of envy”. There’s no point in scrutinising the odd claims of the Herald Sun — it’d be a bit like arguing with my Aunty Dot about global warming three sherries in. But there must be a point in scrutinising what is meant by “inequality” and how much of it we have, or don’t have, in this nation.

The ALP has been making soft noises about inequality for a couple of years. In 2015, Bill Shorten declared on Q&A that Australian inequality was at a 75-year high. The source for this statistic was research by shadow assistant treasurer and former economics professor Andrew Leigh, as, presumably, it was last Friday when Shorten made a widely reported speech at the Melbourne Institute. On this occasion, observers say, the politician had Corbyn-ed up a shred, and called the fight against inequality the “defining mission” of his party. Heck. The guy even made a joke about Adam Smith’s “invisible hand”.

All this from a chap who was once, perhaps not unreasonably, warned by a colleague against the temptation of becoming one of “Paul and Bob’s dumb step-kids“. Even as recently as May, when Paul Keating himself warned against Keating-era economic nostalgia, Shorten seemed shy of proposing new reform to meet capitalism’s newer crises. Maybe he is genuinely prepared to adapt to what he sees as genuine inequality. Maybe he just borrowed some of Corbyn’s successful speech. Either way, after Friday, the inequality conversation is now being heard by Australians other than those who subscribe to podcasts tagged with “Thomas Piketty”, but it’s not an easy one to understand.

[The surprisingly quick death of neoliberalism in Australia is underway]

Not many claims about inequality, either global or domestic, are easy to understand. And that’s not just me, the macroeconomics dummy, making this claim, but recipient of the Nobel Memorial Prize in Economic Sciences, Joseph Stiglitz. This former chief economist at the World Bank says that a good deal of World Bank data is bunkum. Those guys, with their private sector partnerships, say that their lending to liberal economies has lifted millions out of poverty.  The real lifter, however, was China, which can accept no World Bank loan and has never had any truck with the neoliberal consensus. Which is to say that you can’t always trust the policymakers to write an honest “inequality” report card for themselves.

Still. Belief in the benefits of market-friendly policies is largely upheld by Western leaders, and at the same Melbourne Institute event at which Shorten spoke, Malcolm Turnbull offered his defence of the power of “free” trade. After Shorten’s speech, Scott Morrison came at him with another graph, the Gini coefficient, an index of global inequality. You can easily find reputable accounts of why the Gini, a relative and not an absolute measure, is also bunkum, or you can read this brief account I tore from Joanthon Louth, Research Fellow at Flinders Uni in the College of Business, Government and Law.

“The Gini coefficient is used as a relative measure — so if there is a percentage increase for somebody who is poor, say 10% and somebody who is very rich has a percentage increase of 5% then inequality has been reduced. Of course, the very poor person may only earn $1000 a year; with the increase, they would now have an income of $1100. The very rich individual may have an income of $500,000; with the 5% increase they now have an additional $24,000. But, hey, we’ve reduced inequality!”

Inequality can’t always be seen in the elegant curve of the relative Gini. Inequality, according to Roger Wilkins, a respected Australian centrist economist and deputy director of the Melbourne Institute, cannot be seen in the way that Bill Shorten says it can. Why? Well, says Jeff Borland, professor of economics at the University of Melbourne, when I ask him, “It’s like Definition City when you’re working on this stuff.”

[Rundle: how do you solve a problem like neoliberalism?]

There is no consensus on what reliably defines inequality. Borland’s work is around the labour market, and he says that there can be no argument that the income distribution in Australia has become more unequal over time, a problem that he says was partially overcome for a decade by the taxes and transfers of step-dads Bob and Paul. But, he notes, Wilkins uses different measures for inequality, including the HILDA Survey. Wilkins takes into account measures of household expenditure and — although I’m not quite following at this point — has some sort of problem with ABS income data collection methods, which, in his view, changed in the mid-2000s so as to corrupt and overly inflate the small percentage of high wage earners over time and … well, it’s like Definition City. Borland reckons it might be a good idea to get everyone working on metrics for inequality in a single room for a day. Then we can decide how unequal things are, or how much the “lifters” of neoliberalism have done for people taking out all those lovely new payday loans.

Frank Stilwell, USyd’s Emeritus Professor, known for many years for his heterodox proposals, confirms that there are many ways of measuring poverty or inequality, including that of half the median wage, an accepted OECD index that has recently been decried by Human Services Minister Alan Tudge. Stilwell does say that even by the most conventional measures, inequality has been increasing in Australia. He points to analysis by Peter Whiteford published in the last edition of Australian Quarterly. “His very sober and responsible summary of the data does indeed confirm rising inequality in relation to incomes.”

Stilwell is a political economist, a big-picture guy. Evidence of inequality is not exclusively about econometrics for such scholars, but evident forces in an economy. He urges us to consider “the scissors movement between labour market trends that are causing more people to have insecure and low incomes and housing market trends that are requiring people to have secure and rising incomes in order to have secure accommodation”. Which makes more sense to me than the relative Gini.

Associate professor Lynne Chester, also a political economist, says that we must consider inequality in a way that is “beyond metrics”. This, by the by, is not her call for a figure-free academic utopia wherein one can just call out inequality if one is so disposed. It is, rather, an admission that persons “are not atomised individuals who fill some sort of model based on econometrics” but subject to a range of cumulative inequality that can, and often does, include housing, education, wages, unmet energy costs and other factors that do not find their way into conventional academic textbooks.

Single numbers or data sets, she says, are the points, “where debates get masked and the political reality is ignored”. Solutions are not the preserve of one set of metrics or one sort of policy change, but must be found in a broader social and economic understanding.

The one thing everyone — even Morrison and Turnbull to a limited degree — can agree about is that Australian inequality is now at an economically, if not morally, undesirable level. If we are unable to arrive at a meaningful and workable consensus within “Definition City”, then we certainly can’t trust that invisible hand to fix things.

Economy

Jul 25, 2017

5 comments

Is inequality in Australia getting worse? Is the Gini coefficient going up or down? Who’s right, Bill Shorten or Scott Morrison and the conservative newspapers beating the bushes for academics who’ll back them up?

It doesn’t matter, and the longer the government and its media allies debate it, the more they’ll play into Shorten’s hands on what will become a key issue for the next election.

Inequality is a central outcome of the kind of market-based economic reforms we’ve pursued since the 1980s. That’s how neoliberalism works. It has made us all wealthier — even the poorest Australians are wealthier than they were 30 years ago, in real terms. But the wealthiest have benefited more than the rest of us. This is indisputable. A Productivity Commission paper in 2013 explained it:

“Between 1988-89 and 2009-10, the incomes of individuals and households in Australia have risen substantially in real terms and in comparison to trends in other OECD countries, with particularly strong growth between 2003-04 and 2009-10. The increase has mainly been driven by growth in labour force earnings, arising from employment growth, more hours worked (by part-time workers) and increased hourly wages. While real individual and household incomes have both risen across their distributions, increases have been uneven. The rate of growth has been higher at the ‘top end’ of the distributions than the ‘bottom end’.”

One graph from the paper sums it up well:

It also makes intuitive sense — unusually, for economics. Everyone has done well from a more open economy coupled with Australia’s very effective welfare system, but it has allowed high-income earners both to make more money in a more globalised economy, and to keep more of their income because we’ve reduced the redistributive nature of our tax system.

[The surprisingly quick death of neoliberalism in Australia is underway]

Arguing the toss about this doesn’t help neoliberal advocates, because two things have happened in recent years that have changed the political debate.

One is we’ve realised that increasing inequality comes with a price. We might in the past have grumbled about high corporate remuneration, for example, but it was mainly envy talking. Now we’ve worked out greater inequality is economically harmful. Who says? Such raving lefty institutions as the International Monetary Fund and the OECD. A 2016 IMF paper concluded that while “there is much to cheer in the neoliberal agenda”, “the costs in terms of increased inequality are prominent … Increased inequality in turn hurts the level and sustainability of growth. Even if growth is the sole or main purpose of the neoliberal agenda, advocates of that agenda still need to pay attention to the distributional effects.­”

A 2014 OECD paper found that “income inequality has a negative and statistically significant impact on medium-term growth. Rising inequality by 3 Gini points, that is the average increase recorded in the OECD over the past two decades, would drag down economic growth by 0.35 percentage point per year for 25 years: a cumulated loss in GDP at the end of the period of 8.5 per cent.” How? The OECD argues via education. “The evidence is strongly in favour of one particular theory for how inequality affects growth: by hindering human capital accumulation income inequality undermines education opportunities for disadvantaged individuals, lowering social mobility and hampering skills development.”

Inequality isn’t a harmless, if annoying, by-product of neoliberalism, but actively harmful to economic growth.

[Even Keating now admits that neoliberalism should be dragged out the back and shot]

What’s also happened is that the electorate has started to react to not merely inequality in outcomes, which debates over Gini coefficients etc deal with, but the perception the entire system is unequal. At one end are corporations, which pay little tax, gouge consumers, cut wages and get “consulted” on any changes that might affect them, and high-income earners who, as Bill Shorten cannily argues, get first-class treatment in the tax system, and then there’s everyone else, who have to endure stagnant wages, soaring prices from privatised and corporatised utilities, and who have little choice about how much tax they pay.

Arcane debates about Gini coefficients — 98% of voters wouldn’t have a clue that that is — are no match for the lived experience of households who think the economic system is delivering for elites but not for them. Shorten is working on that level. Morrison and the government’s cheerleaders in the media are operating at the level of a common room argument in an economics faculty. Some, like Tony Abbott and One Nation, are operating at an even more visceral level, telling voters it’s all the fault of various designated, recently arrived Others.

And that’s just in Australia where, thanks to Medicare, a good welfare system and public education, overall inequality has only risen a little. In other countries, where wages have been stagnant for longer and inequality has grown a lot more, the issue is far more live. In the United States, Donald Trump rode exactly these sort of concerns into the White House, only to preside over attempts to implement an even greater pro-inequality agenda than previously.

Scott Morrison better hope that eagerly predicted wages surge arrives sooner rather than later.

Economy

Jul 21, 2017

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The economy — or, more correctly, the economy as the lived experience of Australian households — has a way of re-inserting itself into political debate despite the best efforts of politicians.

The week began with an almost absurd emphasis on national security, with the Prime Minister parading in front of gas-masked soldiers and military gear to bolster his counter-terrorism credentials, then the following day expanded the Commonwealth’s most incompetent department into a new Home Affairs portfolio, to be led, of course, by Peter Dutton or, as some wag dubbed him in a stroke of pure genius, J. Edgar Tuber.

By yesterday, however, national security was being supplanted by matters economic, with Turnbull assailed on radio by 3AW’s Neil Mitchell about the possibility of interest rate rises, in an extraordinarily facile interview that seemed predicated on the idea that Turnbull was both controller of monetary policy and the nation’s chief financial adviser.

Today, Bill Shorten ratcheted up his language around inequality and interventionism, even flagging that Labor might look at possible cuts to hitherto politically unassailable tax concessions. For the party that bravely went after negative gearing, is the capital gains tax (CGT) exemption on the family home in its sights?

In days of yore — say, up until two years ago — a political leader flagging that changes to some of the most sacrosanct Australian tax dodges were on the agenda simply wouldn’t happen. Or, if they did happen, they’d become the basis for a ferocious scare campaign by the other party. Labor changed that with its proposed negative gearing and CGT reforms. But the electorate has changed it as well. Aspiring to be in a position to take advantage of major rorts has been replaced with a deep-seated loathing of how high-income earners benefit from the system while ordinary households get dudded.

[The surprisingly quick death of neoliberalism in Australia is underway]

All of this relates to the central challenge across the West currently, of addressing this growing electoral antipathy to economic systems seen as benefiting the few, not the many, to use Jeremy Corbyn’s language. Even national security: the open borders and anti-tribalism promoted by neoliberal policies, under which each of us only has an economic value regardless of our nationality, religion, or skin colour, has induced a backlash that plays to the strengths of the right as well as the left. Who, after all, does the electorate trust to secure borders but conservatives? Who is trusted to ensure — in the mythology peddled by the likes of News Corp — that immigrants and refugees don’t start murdering us on the street? Conservatives.

This is the first stage, if you like, of the death of neoliberalism: the left responds with redistribution policies and interventionism, the right with tribalism and hardened borders. What’s missing in that mix is the response from neoliberals themselves, the remaining supporters of the economic dogma that has dominated since the start of the 1980s but which is now under attack on all fronts, their defences — wage stagnation is temporary, it’s technology, not free trade, destroying jobs — crumbling under the onslaught.

When neoliberalism surged into policymaking in the 1970s, there was little intellectual response from the left. Keynesianism was seen as failed (and the hard left regarded that as a sick indulgence of capitalism anyway), the Soviet Union was nearing the final stages of economic collapse, and a lot of intellectual effort on the left went into explaining why the Soviet Union wasn’t really a socialist state anyway. Indeed, progressive parties like Labor in Australia and Labour in New Zealand became the vehicles for market liberalisation, rather than defending interventionism against free market zealotry, sometimes outpacing even their conservative opponents.

Neoliberals now face a similar historical moment. Already, notionally free market, small government parties like the Liberals in Australia and the Tories in the UK are embracing greater interventionism and larger government. As with Labor/Labour in the 1980s, there’s diehard resistance from the fringes, but electoral reality is proving too powerful. What’s the neoliberal response? Bland assertion of more of the same won’t work — indeed, is actually harmful. Do any neoliberal advocates have the intellectual substance to craft a creative response to this crisis? 

Federal

Jul 12, 2017

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Was Robert Menzies a liberal or a conservative? How is the Liberal Party liberal and conservative at the same time? What’s a liberal and a conservative anyway? What’s that strange creature, a “liberal conservative”, which Tony Abbott calls himself?

For most voters, this is an arcane debate. For many voters, it will be entirely meaningless; they won’t have the faintest idea who this Menzies bloke is, so the complaint that discussing your party’s ideological origins is mere “navelgazing” probably doesn’t have much substance — voters have to know that it’s a navel that’s being gazed at in the first place. More likely is the possibility — horrific as it might be to the government — that voters have simply tuned out.

Matter of fact, however, Turnbull’s reflections on the origins of his party, and more particularly the context — despite denials — of targeting Tony Abbott, are relevant. We keep banging on about it here, but it’s important: we’re at the most important ideological juncture in over 30 years. The neoliberal consensus has fractured, crushed under the weight of corporate self-indulgence and the reaction against globalisation. Politicians are scrambling to play catch-up with voters. Some on the right, like Turnbull or Theresa May, have been shunted to the left by the an experience of political mortality. Others, like the Republicans and even many Democrats in the US, think they can get away with business as usual — which in the US means facilitating ever more corporate avarice and economic war on the poor.

[Turnbull finishes the week with a trophy for his shift to the centre]

But confusing the issue is that none of this is a simple matter of “moving left”, even if that’s an accurate shorthand for what Turnbull has had to do this year. That’s based on the assumption that neoliberalism can be located perfectly on the “right” end of the ideological spectrum. Except some of its features cannot be. Globalisation has long been an aspiration of many parts of the left (using the “cultural” rather than industrial left), which support open borders and enabling refugees to move to wealthier countries. Large corporations love globalisation for exactly the same reasons — it helps drive wages down by constantly threatening workers in the developed world with competition from a vast pool of cheap labour. And neoliberalism is based on only one value — your economic value as a consumer and producer. Your identity is irrelevant. Your sexuality, race, gender, doesn’t matter. In fact, companies are only too happy to support, say, marriage equality — that “pink dollar” (yes, that’s an actual thing) is worth a trillion dollars.  Not to mention that while the left obsesses over identity politics, it’s distracted from the task of developing a coherent and effective critique of neoliberalism.

So on both open borders and on social values, neoliberalism is antithetical to the conservatives who can usually be found enthusiastically endorsing it.

This isn’t a new problem created by the death rattles of neoliberalism, but embedded in it. That’s why Tony Abbott and his ilk, while demanding that the government move in a more economically “conservative” direction — by which they mean a more neoliberal direction, involving smaller government and less regulation, the usual pabulum — are also demanding that the government move in a more “left” direction by intervening in the energy market to build and operate coal-fired power stations, an outright socialist policy. How can a government-owned coal-fired power station be either “liberal” or “conservative”? The absence of a coherent answer to that question illustrates the incoherence of Abbott’s position (which is, in any event, about destabilising his enemy, not some quest for ideological purity) but also the problematic nature of defining what’s going on strictly in terms of where things fit on the left-right spectrum.

[Poll Bludger: the accidental overnight success of Cory Bernardi]

Abbott, similarly, has joined with the Hansonites and other racists in calling for a halt to immigration. Again, this is decidedly not neoliberalism. But one of the biggest failures of neoliberalism is its incapacity to address localism and tribalism, in its demand for open borders and its reduction of everyone on the planet to an economic value. Addressing the reaction to that has forced governments to shift to the right in closing borders — in the UK’s case, with Brexit; in the US, with Trump railing against free trade and threatening to “build a wall”; in Australia’s case, with a bipartisan crackdown in 457 visas under the mantra that Australians should have first go at jobs here.

The fact that the industrial left backs this doesn’t detract from the fact that it is essentially a right-wing reaction. If the 457 visa issue had been handled like many on the left want asylum seekers handled, Turnbull and Dutton would have done what their predecessors did: devoted themselves to leading the public on the issue, explaining the benefits of allowing large numbers of foreign workers in and showing how they are no threat to Australians. That’s how corporate Australia would like the issue to be handled. But it was not to be — especially when Labor began using the issue systematically against the Coalition in exactly the same way as the Coalition used asylum seekers against Labor.

Another version of what Turnbull said in London is that it was a frank admission that the Liberal Party has been deeply confused about what it actually is ever since neoliberalism triumphed. But for the moment, the end of neoliberalism isn’t helping to clarify things much either.