Did the Treasurer just drive the final nail into the coffin of Australian neoliberalism?

Albo and his treasurer were careful not to frighten the horses while in Opposition. But they are making some bold pronouncements now they occupy the Treasury benches

Photo by Oren Elbaz on Unsplash

The fact that it was a Labor government that entrenched neoliberalism in Australia is a headache for both those on the Left and the Right.

Those on the Left are keen to provide convincing evidence that Labor governments can be competent economic managers. They also want to claim credit for the long period of economic prosperity (albeit not ‘common prosperity’) that followed the painful economic reforms pursued by the Hawke and Keating Governments from the mid-1980s to the early 1990s.  

But neoliberalism and its attendant inequitable distribution of wealth and power is on the nose nowadays. Not just on almost all of the Left, but even on significant sections of the Right.

So, if you are a current or former Labour politician, do you want to be claiming credit for so many pink, blue and lower-level white-collar workers getting the shaft in recent decades at a time when shareholders, C-suite executives and plutocrats have been making out like bandits?

Do you really want to flex about policies such as globalisation, which decisively shifted the balance of power from Labour to Capital and vapourised most of the manufacturing jobs that allowed working-class Australians to enjoy a middle-class lifestyle?       

Those who write editorials for business publications and, more broadly, the right-wing media face the obverse challenge. Let’s say you believe left-of-centre politicians are all wild-eyed, tax-and-spend socialists who will invariably leave the economy a smoking ruin. How then should you portray a Labor government that cut company and personal income tax rates, privatised anything that wasn’t nailed down, floated the dollar, financialised the economy, slashed tariffs, ended free university education, somehow convinced the union movement to meekly accept falling real wages and a more deregulated labour market, and made many plutocrats – including the owner of the media outlet you are employed by – vastly richer?    

No matter what side of the political fence you are on, there is no option other than to fudge the facts.

As will be illustrated below, if you’re on the Left, you argue that the Hawke-Keating government wasn’t really as neoliberal as it appeared. If you’re on the Right, you begrudgingly concede that, most unusually for Labour leaders, Hawke and Keating weren’t incompetent spendthrifts. Then you accuse any Labor politician who advocates for old-school Labor policies of betraying the unimpeachable ‘Hawke-Keating’ legacy.    

From Whitlamite to Schumpterian socialism
Keating is famously prickly and he is especially prickly about being lumped in with right-wing neoliberals such as Pinochet, Reagan and Thatcher. Not unreasonably, he points out that as both Treasurer and Prime Minister he did do his bit to look after the little guy by, for instance, introducing compulsory superannuation. Despite himself being a high-school dropout who succeeded without much formal education, Keating also likes to claim the credit for encouraging vastly more young Australians – especially working-class and lower-middle-class ones – to finish high school and attend university.

Indeed, judging by this (paywalled) AFR article, Keating likes to think of himself as a bold reformer who laboured tirelessly to “make everyone a middle-class success story”. As the article relates, shortly before sweeping into power in 1983, Keating was fond of making observations like the following:

 “If profits or retained earnings are squeezed unduly in favour of wages, investment slows and growth fades. If wages are squeezed, living standards decline and spending drops. The answer is to make the cake bigger. Growth is the sole avenue for raising living standards.”

Bill Kelty, the 1980s ACTU president beloved by CEOs but distrusted by many rank-and-file unionists, has concluded that he and Keating were ‘Schumpterian socialists’. Echoing Keating’s somewhat naïve faith that letting the free market rip would result in both the bosses and the workers getting richer, Kelty mused to the AFR:

“Ricardo [a 19th-century English dry economist] is not entirely crazy. Marx is not entirely crazy. But we are really in the Schumpeter [author of the ‘creative destruction’ theory] group who say, ‘grow the economy’. It’s about innovation, growth and creating wealth, and out of that wealth creation, you do need socialist distributive measures in areas like high minimum wages and good health.”

Keating expanded on Kelty’s remarks, noting:

“The people we represented can’t be looked after in a low-growth economy. Yes, a lot of wealthy people are going to do well at the top, but we also think you put your arm out to pull people up behind you.”

All true, as far as it goes. (Though I’d question the propensity of wealthy people to put their arm out to raise up the less fortunate).   

But what happens if, after four decades of orthodox neoliberal economic policy, you end up with 20 per cent of the population doing very well for themselves, 70 per cent of the population struggling to attain or maintain a vaguely middle-class lifestyle (i.e. the kind of secure, reasonably paid employment that allows for marriage, home ownership, child rearing and a comfortable retirement) and 10 per cent of the population thrown on the scrap heap and attempting to survive on a combination of welfare payments and modestly paid work in the retail or hospitality sectors or gig economy.

What happens is that you get newish Labor governments ever so delicately walking away from the Hawke-Keating-Kelty legacy and championing some form of post-neoliberal capitalism.  

First Rudd’s apostasy, now Chalmers
Like Albo and Chalmers, Kevin Rudd went to great lengths to avoid frightening the horses before taking power. Given his druthers, I suspect Rudd’s inclination would have been to go on remaining inoffensive and wildly popular for as long as possible. However, those plans were derailed by the arrival of the GFC about five minutes after he moved into the Lodge. After loudly proclaiming himself an “economic conservative” throughout 2007, Rudd penned a thinkpiece for The Monthly in early 2009 in which he observed:

From time to time in human history there occur events of a truly seismic significance, events that mark a turning point between one epoch and the next, when one orthodoxy is overthrown and another takes its place… There is a sense that we are now living through just such a time: barely a decade into the new millennium, barely 20 years since the end of the Cold War and barely 30 years since the triumph of neoliberalism – that particular brand of free-market fundamentalism, extreme capitalism and excessive greed which became the economic orthodoxy of our time… Not for the first time in history, the international challenge for social democrats is to save capitalism from itself: to recognise the great strengths of open, competitive markets while rejecting the extreme capitalism and unrestrained greed that have perverted so much of the global financial system in recent times… The current crisis is the culmination of a 30-year domination of economic policy by a free-market ideology that has been variously called neo-liberalism, economic liberalism, economic fundamentalism, Thatcherism or the Washington Consensus. The central thrust of this ideology has been that government activity should be constrained, and ultimately replaced, by market forces.

Demonstrating his characteristic shamelessness, Rudd concludes his essay by sheeting home all the blame for “extreme capitalism and unrestrained greed” to his political opponents. In Rudd’s telling: “The political home of neoliberalism in Australia is, of course, the Liberal Party” while “Labor, in the international tradition of social democracy, consistently argues for a central role for government in the regulation of markets and the provision of public goods.”

Of course, leaving aside the GFC stimulus payments, the nation never got to experience the wonders of Ruddian social democracy. But almost 14 years to the day after it published Rudd’s progressive cri de coeur, The Monthly published Jim Chalmers’ mini-manifesto ‘Capitalism after the crises’. After starting by quoting Heraclitus (“No man ever steps in the same river twice. For it’s not the same river, and he’s not the same man.”), the newish Treasurer name checks Rudd’s essay and then goes on to provide an updated version of its talking points. This passage is typical:

“For a decade before the pandemic… governments and independent authorities, backed by conservative prejudices and vested interests, still mostly stuck to a negative form of supply side economics. They pursued loosely defined goals for competitiveness through a race to the bottom on wages and public investment… The “Washington Consensus” became shorthand to describe recommendations and orthodoxies for developing countries… Over time, it became a caricature for ever more simplistic and uniform policy prescriptions for “more market, not less”. This school of thought assumed that markets would typically self-correct before disaster struck. It’s clear now that the problem wasn’t so much more markets as poorly designed ones.”

In his essay, Rudd largely confined himself to outlining the problems of neoliberalism. In his essay, Chalmers sketches out a solution – “a new values-based capitalism”. Ever so gently, Chalmers makes the argument that while governments, especially Labor governments, weren’t wrong to embrace “extreme capitalism” in the past, circumstances have now changed and markets need to be better designed. Implicitly acknowledging that free-market fundamentalism hasn’t turned out to the best advantage of a significant proportion of the population in Anglosphere countries, he notes:

Democracies will prevail if… leaders govern in ways that improve the lives of the people. Our populations only become susceptible to the lies of populists and autocrats when democracies fail – it is in these circumstances that people reach for extremes, when they believe their system is already broken and their leaders have stopped listening. The type of economy and the type of growth matters – and its distribution matters… Now it’s time for democrats to understand that economic inclusion is fundamental to the health of democracies and the safety of nations.

Chalmers’ three-point plan

 Just like Kevin, Jim is from Queensland and he’s here to help. His three-point plan for a more “economically inclusive” nation involves:

1.     “An orderly energy and climate transition”

2.     “A more resilient and adaptable economy in the face of climate, geopolitical and cyber risks, unreliable supply chains, and pressures on budgets from an ageing population.  

3.     “Growth that puts equality and equal opportunity at the centre.”

After the Coalition’s mauling by the Teals at the last federal election, even most of the hardcore climate change sceptics on the Right now seem to have accepted there are ever-diminishing returns from continuing to stand in the way of an orderly energy and climate transition.

But many on the Right have spent the last couple of weeks freaking the fuck out about points two and three. Chalmers has deployed vaguely inspirational but slippery rhetoric – what kind of monster could object to equality-promoting economic growth? – but if he’s serious about, say, addressing unreliable supply chains or making sure the rapidly growing number of elderly Australians are well cared for, he is going to have to commit some vile heresies against the one true neoliberal faith.

For instance, raising taxes, upping pensions, paying aged-care workers more, reintroducing protectionist policies and picking winners, at least in regards to businesses that could help with an orderly climate transition or mitigating geopolitical and cyber risks.  

Of course, conservative pundits, Corporate Australia and Coalition politicians all accept that an unacceptable number of Australians have been left behind in recent decades and some sensible reforms and a bit more redistribution of wealth are needed to “save capitalism from itself”.  

Just joking.

Here’s a representative sample of the responses to Chalmers championing a kinder, gentler capitalism.

Jim Chalmers’ 6000-word manifesto for a new form of “values-based capitalism” vows to jettison the “neoliberalism” supposedly responsible for a wasted decade of conservative government that left Australia ill-equipped for the post-pandemic world. But the Treasurer’s basic purpose is to discredit the modern relevance of the previous Hawke-Keating Labor reform era that liberalised Australia’s protected and over-regulated economy and built today’s national prosperity… It harks back to an essentially old model of more government intervention and higher taxes, camouflaged in the contemporary language of social inclusion, skills, aged care, women’s equality, climate action, social impact investing and corporatist co-investment between government, union-influenced big super funds and business in areas such as social housing… In opposition, Dr Chalmers put in a lot of work to appear non-threatening to corporate Australia. Now, he will seek to co-opt business into Labor’s new form of social capitalism… Dr Chalmers’ straw man critique of neoliberalism explicitly builds on Dr Rudd’s February 2009 attack on the 30-year epoch of “free market capitalism, extreme capitalism and economic greed”. 
AFR editorial, 29/1/2023

The prescription offered by Dr Chalmers is likely to reward rent-seekers who are prepared to tell bureaucrats and politicians what they want to hear. It will empower an army of consultants and time-markers who will determine what will qualify for preferential treatment from government, what investments will be frowned upon or punished and whether expectations across a range of socially progressive measures are being met. Risk capital will inevitably find somewhere else to invest, overseas. It represents the reverse of a phrase favoured by supply-side economics champion Ronald Reagan that “a rising tide lifts all boats”. The dull hand of intervention can drown us all.
The Australian editorial, 31/1/23

Ronald Reagan said the nine most terrifying words in the English language were “I’m from the government and I’m here to help”. Reagan, in nine words, said what the Treasurer has in 6000, but his quote is a reminder that there is nothing new about Dr Jim Chalmers’s proposals for left-wing populist economics… The Treasurer has abandoned the Hawke/Keating legacy and returned to Whitlam-like objectives, distancing himself from supply-side economic reform and signalling his intention to put government at the centre of the economy. He ignores the fact that Australia’s relative economic success in recent years came from an era of lower taxes, less government intervention, free markets, strong budget management and aspiration for a better life.
Angus Taylor, Opposition treasury spokesman

“We do not want to sleepwalk into being a quasi-command economy.” 
Australian Industry Group CEO, Innes Willox

Watch this space    
I won’t be holding my breath waiting for a new era of “values-based capitalism” to dawn. Even if Chalmers had Keating’s ferocious drive to fundamentally remake the Australian economy, which I don’t believe he does, I don’t see how the planets could align in a way that made such a project feasible. Especially if the economic or geopolitical situation worsens in the coming months.

That noted, radical change almost always seems impossible until it happens. Rudd was mistaken when he argued the GFC had sounded the death knell of neoliberalism. But he was right on the broader point – sometimes there is a turning point between one epoch and the next when one orthodoxy is overthrown and another takes its place.

It’s possible we are now living through just such a time. And it may be the case that the defenders of the neoliberal faith are reacting so furiously to Chalmers’ essay precisely because they fear he’s on to something.