No. 229

WHITLAMISM IS BACK. WITH KATE & KEN & SHIRLEY

Stone the crows! The case for economic reform isn’t universally endorsed anymore.

A few weeks ago former treasury secretary Ken Henry made a speech arguing that advocates of reform have sold us a pup, of the lower case kind. As he put it:

The narrative goes like this: reforms that enhance productivity and cut costs, including labour costs, build international competitiveness; international competitiveness drives exports; exports drive growth; growth drives jobs; and jobs support living standards.

But while the great reforms of the Hawke-Keating-Howard era were worthwhile, because they “expand opportunities, enhance freedoms and, in so doing, improve the well-being of the Australian people,” we pursued them for the wrong reason – a mercantilist obsession with keeping wages down and exports up to maximise international competitiveness.

The result was that we ignored better reasons for reform, to, “expand opportunities, enhance freedoms and, in so doing, improve the well-being of the Australian people.” In consequence, “reform proposals … have been poorly understood, and they have not proved resilient.” [i]

Mr Henry should know. Wayne Swan disgracefully ducked his comprehensive tax reform proposal.[ii] It was a cracker of a speech, too easily dismissed as a rejection of reform, which it wasn’t.[iii]

But Mr Henry’s address does demonstrate the way the necessity for continuing economic and institutional change is out of fashion. Instead of making the economy more efficient – another way of saying more productive than competing countries – we are now focused on what he suggests is the reason for reform, so Australians “have the capabilities to live lives of value.”

his comprehensive tax reform proposal. [iv]

It was a cracker of a speech, too easily dismissed as a rejection of reform, which it wasn’t. [v]

But Mr Henry’s address does demonstrate the way the necessity for continuing economic and institutional change is out of fashion. Instead of making the economy more efficient – another way of saying more productive than competing countries – we are now focused on what he suggests is the reason for reform, so Australians “have the capabilities to live lives of value.”

Good-oh. The problem is that unless we pile up trade surpluses and generate economic growth, there is no way to pay for “lives of value”. But we have lost sight of what was blindingly obvious 30 years ago and the Australian orthodoxy is returning to what it always was before 1983; that is, that we should continue to expand the welfare state and worry about paying for it later.

Pretty much along the lines of the Whitlam Government. In the last pre-Whitlam budget, Australian government expenditure amounted to 18.9 per cent of GDP. In 1975-76 outlays reached 24.8 per cent of GDP, which, as Ken Henry points out is where it has stayed: “The close to 6 percentage points of GDP expansion in government expenditure during the Whitlam Government has never been reversed. And I think I can safely say that it never will be.” [vi]

The Whitlam legacy is also being remembered more kindly. As Paul Kelly puts it, “The rage Whitlam provoked and invoked is dying. In it’s wake, his legacy shines brighter in the lives of Australians.” [vii]

Cate Blanchett summed up the old and now new again orthodoxy at the memorial service for Mr Whitlam: “I am the beneficiary of free, tertiary education. When I went to university I could explore different courses and engage with the student union in extracurricular activity.” [viii]

There is a bit of this about. University of Technology Sydney deputy vice-chancellor Shirley Alexander wrote of the way “free education” provided a life-changing opportunity to a young widow with a baby: “I owe Gough Whitlam an enormous debt. It’s a big statement, but it’s hard to imagine that my life would have taken the path it has if it hadn’t been for his remarkable policy to make higher education free in the 1970s.” [ix]

But of course it was not free – it was paid for by the generality of the then far less educated taxpayers, whose children did not go to university in any great numbers. Less than 20 per cent of children born in 1961 to manual workers were in higher education in 1980.[x]

Indeed, there was a great deal that was right with Mr Whitlam’s agenda. For every admirer of increased arts spending in 1972 there were many more who blessed him for sewering the cities.[xi]

And there is a case that the creation of the Industry Commission, tariff cuts and the Trade Practises Act mark Whitlam as a reformer intent on dismantling rent seeking power structures.[xii] But overall he had things arse about, focusing on growing government to help people rather than expanding the economy. It was a strategy that had already failed in the US, UK and Canada by the early 1970s but Labor was so determined to make up for 20 years in opposition that nobody noticed. As J R Nethercote puts it: “The idea that public policy problems could be solved by big public spending had lost its force by the time Whitlam stormed to victory in 1972. Few in Australia noticed it, however, and those who did were discounted as ‘unreconstructed’. ” [xiii]

And here is the danger in Ken Henry’s thesis – without an obsession with productivity across the economy but especially in the public sector, the “lives of value” line is easily hijacked by rent seekers and supporters of the status quo – unions and tariff-protected manufacturers in the 1970s, public sector agencies protected from private competition now. Like universities, which are keen to embrace Education Minister Christopher Pyne’s plan to deregulate student fees to increase income, but way less enthusiastic about private providers competing for the same amounts of public money. As Universities Australia puts it, “The relative funding of universities compared with non-university higher education providers should take account of the obligation of universities to invest in research, public good and community engagement activities.” [xiv]

Fair enough – but just about every university in the country has just negotiated enterprise agreements worth 3 per cent per annum for three years – at a time when Canberra is refusing pay rises for the armed forces and public servants. [xv]

Without policies designed to lower costs and increase competition, the people whose standards of living are protected are those who benefit from the established order. ‘Twas ever thus – and it should not be.

On Friday, Australian Consumer and Competition Commission chair Rod Simms suggested that the case for reform is the same now as it was 30 years ago:

Those in the governments that introduced these reforms, and those advising them in pushing the microeconomic reform agenda, had a clear goal which was often stated; to remove impediments to competition and the flexible operation of markets in order to improve productivity and in turn the welfare of all Australians. The microeconomic reforms of the 1980s and 1990s were good policy in their own right, independent of any effect on exports or the balance of trade. [xvi]

We need another round of reform and the way to sell it is that productivity generates growth and growth creates the value needed to fund better lives for all.

 


For policy editing writing and research cheaper than your agency call me stephen4@hotkey.net.aau


ENDNOTES

[i] Ken Henry, “The reform narrative,” September 16 @ http://goo.gl/7hDGd2 recovered on November 9

[ii] David Koch, “Government wimps out on true tax reform, News.com.au @ http://goo.gl/SiBE3u recovered on November 9

[iii] Judith Sloan, “No hoorays for Henry as economist loses the thread on mercantilism,” The Australian, October 11

[iv] Ken Henry, “Fiscal policy: more than just a national budget,” November 30 2009 @ http://goo.gl/SiBE3u recovered on November 9

[v] Paul Kelly, “Nation touched by the gifts of Gough,” The Australian, November 8

[vi] Cate Blanchett, “Cate Blanchett pays tribute to Gough Whitlam,” Sydney Morning Herald,” November 5

[vii] Shirley Alexander, “My eternal thanks for Gough’s gift of free higher education,” The Australian, October 29

[viii] Gary Marks et al, “Patterns of participation in year 12 and higher education in Australia,” Australian Council for Educational Research, January 2 2000, @ http://goo.gl/pRxT2o recovered on November 9

[ix] Malcolm Farr, “Gough Whitlam’s first major achievement was indoor plumbing,” News.com.au October 22 @ http://goo.gl/6Nmtgs

[x] Remy Davison, “Whitlam made the case for reform: an enduring economic legacy,” The Conversation October 22 @ http://goo.gl/jLjgHY recovered on November 8

[xi] J R Nethercote, “Gough Whitlam: pied piper of the baby boomers,” Canberra Times November 4

[xii] Universities Australia, “Position on higher education reform,” May 6 @ http://goo.gl/gkjHTy recovered on November 9

[xiii] Stephen Matchett, “Cash for cunning,” Campus Morning Mail, November 7 @ http://goo.gl/FTUia2 recovered on November 9

[xiv] Rod Simms, “Bringing more economic perspectives to competition policy and law,” November 7 @ http://goo.gl/jH6iMH recovered on November 9

'2012