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Article - The Economy Is Balanced On A Knife Edge

October 24, 2016

THE HON WAYNE SWAN MP

FEDERAL MEMBER FOR LILLEY
 

The Economy is Balanced On A Knife Edge
 

Donald Trump is undeniably unfit for office, but his policies are equally reprehensible. We cannot simply reject the man’s behaviour—we must also call out his economic agenda for the poison it is, writes Wayne Swan.

1. Abbott has endorsed Trump, and maybe because Trump is so toxic, his  policy gets a free pass

The spectre of Tony Abbott continues to haunt the Australian political landscape. As surely as his presence is a threat to Malcolm Turnbull’s tenuous Prime Ministership, so too are his policy positions poisonous to Australia’s national interest.

Earlier this month, the nominally ‘former’ Prime Minister reminded Australians of the threat that his economic views still pose to the nation. While carefully distancing himself from Donald Trump’s despicable personal record, Abbott wholeheartedly endorsed the Republican Presidential candidate’s economic agenda, singling out its high-end tax cuts and no doubt sharing his disdain for worker’s right as exemplars of ‘classic conservatism’.

I woke the next day expecting to see a wall of coverage condemning Abbott’s support for Trump, but other than a mild deflection from Malcolm Turnbull and a sensible rejoinder from Laurie Oakes, the Australian media remained unmoved. 

Perhaps because of its contrast with Trump’s thuggish persona, the relatively dry language of the policy might start to appear reasonable, whatever its content might be. But although Trump’s reprehensible personal behaviours have been roundly and rightly rejected across the political spectrum, his economics, which are just as pernicious, have been somehow normalised.

2. Coalition failed to repudiate this. They envy the very worst of US economic policy [trickledown]

Abbott’s admiration of the Trump program, and the failure of the Coalition government to denounce Abbott, afford a chilling vision of the divided society that conservative forces are determined to realise in Australia. When the Liberal party installed Malcolm Turnbull as leader in 2015, many voters were hopeful that Abbott’s survival-of-the-fittest policies attacking unions, and low- and middle-income earners were to be reversed. Instead, they were supercharged, with a $50 billion unfunded corporate tax cut, and Australians were yet again deeply betrayed by the man in the leather jacket.

Australia’s progressive tax and transfer system is rightly the envy of most developed economies. And while the United States has been the engine of global growth for much of the past 70 years, its redistributive record has rendered it one of the most divided and unequal societies on the planet. Since 1995, while median incomes in Australia increased by 50 per cent, median incomes in the United States have flat-lined. As the Inclusive Prosperity Commission has recently argued, the Australian economy now sits on a knife edge, and policy choices will determine whether we fall towards greater inequality or shared prosperity. Seeking to emulate the policies of the United States would simply be wrong headed.

Perhaps the greatest trick an ideologue can ever pull is convincing the electorate that his ideology doesn’t exist. The Turnbull government has pressed on with an agenda strongly reminiscent of Abbott’s, while decrying as ‘ideological’ any policies which fail to fit the free-market, small-government, winner-takes-all program that they’re intent on pushing.

3. Malaise for reform prompted a Wish You Were Here attitude—same old fears

The malaise presently surrounding economic reform in Australia has stirred among some political observers a myopic nostalgia for the era of Hawke and Keating. Whether accidentally or deliberately, the true lessons of these years have been subsumed by substantial historical revisionism. The Australian’s Paul Kelly, for instance, claims that it is not the current government’s acquiescence to multinational tax avoidance, its equanimity about super profits in mining and banking, or its relentless unpicking of Medicare, but instead the Australian people’s rigid insistence on the ‘fair go’ that is ‘throttling’ our prospects for prosperity. Kelly and others of his ilk typify what economist John Edwards has called the ‘black-armband’ view of Australia’s economic history, in forgetting that Hawke and Keating’s pursuit of a more open dynamic economy was underpinned by a social compact with working people to provide universal healthcare, education, and a social wage in return for productivity-enhancing reforms. In Kelly’s case, he has pulled off an even better trick, namely misremembering his own book. The growth, productivity and equity that emerged from this era is inarguably the product of policies emphasising inclusive prosperity.

In harbouring this wistful, if deeply misguided ‘Wish You Were Here’ attitude, conservatives are also running over the same old ground, finding the same old fears. During Hawke and Keating’s tenure, the push for a scorched earth approach came from the Opposition benches, led by another Member for Wentworth. John Hewson famously feared that the redistributive measures in Paul Keating’s 1993 Budget would ‘pull everyone down to the lowest common denominator’. Keating nailed the Liberal party’s ideological panic in response: ‘if you reach back for them, they will drag you down’. With names if not electorates replaced, this sentiment might well describe the Liberal party of 2016.

4. Prolongs polarisation—this is why trickledown needs to be called out and rejected

In Australia, two pieces of evidence from this year alone indicate that working people are justified in demanding the ‘fair go’ that columnists like Kelly resent. The first is the release of Australian Tax Office reports which revealed that up to one third of private and public corporate entities in Australia paid no tax in 2013, joining 56 untaxed millionaires who didn’t even pay the Medicare levy. The second is the fall in wage growth to its lowest level on record. While the divergence between falling wages and rising productivity hasn’t yet reached US proportions, it’s a gloomy portent.

Without question, the blind pursuit of trickledown policies generates vicious economic cycles: from lower wages, to lower demand, to lower business profits, investment, and employment. But it also bleeds into vicious cultural cycles. Workers who are unrecognised economically and whose concerns are quashed by a political mentality that declares ‘there is no alternative’ are understandably turning towards populists. Sadly, the simplistic solutions peddled by right-wing populists are likely to worsen workers’ economic prospects. The Brexit result looks like it will spend every one of the next 20 to 30 years proving that.

5. But there is an alternative…

An alternative exists. While progressives must openly reject the simplistic view of protectionism and the xenophobic elements embodied in many populist causes, they must also address the legitimate foundations of the populist surge. This means promoting policies which exploit the benefits of globalisation for the improvement of society, and repudiating those which exploit the majority of society for the benefit of a dogmatic globalist ideology.

Harvard economist Dani Rodrik calls this ‘rescuing globalisation from its cheerleaders’. Rodrik notes that economies like China’s, which overlaid their trade ‘window to the world’ with a ‘flyscreen’ of employment protections, have fared much more favourably than economies like Mexico’s, which engaged enthusiastically with free trade deals without regard for domestic safeguards. That the Hawke and Keating reforms preceded 25 years of real GDP growth is as much a testament to the wisdom of redistribution as to an enthusiasm for open markets.

Formerly unapologetic free-market advocates are coalescing around this view. The IMF has tempered its evangelism for free trade, suggesting that unpredictable swings in speculative capital flows and the blind pursuit of fiscal austerity have soured the fruits of globalisation. At a time of record low interest rates, the IMF now joins the OECD in recommending that governments increase their borrowing to invest in human and physical capital that delivers for all citizens.

By recognising inequality as a policy choice, and not an inevitability of open societies, the inclusive prosperity alternative gives voice to the concerns of populist voters. The Chifley Inclusive Prosperity Commission offers concrete policies to establish a virtuous cycle of growth beginning with a decent industrial relations system with strong unions to ensure fair wages and conditions, which in turn promote sustainable household expenditure, which in part funds a tax system that provides affordable health, education and housing. These policies in conjunction with public expenditure on infrastructure complement private sector investment and promote full employment. Across the Pacific, the Center for American Progress has found that countries with lower corporate tax rates experience lower productivity growth, contrary to the wisdom—such as it is—of the Business Council of Australia. Rather than shoring up capital’s share of income with tax cuts, the progressive alternative is to increase basic wages, particularly in the current climate of near-zero inflation.

6. Evidence is in our favour, we’ve just failed to prosecute it properly

The historical record supports the inclusive prosperity approach as a superior means of achieving economically and socially sustainable growth. Malcolm Turnbull’s skin-of-his-teeth election result and Labor’s campaign for a more inclusive economic program demonstrated the vulnerability of conservatives in this country to a full-throated campaign against growing income inequality and lower social mobility.

In order to save globalisation from its cheerleaders, progressives must shun the elitist attitude and technocratic, alienating language preferred by our opponents, and aggressively prosecute the alternative agenda.

Fundamental economic changes will never be achieved by a pining for consensus, because they involve a fairer share of wealth and income going to working people. Since the 1980s, nearly all progressive reforms to fairly share the fruits of our prosperity have been opposed by conservatives and powerful vested interests.

Thomas Piketty’s breakthrough book “Capital in the 21st Century” was not just some summer publishing sensation from three years back. At its core is the vital insight that the last 40 years of economic policy have driven inequality in many parts of the world back to 19th century levels.

Which leads me to this very simple point: if you want 19th century inequality, you can’t be surprised when you get 19th century politics too.

Trickledown economics, however it is introduced, and on whatever grounds the government denies its existence, remains the undeniable ideology and policy choice of conservatives—and one that must be soundly rejected. To supplant trickledown economics with inclusive prosperity as the dominant economic narrative, we need to be not just loud and clear about the flaws in the existing framework, but to advance vigorously our compelling alternative.

 

A shortened version of this article was originally published on the Huffington Post.

 

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