Ronald Reagan, you were wrong

You might have recently seen my mum’s guest post – Politics 101. Mum studied politics at university 40 years ago and still remembers most of the theories. In this guest post, she gives her perspective on ‘initiative – resistance theory’.

It’s wonderful how that stuff I read in Politics 101 all those years ago is still relevant today. In fact initiative – resistance theory is startlingly more relevant now than it was then.

The idea in the 1930s and ‘40s was that Labor was the party of political initiative, and anti Labor was the party of resistance. Labor did things and the conservatives tried to stop them. Sounds like a perfect description of the current situation. Carbon tax, mining tax, NBN, education funding reform – no, no, no and no. National disability scheme and national dental scheme – probably no. Initiatives resisted at all costs.

Most political commentators, however, see the negativity of the Abbott led coalition as a political tactic to force the government to an early election. In theory, Abbott could still make positive promises before the next election. But if we look more closely at the initiative – resistance argument, we can see that even if Labor is only partially the party of initiative, the LNP is now entirely the party of resistance.

Initiative in this context means a willingness to use the state to meet aspirations for a fair and decent society. This could be achieved by state ownership of the ‘commanding heights’ of the economy, such as banks, transport and power generation; government  provision of services such as education, housing and medical care; and a social security system that insured against the pauperizing effects of illness, unemployment, and old age.

Resistance – and I’m being really balanced here – means a distrust of state activity, and a preference for the unfettered free market in achieving a fair and decent society.

Historically, neither party was all initiative or all resistance. A lot of what used to be thought of as Australia’s distinctive ‘state socialism’, such as tariff protection, arbitration, the basic wage and old age pensions was supported and extended by Labor governments, but had its origins in the liberalism of men like Alfred Deakin. Even when the liberals joined the conservatives in an anti-Labor alliance, these fundamental pillars of state activity remained unchallenged. And the conservatives had their own brand of state activism in the extension of rural infrastructure, the promotion of land settlement and marketing schemes for various commodities. (Government purchase of Cubbie Station, anyone?)

There was a burst of Labor activism during and after World War II which saw existing social welfare provisions consolidated and expanded and Keynesian principles adopted to manage the economy. The Liberal government that followed didn’t extend any of this, but they didn’t abolish it either. The Whitlam Labor government was responsible for such initiatives as Medicare, free university education and commonwealth involvement in urban policy and planning. The Fraser Liberal government didn’t alter much of this either. Political scientists felt quite comfortable ignoring the whole issue of the role of the state in initiating a just society, arguing variously that these outcomes were the result of competition between elites, that the state was not a neutral organisation capable of being captured by either side of politics, or that the state was an expression of capitalist power and could only be used to enforce that power. Initiative/resistance disappeared as an explanation for political activity.

Then came globalisation, free market economics and the concomitant demonization of state activity, from state ownership through to mere regulation. This was summed up by President Reagan in his 1981 inaugural address. ‘Government is not a solution to our problem,’ he said. ‘Government is the problem.’ Then followed a rush to demolish the edifice built up by the interventionist state. And in Australia it was the Labor Party under Hawke and Keating that led the charge. They cut tariffs and floated the dollar, giving up most of the old Keynesian levers for managing the economy. Then came large scale privatisation of public assets by the Commonwealth, followed by State governments, both Liberal and Labor. Qantas, Australian Airlines, the Commonwealth Bank, state banks, airports, rail systems, power stations – the list goes on and on. Federal Labor also encouraged enterprise bargaining as the preferred wage setting mechanism, though they didn’t entirely abandon the Commonwealth’s industrial power. There was also a move to charge fees for services previously free, with a short-lived co-payment for Medicare services (later reinstated by the Liberals) and the HECS/HELP scheme whereby university students contributed to the cost of their education once they graduated. In relation to direct payments, compulsory superannuation was introduced to lessen dependence on the state in retirement. These changes evoked no resistance from the right, and surprisingly little from the left, who saw no alternative to deregulation, small government and market based solutions. (For someone who did, see Hugh Stretton, Australia Fair, 2005.)

After the Liberals formed government under John Howard in 1996, they privatised Telstra and the Commonwealth Employment Service; finding jobs for the unemployed was outsourced. But Howard made most of his contribution to economic rationalism through taxation policy and decisions about where to cut funding. His GST, which had more impact on the poor than the rich, allowed him to offer cuts in personal income tax, which mainly benefited the well off.  This, from his point of view, had the double advantage of being electorally popular, and permanently reducing the size of the tax base, which in turn limited the capacity of government to spend on anything else. In addition he either cut, or failed to spend on areas like health and education. Cuts to university funding, for example, made them reliant on the market in overseas students, and partial deregulation of fees forced them further into competition in the local market. State aid to non-government schools – originally conceded in 1963 – was ramped up, making private education an option for more families. Commonwealth spending on public schools declined. The increasing cost of health provision was met with a rebate to those who took out private health insurance, rather than spending on the public health system – though this was admittedly complicated by confusion about federal-state relations. And then of course there was the attempt to deregulate the labour market (Work Choices), by which they over-reached themselves, and lost the 2007 election.

The Liberals clearly agreed with Margaret Thatcher that ‘there is no such thing as society’ and that ‘people must look to themselves first’. In this view, personal obligation trumps the right to welfare; there should be no sense of entitlement. Labor might have said that there was an obligation on the state to guarantee a given set of services to all citizens, but in practice there seemed little between the parties in their acceptance of economic rationalism. The outcome of such policies was to reduce the role of the state to a mere safety net for the poorest and most disadvantaged who were left behind by the market. If public health, public housing and education are only for losers and dole bludgers, there is no need to ensure they are effective – only cheap. Liberal willingness to proclaim personal obligation was partly obscured by the their fondness for middle class welfare through non-means tested benefits like the baby bonus, private health care rebate and the first home buyers grant. But these distortions of the market were electorally necessary to them.

The dangers of this preference for the private system can be seen in the interesting example of child care. As more women entered the workforce, care for their pre-school children became a necessity. Labor introduced some assistance back in 1972; there were subsidies for both families and child care centres. But it was hardly an area where it was possible to make much profit and many centres were run by community or not-for-profit groups. Then during the late 1990s and early 2000s, the privately owned ABC Learning burst onto the scene, exponentially expanding the number of its centres both in Australia and overseas. The Howard government fully supported this apparent triumph of the market – until the company collapsed, throwing into confusion the child care arrangements of thousands of women. It was left to the incoming Rudd Labor government to clean up the mess, and find mostly not-for-profit operators for as many centres as possible. There never was a profit to be made from childcare – even out of the government subsidy to centres. All the returns came from expanding and franchising the business, and it needed continuous growth to cover its debt. To rely on the market to provide a service central not just to individual families but to the whole economy involved a risk that should never have been allowed to happen.

Since Labor came to power in 2007, two things have further challenged a benign view of the market. One is the growing environmental crisis. On one hand the market makes unsustainable demands on resources, and on the other, allows the environment to be a free dumping ground for waste and pollution. Clearly there needs to be intervention in such a market.

The second is the Global Financial Crisis, which showed that markets are not automatically self-adjusting to create the best outcome for everyone; quite the reverse. They need careful regulation to shield citizens from the boom and bust cycle that appears inherent in them, and only government has the power to do this. Furthermore, the fallout from the GFC highlighted the differential way that markets distributed wealth. Instead of the trickle down effect assumed by Reaganomics, there seems to a syphoning up effect which makes the rich richer and the gap between them and the poor wider. You can argue about the exact figures, which depend on precisely what is being measured. But there is no doubt that during the period following WWII, when state intervention was common, the gap between rich and poor in developed countries decreased. It is also indisputable that it has been growing exponentially since about the 1970s – just when free market ideology took hold. The disparity is worse in the United States and Great Britain than it is in Australia, but it is getting more pronounced here. Only effective action by the state can reverse this process.

So how have the Labor and Liberal parties responded to these challenges? Both initially endorsed an Emissions Trading Scheme – a market based mechanism – as the most effective way of reducing carbon pollution. But this nevertheless represented an intervention in the market that the Liberals ultimately couldn’t accept. Labor’s price on carbon will segue into an ETS, while the LNP has gone with a ‘government picks the winners’ direct action scheme, which won’t work, but will nevertheless require a lot more government involvement than a market based scheme. In reality, it seems likely a LNP government won’t actually do anything to modify the environmentally destructive process of the free market. Labor, on the other hand, gets a tick for taking action, even if it is through a market mechanism.

There is no reason to expect that the LNP will take action on the failure of the market and increasing inequality. Their response to the GFC was incoherent, but it is clear they would have used government stimulus less than the Labor party did, and they spend a lot of time criticizing that activity, with no acknowledgement of what it achieved. Aside from direct action on an emissions target, the only other policy announced by Tony Abbott is his paid paternity scheme – a gross example of middle class welfare.  It’s because of policies like this – and opposition to any government attempt to cut back on such welfare – that critics found Joe Hockey’s speech condemning a sense of entitlement among welfare recipients so ludicrous – pot kettle black. But I’m not laughing. I think that the Liberals will follow the British Conservatives – to say nothing of the American Republicans – into a further retreat from welfare for the poor, and further market based service provision. They will persist with the deregulation of the labour market, whatever Abbott has promised. Indeed, as argued by David Marr and Bruce Hawker, Abbott’s world view is possibly formed more by the Catholic distributism of his mentor A.B. Santamaria, which gives a prominent role to government, than by classical free market economics. He doesn’t follow the low spending low tax mantra of true free marketers in the party, such as Hockey and Malcolm Turnbull. If Abbott’s popularity continues to fall and the party decides to get rid of him, there are some in it who will heave a sigh of relief that the party can return to its true free market path. The Liberal Party remains close to the ultra free market Institute of Public Affairs – see their prescription for a free market Australia here. An LNP government will deserve the title ‘party of resistance’ more than any conservative government yet.

And what of the Labor Party? What the role of the state should be is hardly a question on every Labor member’s lips. But managing the economy in ways that promote greater equality should be core business. The National Disability Scheme, the Gonski model of education funding, increased spending on health and hospitals may not represent a coherent stand on government intervention, but at least they are steps in the right direction.

So where does that leave us? It’s clear there can be no going back to the old levels of government ownership or of government intervention in the economy. Market mechanisms like outsourcing and contracting out are here to stay. The market is still the best option we have for generating and distributing wealth. But unrestricted, it cannot produce a fair and decent society. We need to revive the idea of a mixed economy. There must be productive public/private partnerships, and effective and enforceable regulation. There should also be a proper assessment of what the market can’t do and government must do. Reagan was wrong: government is not the problem, and we need a vocal defence of the state as guardian of the common good. Come on Labor. Show a bit more initiative.


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