In recent weeks, as debate has raged over Treasurer Jim Chalmers Monthly essay on capitalism while inflation soars and mortgage rates rise, it has become increasingly clear that many supporters of this argument are operating on a theoretical level, divorced from both current economic conditions and historical experience.
While this is perhaps the only clear thing from the essay, it is likely that reality will deliver a corrective, as it did to Whitlam, who operated with a similar mixture of ideology and ignorance.
First, and perhaps foremost, the idea that the Australian treasurer has the power to remake capitalism is borderline comical. We are a middle-sized economy, dependent on trade and international markets for our prosperity.
So when Chalmers criticises the Washington Consensus, which largely reflected the Hawke-Keating reform package of the ‘80s and ‘90s, he is picking at the thread that transformed Australia from a ‘banana republic’ into an economy that delivered three decades of uninterrupted economic growth.
The way Australian politicians believe they can dictate terms and values to a global economy never ceases to be surprising. Time and again this folly has been exposed. Perhaps next time the treasurer consults his New Zealand counterparts on well-being he can ask the former NZ Prime-Minister how it went for her. Or how it’s going for Trudeau in Canada.
Thus, whatever Chalmers says about new economic models, at best this represents reheated aspirations for government, not a new way for the economy.
There remains plenty to criticise on that score too.
The first is the idea that this economic model represents any kind of democratic reform. Those beating the drum about the evils of ‘neoliberalism’ (itself a nonsense term with no meaning) have always fundamentally misunderstood what markets are.
Markets are the ultimate democratic institution. They are an accumulation of individual choices by consumers. Businesses that want to make a profit compete with each other to win the ‘votes’ of consumers.
But there is another way to make a profit. Large businesses can join with unions and government to create barriers to entry, most typically with regulation. The end result of this is trapped consumers who pay more for a less suitable product.
This is the caricature of capitalism that progressives have put forward as proof of the flaws in markets. Yet governments of both sides of politics have been fundamental in creating more of this crony capitalism, passing thousands of pages of regulation each and every year.
Chalmers’ model at its core seeks to validate this caricature, embed it in the economy and leverage it to produce social outcomes according to the values of the government. It’s no wonder some progressives have rejected it along with capitalists.
Of course, most crucially, the new framework allows government to mobilise the vast financial resources ‘trapped’ in superannuation to achieve its political ends. Redefining returns away from the financial and towards the social is key to enabling industry super to pursue “their values, and our national goals”, as the Treasurer put it.
Even with government tipping in to make the projects appear to be financially viable, shareholders almost certainly end up footing the bill for promoting ‘values’ it is far from clear they share. And consumers will definitely be worse off.
The car industry, and the appalling waste of tens of billions of dollars over the decades, is the perfect example of the failure of this approach. Unions worked closely with large companies on sweetheart deals, with government subsidies to make the whole thing viable. The aim was to ‘protect Australian industry’, with everyone getting their cut.
But it was done at the expense of consumers who didn’t want the type of cars being made, and who were fed up with paying far higher prices than they should have. As soon as consumers were given a choice, the whole house of cards collapsed.
This is fundamentally democratic. Chalmers’ new model replaces the free ‘votes’ of consumers with the supposedly universal values of progressive government and woke business leaders.
The Treasurer himself cites some examples of how his new framework would work and they are quite illuminating. He approvingly cites organisations working in “aged care, education and disability”.
He perhaps could have picked some better industries.
The aged care sector has just come through a damning royal commission, where the central finding was that there was widespread substandard care by many providers and fundamental flaws in the governance and design of the system.
It is also an area where government spending is expanding rapidly.
Government spending is expanding even more rapidly in the disability sector and it’s not at all clear that the government has any handle on how to fix the problems inherent in the NDIS.
As for education, the last time Labor was in government it massively increased funding in this sector, but unfortunately student outcomes declined despite the additional funding.
Does anyone think what is going on in these nominated sectors is a good model for the rest of the economy? Or that the energy sector is a better model?
Chalmers seems to think so, but the whole sector is a mess. Energy prices have gone through the roof. There is plenty of blame to go around but the sector reflects exactly the confused priorities that come from governments with conflicting agendas trying to chase multiple goals at once.
It’s not that ‘neoliberalism’ has no answer for negative by-products of industry: the traditional response to such a negative externality is a tax. However, Labor has shied away from introducing a tax, no doubt scarred by the last attempt.
That response was genuine democracy. The voters decided they didn’t want it and turfed the government out. Circumventing choice through collaboration, co-investment and (implied) threats of coercion is at the heart of this ‘democratic’ reform of capitalism.
Labor seeks to place government in the role of ‘conductor’ of the economy. “Defining priorities, challenges and missions”, as the Treasurer put it. Perhaps Labor believes that big business is currently playing that role.
But that’s a fundamental misconception. It’s consumers that drive the economy. Any reform that replaces them with other ‘stakeholders’ is a retreat from democracy, not an advance.
Simon Cowan is Research Director at the Centre for Independent Studies.
Photo by Nork Photography