Kevin Rudd's spin on capitalism is almost pure myth

In 2006, Kevin Rudd wrote a piece about Australian politics, and what he claimed were the differences between “market fundamentalists” such as members of the Howard government, and “social democrats” such as himself. Amusingly, the Austrian economist F.A. Hayek was cited as the mastermind of the Howard government’s “Brutopia”. According to Rudd, John Howard was a “child of Hayek”.

Howard published a rebuttal in The Australian soon after, pointing out that his government had in many cases been pragmatic and intervened in many markets. Rudd then wrote a reply outlining Howard’s alleged “fundamentalism” in areas such as education and health. Later, it was pointed out by an expert on Hayek that the alleged father of “unrestrained capitalism” wouldn’t have admired Howard much, given the size of government in Australia.

Similarly, Rudd has now penned an essay which argues that the “neo-liberal” experiment of the last 30 years, which allegedly pursued policies which were anti-tax, anti-regulation and anti-government, has decisively failed, and that now social democrats must pick up the pieces "to save capitalism from itself" by introducing a new era of government intervention into markets. Leaving no doubt that Rudd’s essay is aimed at maintaining a political advantage over the federal Opposition, Rudd has declared that the Liberal Party is "the political home of neo-liberalism in Australia", because it aimed to reduce state power to the maximum possible extent.

To examine the credibility of Rudd’s analysis, let’s look at his claims and compare them to reality.

Claim #1: that the Howard government consisted of “market zealots” who aimed to reduce the size of the state “as much as possible”

It is a matter of record that the Howard government was in fact the highest taxing and highest spending government Australia has ever had. This fact explodes the myth that it stood for small government. Indeed, the Howard government introduced many handouts which significantly expanded the welfare state and took the concept of wealth redistribution to a whole different level. Payments such as Family Tax Benefits, the baby bonus, the private health insurance rebate, the solar rebate and countless other payments were hardly means-tested at all and came at the expense of income and company tax reductions, which would have been better for the economy and really would have reduced the size of government.

Second, the idea that the Howard government deregulated many industries is also a myth. WorkChoices, for instance, resulted in hundreds of new provisions being added to the Workplace Relations Act, compounding its size and complexity.

Similarly, the telecommunications access regime which has accompanied the privatisation of Telstra also involves a complex and messy business where the ACCC has to be heavily involved in the telecommunications market, to determine the prices Telstra can charge for use of its infrastructure, among other active participations.

Sadly, the Howard government also did very little in terms of reducing red tape for small businesses, and actually added another layer of it with the introduction of the GST - another highly complex tax riddled with exemptions and excessive technicalities.

While the Howard government certainly did allow markets to function more freely in many cases, it is inaccurate to say that it was dedicated to deregulation.

Claim # 2: that “free market economics” and “extreme capitalism” are to blame for the current financial crisis

At best, this claim is only partly true. As I have previously explained, government regulation which encouraged irresponsible lending practices is also to blame for the US sub-prime collapse. The Clinton Administration and Congress contributed to the crisis, rather than helped prevent it. The US sub prime collapse was therefore caused by misconceived government intervention, rather than too little regulation. Regulation should have ensured more responsible lending, rather than encouraged sub-prime loans being made out to people who can barely afford to repay.

Additionally, the US sub-prime collapse was an American affair which has afflicted a globalised world. No one has claimed that it originated in Australia, so it is absurd to sheet blame onto the Liberal Party in Australia, as Rudd indirectly attempts to. In fact, reforms to the Australian financial sector in Australia were introduced by Peter Costello, who ensured that no sub-prime collapse would occur here.

Conclusion

Since the Howard government hardly deregulated, and radically expanded the role of the welfare state, it follows that it cannot be said that its agenda was small government and unrestrained capitalism. Similarly, poorly conceived regulation not “free market fundamentalism” caused the current financial and economic mess. As a result, Rudd’s appraisal is fundamentally flawed in two very serious ways.

But even more disturbing than this exercise in propaganda is the political agenda that Rudd intends to use it to advance. As Paul Kelly observes, “Rudd dates the neo-liberal ascendancy from 1978-2008 and speculates with breathtaking hubris that the post-2008 epoch might be called "social capitalism" or "social democratic capitalism". He says it will be defined by an activist state and open markets”.

In other words, Rudd intends to use this essay to justify his unconstructive policies which involve excessive government intervention. Examples include FuelWatch and GROCERYchoice, which anyone who understands how markets work knows would be ineffective in reducing prices. Similarly, there’s the doling of billions of dollars to car makers and “Ruddbank”: initiatives which are sold as being about protecting jobs, when even more jobs could be saved if the economy is stimulated by means of reductions of personal income tax rates.

Other policies which involve excessive intervention include the bank deposit guarantee, which disastrously resulted in a flight from non-bank institutions, and the Gillard industrial relations regime, which will compound job losses during this current economic downturn.

It was interesting to see Malcolm Turnbull compare Rudd with Gough Whitlam, as there are a number of parallels. A global recession welcomed the Whitlam government soon after its election, and the Whitlam government reacted with over-spending, and a re-regulatory overhaul of industrial relations. While the Whitlam government slashed tariffs at a time when levels were very high, Kevin Rudd has introduced extra protectionism for the auto industry by means of his distorting subsidies in a period of lower protection.

Sadly, the Rudd Government appears to be repeating many of the mistakes of the Whitlam years, where the economy’s recovery was hampered by government intervention. If Rudd keeps pursuing policies which appeal to Labor’s left-wing faction, he may well turn out to be as unpopular as and infamous as Whitlam himself.

Rudd’s plan to bring Australia back to levels of spending, regulation and protectionism similar to the 1970s is a betrayal of the Hawke and Keating legacy, as well as Rudd’s pre-election claim that he was an economic conservative.