The truth about recent policy trends: an alternative opinion

To what extent Australia can meet a variety of economic, social and economic considerations is a key question facing all Western nations, an aspect which is inadequately addressed by Australia’s academia or media.

For instance, on July 3, 2008, Dr Peter van Onselen, the co-author of John Winston Howard: The Biography and Howard’s End provided a simplistic answer when he responded to a Q&A question on ABC television, that a lack of resources for Australia’s health industry was caused by both Labor and Coalition governments having moved to the Right, a statement that drew substantial applause from the audience.

Any half decent Australian political commentator should know that all Western governments are under immense pressure to ensure competitive taxation rates and labour costs in order to enhance investment, a reality that complicates spending possibilities. Even Sweden, arguably the most generous of all democracies, has reduced its level of government outlays from 72 per cent of GDP in 1993 to 56 per cent in 2006, and is seeking to further tighten the generosity of its social security system.

This is not because governments are obsessed with ideas put forward by right-wing think tanks advocating free markets and minimal government. After all, between 1990 and 2003, even the supposedly mean spirited liberal democracies increased the proportion of government outlays spent on social expenditure to assist the vulnerable from about 14 to 18 per cent of GDP in Australia; from 17 to 21 per cent in the UK; and from 13 to 16 per cent in the US.

Rather, with Western nations generally supporting freer trade from the late 1940s to help avoid the disastrous protectionist policies of the 1930s, Australian governments from the early 1970s gradually accepted the view that it was economically unviable for Australia to maintain such high levels of industry protection against cheaper and high-quality products from other nations. Therefore, Australian governments sought to maintain Australia’s high standard of living by relying more on industries where Australia did have some comparative advantage, such as agriculture and mining, with services providing a greater proportion of employment.

Even allowing for the reality that Australia has benefited from an expanding international economy, with its per capita GDP increasing from the bottom third to top third of the OECD during the 15 years prior to 2007, interest groups in Western nations have been forced to compete that much harder for resources to meet a variety of old and new policy needs, while governments have utilised the private sector to a greater degree to meet various services and infrastructure needs.

And contrary to Kevin Rudd telling Australians and the world since 2006 what polices are best, and ongoing debate between the Left and Right over what the appropriate level of government intervention should be, Australia may increasingly struggle to meet its many economic, social and environmental needs. After all, with both 2008 US presidential candidates indicating further cuts to taxation rates, and both Labor and the Coalition promising to maintain government outlays at a similar proportion of GDP, it remains to be seen just how far governments will act to meet a variety of policy needs given the current credit crisis which is likely to temper any further reliance on private debt to fuel domestic economic activity.

Therefore, Australia’s political commentary needs to reflect the difficulties ahead rather than merely supporting the status quo. For instance, Paul Kelly continues his call for Labor to promote lower government spending and taxation rates, despite many Australians now facing record home unaffordability, and much higher prices for food, petrol and utilities.

Further, Janet Albrechtsen (The Australian May 23, 2008) defended the wages of the corporate elite on the basis that such criticism was merely class envy, although the Howard government’s promotion of AWAs from 2006 to help employers came at a time when just 13 executives of Australian companies shared more than $200 million in wages during the 2006-07 financial year.

Recent policy trends, given that there are few other viable concepts besides freer trade to promote peace and prosperity between competing nations, favour the rich and corporations at the expense of an expanding minority, so let us not kid ourselves that this is all OK.

Even individuals with a centre-right perspective from overseas are now urging greater intervention. For instance, Mathew Parris (a former Tory parliamentarian) argued in The Times (March 29, 2008) that governments should be doing more to help address problems now associated with the environment, income disparity, the regulation of banking, fair trade, diseases, and immigration.

There was always going to be enormous problems from any reliance upon freer trade. For instance, even with greater labour market flexibility, lower corporate taxation rates, and greater productivity, this could not prevent the proportion of domestic made cars within total automobile sales falling from 61 per cent in 1990 to 21 per cent by 2006, a decline that would be worse if businesses and government fleets did not purchase mostly Australian-made cars.

So expect more demands in Western nations by business leaders for further reform. For instance, in 2008 General Motors offered to buyout 74,000 American union workers, earning an average $28 an hour with new workers, who would earn an average $14-16 an hour; while the whitegoods manufacturer Fisher & Paykel announced that it would move production away from Australia to Thailand in order to save costs given that Thai workers would be paid about $2 an hour compared to $18-$21 in Australia.

Though the demise of manufacturing has been largely offset by the increasing importance of the service sector, what happens if service jobs are then lost to a well educated workforce in China and India? In 2004, the accounting firm Deloitte Touche Tohmatsu estimated at least two million service jobs globally would be shifted in coming years (about 1 per cent of the world’s service sector, while the Communication Workers of America estimated that 3.3 million US jobs may leave the country by 2015, including 500,000 technical jobs.

Of course, such a level of employment migration may not affect the wealthy nations in a major way for some time yet. After all, the US, EU (25 nations), Japan, Canada and Australia still represent about 69 per cent of world GDP in 2007 (nominal terms) compared to 13 per cent for the four largest developing economies with their large populations (China, Brazil, Russia and India).

But though both developed and developing nations have much to fear from lower US economic growth, longer term trends may be of some concern to Western economies. A recent Global Insight survey predicts that 31 developed countries will grow by an estimated average 1.6 per cent in real GDP during 2008 compared to 6.7 per cent for 54 developing markets (down from 7.5 per cent in 2007), the largest difference in the 37-year history of the survey.

As the former Secretary of Labor under the Clinton Administration, Robert Reich noted in the New York Times (February 13, 2008), declining purchasing power in Western nations - made evident by a trend towards lower real wages - will hardly encourage corporations to invest in domestic factories or equipment if demand drops for products and services across the board, as the rich will invest much of their surplus wealth around the world where they can get the highest returns.

With a recent Goldman Sachs study suggesting that the world’s middle class (incomes of US$6,000-$30,000) will increase by 2 billion by 2030, it is worth noting that Wal-Mart already relies on international sales for 24 per cent of its total revenue (8.9 per cent a decade ago).

So what are the answers? Do we just accept a trend towards a more level playing field and the increasing importance of developing nations? After all, 2007 World Bank data indicates that Australia’s national per capita income ($US33,340) in real purchasing power terms was still six times that of China ($US5,370) and 12 times that of India ($US2,740).

But beware of the rise of China. Though foreign corporations were still responsible for 90 per cent of China’s high-tech exports and 20 per cent of it GDP by 2006, can we afford to allow a rising non-democratic China to increase its influence or purchase Western corporations? One has only to note how China pursues value-free economic relationships with energy-rich dictatorships in Central Asia, South-East Asia and Africa, including Sudan which supplies 60 per cent of its oil to China. And how it utilises its authoritarian basis to boost economic development at an even faster rate than India with its interest groups much less capable of forcing greater consideration to social and environmental issues.

Of course, there are no easy answers for Australia or Western nations given that China’s booming economy has indeed helped boost national wealth.

But if trends towards freer trade are to continue without a greater link between political and economic considerations, the immense struggle for resources (in both national and domestic terms) will persist and may complicate Australia’s ability to find the vast resources needed to upgrade infrastructure, public transport, desalination plants, and even industry needs, along with social welfare needs.

Already, Labor’s Defence Minister Joel Fitzgibbon stated in July 2008 that Australia should abolish the States given a Business Council of Australia report that over governance cost Australia about $9 billion a year; the current New South Wales Labor government appears determined to privatise its electricity retail business despite majority opposition within the NSW Labor Council and opinion polls; while Labor state governments seek to limit wage growth, notwithstanding the Australian Education Union negotiating a 15 per cent rise over three years for Victoria’s teachers.

While there is a need for Australia to remain competitive in terms of taxation levels and greater labour market flexibility, we may need to promote a considerable degree of government intervention to ensure that Australia can meet the challenges ahead.

But whether we can do so remains to be seen given the ongoing importance of the economic imperative in a world where most developed nations remain committed to freer trade.

So Australia’s most prominent political commentators (including Paul Kelly) need to reflect the difficulties ahead for Western nations rather than merely supporting the status quo as if everything is OK and free markets are the perfect solution.

As for Dr Peter van Onselen, there may indeed be a market for trivial accounts of political leadership, but one can only hope that more Australian academics and commentators emerge capable of both defending liberalism and highlighting the enormous policy difficulties ahead for Australia and the world in the 21st century.