On Rudd’s prognostications

This is not the first time Kevin Rudd has graced the front cover of The Monthly to parade himself as some sort of philosopher guru and politician all rolled into one. He did it a couple of years back when he used the magazine to parade his credentials as the new, new thing when it came to the ALP.

On this occasion at least Rudd has shredded his intellectual credibility. Mr Rudd’s long essay on how to remake capitalism is really nothing more than a rehash of the arguments long used by anti markets and globalisation advocates.

Mr Rudd has even taken to using the term “neo-liberalism”, much beloved of the economic irrationalists who want desperately for economic freedoms to be rolled back and for the dead hand of government intervention to govern our lives again; so that we can return to the sclerotic years of the 1970s when red tape and monopolists ruled the day and capitalism was a dirty word.

The pronouncement by Rudd and others that the current financial crisis is a turning point of the modern world from “neo-liberalism” to some other model is absurd. He also claims that social democrats are needed to save capitalism from itself. What a load of baloney and we should add, how dangerous - one should always beware of leaders like Rudd who use their position to behave as some sort of saviour.

Despite Rudd’s prognostications, there is no crisis of capitalism today. The capital system is working and working well. Over bought oil prices did not fall due to FuelWatch, they did so because the market solution to high prices is to slash demand. Another area that is regularly visited in op-ed pieces - widening income disparity - is about to be corrected, not by politicians and strong arming from the state, but by the market.

We are entering a period where highly paid workers in the private system are about to learn that wages can go down as quickly as asset prices. What this means is that in the next 12 months government employees - teachers, nurses and so on - will become relatively better off: no thanks to economic interventionists but rather thanks to market forces.

Credit markets are adjusting to absurd abuses to lending practices by contracting and contracting fast. It is intellectually dishonest to say that that credit practices were lax thanks to inadequate regulation and lay the blame as market failure. The only reason we know they failed is after the fact. History is littered with examples of greed before the credit crunch and there will be in the future - no amount of sermonising from the pulpit of the born-again social democratic church will ever be able to predict where and when the head of greed will rise again.

While this downturn is nasty, many people will suffer and the time frame could be years rather than months, it is disingenuous to suggest that the from the bosom of a social democrat will the turnaround be swifter and the next boom will not be so large. Remember that nuzzling from the teat of the state gave us the 70s and early 80s. It was the democratisation of capital that has benefited many in the last 20 or so years.

And it was Mr Rudd’s own party, the ALP, which along with the Liberal Party, ensured through a commitment to open markets and a winding back of state intervention in the economy that this happened.

As economist Don Stammer noted in 2005: “Australia was a late starter in the processes of economic reform. But both sides of politics - the Hawke/Keating and the Howard/Costello governments - then oversaw a series of important changes (floating exchange rate, financial deregulation, broadening of tax, workplace reforms) that made this economy more efficient and more flexible.”

In the past two decades Australians have, as a result of what Mr Rudd now sneeringly refers to as “neo-liberalism”, been provided with greater choice and opportunity in core areas like health, education and lifestyle. Not every foray by the private sector into key areas of infrastructure that were once thought to be the exclusive domain of the state - such as telecommunications, energy, water and roads - has been a stellar success: but in the main, privatisation and market liberalisation has ensured that government gets out of wasting taxpayers’ dollars on running commercial businesses badly. There is more choice and diversity of service, and business costs have been reduced.

The irony of Rudd is that he is in fact, despite appearances to the contrary, bereft of a long time frame perspective. Sure, the market can over react on both the way up and the way down but is it not better that money is placed by market forces than by some wannabe philosopher who appears to have a need to be an economic nanny? This is the lesson of history. We have had booms and busts before, and will again. The market, unlike politicians, is remarkably resilient and rational in the long term.