Let’s do something novel, and assume that Kevin Rudd’s essay in the latest Monthly is a sincere effort to put an organised version of his own recent thoughts on the public record. Let's assume it's an essay, rather than an effort to get under Malcolm Turnbull’s skin.
If we take the essay seriously, something remarkable happens. We see that the criticisms of recent economic orthodoxy are just a prelude to a meditation on the idea of social democracy. We discern legitimate fears about the consequences of economic dislocation for the social and political landscape of Australia. And we can sense Rudd publicly steeling himself to carry out the social democrat’s risky work of moderation. From this point of view, Rudd’s essay begins to look like a deeply democratic gesture - he has laid his cards on the table, and is asking us to engage him in conversation in a moment of collective danger.
Rudd’s criticisms of “neo-liberalism” seem to have stung those in the national press who have not yet accepted the Howard era is over. But this is not the essay's chief purpose. Early on it's made clear that “the intellectual challenge for social democrats is not just to repudiate the neo-liberal extremism that has landed us in this mess, but to advance the case that the social-democratic state offers the best guarantee of preserving the productive capacity of properly regulated competitive markets.” The essay does both.
First comes the critique. In taking on recent orthodoxies, Rudd hardly sounds like a revolutionary. The way in which Rudd describes them would be considered unremarkable outside all but the most hermitic, faith-based, monetarist communities. Rudd correctly points to the way in which the administration of governments and economies has for three decades been driven by a “core theoretical belief in the superiority of unregulated markets”, resting on the efficient-markets hypothesis. The corollary was that government intervention could only coercively distort market dynamics.
Hayek - dredged from an obscurity to which he may soon return - provided some dubious philosophical respectability for all of this. Rudd is correct in saying that Hayek considered concepts of social solidarity, social justice, even society itself as “atavistic” holdovers, and argued that the market should be the lone distributor of social and economic goods, and even the lone arbiter of civilisation.
The general lines of the history that frames his criticism are familiar. For three decades in many Western countries, taxation has been insufficient to maintain governments’ capacity to invest in social goods. This has been in order “to provide maximal space in the economy for private markets”. If the state has actually enlarged its role in some respects during this time - say through the general increase in defence spending, or programs like the Howard government’s expansion of “middle-class welfare” - the ideas that Rudd describes have nevertheless underwritten a general retreat from market regulation and state provision of social services.
The analysis of the consequences of the deregulation of finance are, again, hardly idiosyncratic. For at least ten years, markets have been operating without adequate oversight, but taxpayers are now liable for their follies. The Chinese wall between commercial and investment banks was removed. The conglomerates that were allowed to form exposed themselves to massive debt, and though they were “too systemically important to [be allowed to] fail”, "self-regulation" through credit ratings and internal risk assessment was compromised and inadequate.
New institutions emerged with large debts and dodgy books. Crises round the turn of the decade were papered over with lax monetary policy. (Here even Greenspan has admitted his mistakes.) The resulting cheap money was sold hard to mortgage borrowers with poor credit histories. New financial instruments severed the link between “the assessor of credit-worthiness and the ultimate holder of the loan”. An asset bubble formed, and when it popped, “links to the mainstream commercial-banking system, with its implicit government guarantees, meant that the state (not the market) [was] left carrying the can”.
The links between recent crises and Rudd's "neo-liberal" ideology are clearly drawn. As Rudd puts it, “neo-liberals were so convinced of the ideological rightness of their cause, and so blinded by their unquestioning belief that markets were inherently self-correcting, that they refused even to recognise the severity of the problems that emerged”. The dangers emerging from the confluence of poorly regulated banking, easy lending, bad credit risks and too-clever financial instruments were missed due to ideology and - yes - greed. There is sincere anger here, I think, about a gigantic privatisation of profit and socialisation of debt by the world’s largest financial institutions.
Rudd has been accused of making "neo-liberalism" into a straw man. But he's covering significant ground in a short essay, and needs to leave space for more positive claims. Besides, this essay hasn’t been written so satisfy the pedantry of economic historians or conservative columnists. Rudd’s description of recent history will answer perfectly to the way that many Australians feel that markets and economies have fatefully slipped the leash of our democratic institutions.
Even before this crisis emerged, many Australians knew their lives and economic positions were no better - or were even worse - after more than a decade of prosperity. (See Mark Davis’s Land of Plenty or David McKnight’s Beyond Left and Right.) Australia’s receding boom was experienced as insecurity by many. Work colonised private life, rising debts kept pace with on-paper equity, and the forces governing all our lives seemed increasingly remote.
Australians may have gone along with the direction of the last decade because their accountants told them their houses were worth more. But Rudd’s wager in this essay is that like him, enough Australians are instinctive social democrats to now want a more interventionist state. Especially now, they want governments to moderate market excesses, and to cushion the impacts of the downturn. Australian history suggests an ingrained preference for a relatively equal distribution of wealth, a strong role for the state in framing the operations of the market, and a high degree of common ownership of public goods. My money is with the Prime Minister’s, rather with that of his critics.