Australia needs a new deal: fairness and economic growth

Opinion Article

2018 August, 4

The next federal election will be fought with fairness in one corner and animal spirits in the other. Changing the rules of industrial combat with red gloves, and deregulating the rules with the blue. Hospitals and schools v banks and private equity. 

This fight is a miserable zero-sum game. What is the alternative? Australia needs a new deal. A new accord. Not only between government and organised labour, as in the 1980s, but between the winners and losers of the new global, technologically changing and ever disrupting economy. We need a new national deal about the shape of the society we are prepared to support. 

There comes a time in the history of nations when conflicting forces don’t produce the right synthesis, the right equilibrium that works for everyone. We have been going through such a period for the past decade and more.

The truth is we need fairness and economic growth. 

Globalisation and technological change represent great threats and great opportunities. It is how nations contend with their reality that is most important. 

For Labor, the opportunities of this uncertain age are real and should not be abjured just because of the accompanying liabilities. Rather, the liabilities must be managed and opportunities optimised. The biggest liability is globalisation and its horsemen create winners and losers within the nation. The economic changes mean some of us prosper greatly and others of us lose and are in constant danger of losing our footing in the evolving economy. So what does a nation facing change, with all of its threats and opportunities, do?

Australia needs a new national compact between the winners and losers of globalisation and the new world of work. That compact needs to assure those who gain the least from policies that favour growth that there is gain sharing in the benefits across the nation. If the Australian economy grows as a result of policies seizing global opportunities, then the gains should be shared, particularly if all of us are contributing to seizing them, and some of us are shouldering their cost.

This calls for a new national compact. After all, both winners and losers are citizens of the same nation. The default position is one where winners are allowed to nationalise their losses and privatise their gains. This would be the new version of the free riding of the agrarian socialists. 

Australia will need to forge a new deal between all of us when it comes to facing the world. This is in a sense the 21st-century version of the People’s Peace prime minister Alfred Deakin spoke of when the original system of industrial arbitration was established in 1904. 

Fairness is the first lesson from the reform era of prime ministers Bob Hawke and Paul Keating. For many at the time the reforms seemed unfair, but they were fair. For workers forgoing wage increases in return for the social wage while Hawke and Keating strove to “break the inflation stick”, it seemed unfair — except that inflation had been degrading the buying power of wages since 1973. This was a hard argument to make — to forgo cash in the hand for low inflation — but it was made thanks to the partnership with Bill Kelty and the ACTU. 

Structural economic reforms aim to grow the national cake through greater productivity. The distribution of the national cake is a second step, not the first. The cake must first be enlarged before governments start slicing shares. 

What distinguished Hawke and Keating from all other Labor governments of the modern era, is the order in which they approached national policies. They were all about baking the cake in the kitchen rather than cutting the slices in the dining room. 

The Whitlam, Rudd and Gillard governments approached that order in reverse, distinguishing them from Hawke and Keating. This is why Hawke and Keating are renowned: they believed slaving in the hot kitchen was the first responsibility of government. The changing nature of modern economies means governments must constantly be working the anvils of productivity — enabling private enterprise to do what it does best, with government never shirking its enabling role.

Reform is about facing up to the problems accreting within systems. Systems that worked in past times can become sclerotic and obsolete. But it is not only the problem of old institutions and systems being inefficient; rapid technological change and disruption mean we are challenged with anticipating change and asking what reforms are needed to capture the future. 

For example, an Australian opportunity system must replace the old welfare system. It is our biggest and most complex system, creaking with debilitating incentives and crying out for reform. 

Governments that think about systemic reforms — while attending to day-to-day management — require imagination and creativity. Of reform, Keating told last year’s annual dinner of the Committee for the Economic Development of Australia: “If you can’t imagine it, you are as sure as hell never going to see it.” 

Systemic reforms require clarity of philosophy and conviction. Hawke and Keating had this in spades. They had philosophical clarity around the structural economic reforms that by 1983 were so desperately needed, not just in Australia but across the Western world. And they were relentless in pursuit of them. 

Keating is right when he describes the policies he pursued as those of the radical Centre. He was this country’s first leader of the radical Centre and indeed across the modern Western world. Keating was an economic liberal but he was not neoliberal. 

Their heirs in today’s Labor Party are mistaken if they think the model Hawke and Keating created in Australia was neoliberal. Hawke and Keating cannot be properly comprehended without looking at their policy as a whole: the relationship between economic growth and redistribution. The equation was this: Liberal economics plus the social wage equals inclusive growth. The two parts were interlinked and two facets of the same paradigm. 

This is the equation that leads to inclusive growth that a Labor government led by Bill Shorten must heed. Economic growth policies must come first, before distribution. This is the way of long-term fairness. 

Shorten and his Treasury spokesman Chris Bowen propose important reforms that are long overdue and courageous. They need to explain the “straight clear lines” between genuine structural reforms and inclusive growth. Otherwise the rhetoric of fairness will obscure the primary mission of growing the economy.

In the post-GFC era there is a strong case that neoliberal economics have run their course and stagnant wages, rising inequality and the worldwide trend towards a hollowing out of the middle classes — not to mention increased replacement of workers by machines and the frailty of employment in the gig economy — mean we can’t repeat the policies of the past. They cannot be done again. While neoliberalism may be exposed, there can be no trend back to socialism. Jeremy Corbyn or Bernie Sanders are not credible models for Australia. 

Labor under Shorten must dare to own the class that Hawke and Keating created: the aspirational lower middle and the prosperous upper middle class who gained from past growth policies. It is true this class quickly forgot it was Labor that enabled their prosperity, but Labor also disowned their own legacy after 1996. Rather, the three-part message they should hear from the radical Centre should be a hand-up to the disadvantaged, a strengthening of the aspirant working middle, and unleashing the entrepreneurial spirit of Australians to have a go. 

What is common about the challenge faced by Hawke in 1983 and Shorten ahead of an election in 2019 is the need for growth policies centred on greater productivity, and the fair sharing of the gains secured from it. This is the road to true fairness. We need a new deal.

Australia needs a new deal: fairness and economic growth