From time to time in human history there occur events of a truly seismic significance, events that mark a turning point between one epoch and the next.
If the Prime Minister’s rhetoric is anything to go by, big things are brewing. He announced in February that he would ‘move heaven and earth’ to keep Australia out of recession. And in his highly-publicised essay in The Monthly that same month, Kevin Rudd declared that ‘the great neo-liberal experiment of the past 30 years has failed’ and ‘the challenge for social democrats today is to recast the role of the state… as a comprehensive philosophical framework for the future.’
These are strong words. Certainly, the Australian Prime Minister has an aggressive pen. HisMonthly essay reflects a desire to brand the Liberal Party as rabid ideologues – which he did very successfully during the 2007 campaign – as well as win back the Labor intelligensia that have been put off by the government’s embrace of internet filter, its strong words against Bill Henson, and its apparently weak stance on climate change. This may be good politics, although it is hard to imagine many swing voters being convinced by a 7,000 word treatise in a literary magazine.
The Prime Minister’s essay is an attempt to build an intellectual basis for centre-left government in Australia – a goal which has preoccupied large segments of the Labor Party for some time.
But in truth his essay only reveals that Rudd has a deep confusion about the nature and origin of the financial crisis, and promises to head the federal government in a very uncertain direction. His beliefs, as far as he is able to articulate them, will have major consequences for the operation of the Commonwealth Government for many years.
The Prime Minister may want to be a philosopher and revolutionary, but he is, at heart, a technocrat whose crude, pseudo-utilitarianism promises the expansion of government into all aspects of Australian life.
It comes as no shock that Rudd blames ‘neo-liberalism’ for the global financial crisis. But what on earth is it? As Andrew Norton of the Centre of Independent Studies has pointed out, ‘neo-liberal’ is not a term people ever use to describe themselves; it is a term used exclusively by its critics:
Using ‘neo-liberal’ is code for ‘I am a left-winger who does not like markets’. It is a leftist version of the secret handshake; a signal that the reader is with fellow travellers.
In many ways, the phrase ‘neo-liberalism’ is an anachronism. What could possibly be ‘neo’ about a philosophy of government that stretches back to well before Adam Smith? The core tenets of liberalism, ‘neo’ or otherwise, have a very long heritage – free trade, the primacy of individual rights over collective rights, an emphasis on individual responsibility, and governments providing physical security and the enforcement of contracts. Liberalism has been responsible for emancipating every part of the globe where it has had influence. Liberals, after all, abolished slavery, seeing it as both inhumane and contrary to their belief in human equality.
But if all Rudd means by ‘neo-liberalism’ is open economies and free market economics, then his own party has contributed far more to the cause of neo-liberalism over the last few decades than the Liberal Party ever has. It was Gough Whitlam who cut tariffs across the board by 25 per cent, and the Hawke and Keating Governments who made the most progress shifting Australia’s great government enterprises from public to private ownership. Rudd tries to resolve this apparent contradiction by arguing the ALP was ‘compassionate’ when it modernised the economy (and engaged in substantial deregulation of the financial sector.) The Prime Minister seems to believe that the Labor government’s privatisations of the Commonwealth Bank, Qantas, Australian National Rail, the Snowy Mountains Engineering Corporation, and CSL were compassionate and necessary, but the Liberal privatisation of Telstra was crude and dogmatic market fundamentalism.
Perhaps Rudd’s partisan contortions account for some of his more bizarre policy positions. He argues that his government strongly supports free trade. But free trade has been the central policy position of liberalism for centuries – apparently, Rudd’s crusade against neo-liberalism does not extend to an attack on its most basic and well-known doctrine.
The causes of the crisis
Rudd’s narrative of twentieth century history is a shallow but common one – the Great Depression and the New Deal abruptly shattered the laissez-faire doctrines and practices of the nineteenth century, but those doctrines were rejuvenated under the neo-liberal revolution of the late 1970s and 80s. According to Rudd, neo-liberalism has been the dominant ideology of the last thirty years, as market fundamentalists have pushed the state out of spheres of regulation and public ownership. And for the Prime Minister, the global financial crisis is the shock that allows for – and necessitates – the re-emergence of social democracy in Australia and across the world.
More specifically, Rudd claims that it has been the neo-liberal tolerance for innovation in the financial sector that has caused the crisis. ‘Unregulated’ financial instruments and trading entities-the middlemen of global finance like mortgage brokers, hedge funds and private-equity investors-operate outside the purview of state regulators. And one specific act of deregulation by the (unnamed in Rudd’s essay) Clinton administration, the repeal of the Roosevelt-era Glass-Steagall Act, led to the creation of mega-banks that governments judged were ‘too big to fail.’
This is a lovely and neat story. But neither the Prime Minister’s historical understanding, nor his analysis of the cause of the crisis hold up.
In Australia and around the world, the last thirty years have certainly seen some dramatic changes, most particularly in the areas of privatisation and trade liberalisation. But to describe these changes as an across the board deregulation and the retreat of the state is, simply, incorrect.
In those countries that have experienced the ‘neo-liberal’ revolution, the last few decades been ones of significant increases in government spending and even more significant increases in regulation. While the state may have largely rejected the direct ownership of public utilities, it is far from the Hayekian state Rudd seems to believe exists-governments have instead traded direct ownership for regulation and welfare.
In Australia, the Institute of Public Affairs has found that regulation and legislation has seen massive growth in the period that the Prime Minister describes as neo-liberal. The Whitlam government passed less than 2000 pages of legislation per year. But the neo-liberal Howard Government passed an average of 7000 pages.
And in the United States, the Competitive Enterprise Institute’s Clyde Wayne Crews has calculated that the government has added an extra 727,000 pages of regulation to its federal register since 2000. Compare this figure to the ‘social-democratic’ decade of the 1960s, when it only added 170,000. Just as in Australia, the ascent of neo-liberalism in the United States in the 1970s saw a sharp and dramatic spike in government regulation.
Obviously, these are not the actions of states in retreat.
And when we look at financial regulation specifically, the Prime Minister’s story is even less accurate. The sector which is in the most trouble – the banking sector – is in fact one of the most highly regulated sectors in both the United States, where the financial crisis originated, and here in Australia. Contrary to Rudd’s assertions, it is a sector which has seen little, if any, deregulatory activity. Indeed, the American Federal Deposit Insurance Scheme predates the Australian one introduced last year by nearly two decades, as it was instituted under a raft of regulatory increases following the Savings and Loans crisis of the late 1980s. The international regulatory environment that governs the banking sector is elaborate and extremely complex.
Two other critical instances of regulatory expansion deserve a mention. While the Prime Minister claims that the Basel II accords have been found to be inadequate, the simple fact that the international banking system was adopting a comprehensive global regulatory framework certainly seems to indicate that regulation was not contracting as Rudd believes, but dramatically expanding. And he also fails to recognise the extraordinary regulatory and direct government intervention in the US housing market. The existence of Fannie May and Freddie Mac, and the now-infamous Community Reinvestment Act – which encouraged banks to make the high-risk subprime loans that precipitated the financial crisis – are uncomfortable facts which his narrative is unable to accommodate.
Certainly, the crisis was borne of decisions made by actors and investors within a market framework, but those decisions were heavily distorted by competing and highly convoluted national and international regulations. The byzantine financial regulations provided investors with many opportunities to play regulations off against each other, to shift investments between different jurisdictions, and to invest in otherwise less profitable enterprises simply because they are less regulated. With all this dense and difficult regulation across the world, to describe the international finance market and banking sector as ‘unregulated’ is a gross caricature. And to extrapolate this misunderstanding of financial regulation into a belief that the Australian economy has never been less regulated is just wrong. One could plausibly claim that we could be better regulated – although that argument would still have to be taken with a grain of salt – but to claim that we are less regulated than in the past is exactly the opposite of the truth.
Unfortunately, the Prime Minister’s Monthly essay is not the only example of his shallow understanding of the nature of the crisis. His constant references to excessive ‘greed’ and his smug mention in November 2008 of the ‘greed is good’ attitude parodied in Oliver Stone’s film Wall Street, simply shows that he is trying to reduce the global financial crisis to a cheap moral lesson.
Labor and the search for the Third Way
And in the place of neo-liberalism, the Prime Minister proposes… well, it’s not clear.
Kevin Rudd has been, at various times since he came to national attention in the lead up to the 2006 leadership ballot, ‘an old-fashioned Christian socialist’, then ‘not a socialist’, and during the 2007 campaign, an ‘economic conservative.’ Unfortunately, in his new guise as ‘social democrat’ and scourge of neo-liberals, he is no closer to ideological clarity.
While Rudd has peppered his rhetoric with words like ‘open-hearted’ and ‘compassionate’, these words are absolutely meaningless as ideological or policy descriptors. There is a peculiar strand of left-wing thought for which policy decisions should be as simple as making the most ‘kind’ choice-many columnists seemed to think that describing John Howard as ‘mean’ was the most damning indictment of his government.
On the policy front, Rudd’s lack of seriousness is clearly demonstrated by his inconsistent approach to the leaders he admires. He goes out of his way to critique the Institute of Public Affairs’ Alan Moran – the only living neo-liberal mentioned in the essay – who wrote in The Australian in January that public service salaries should not be immune to the sort of cost cutting and rationalisation that is occurring across the economy; in response, Rudd argues that ‘social democrats, by contrast, stress the central role of the state in maintaining aggregate demand, both for consumption and investment spending, at a time of faltering growth.’
But those very same social democratic American Presidents that he admires – Franklin Roosevelt and Barack Obama – contradict his case. One of FDR’s first acts upon entering the White House was to dramatically cut public service salaries by 15 per cent. And one of Obama’s first acts was to announce a public service wage freeze. If, as Rudd claims, ‘social democrats’ rely on the public service to spend their country out of recession, then the social democracy he is referring to is some peculiar regional variant cooked up in the Prime Minister’s department – not the worldwide ideological movement that he seems to believe it is.
But the deeper origin of Rudd’s ideological incoherence is one which is common to large swathes of the Labor Party itself-the centre-left doesn’t quite know what it believes in.
Australian party politics has long been out of sync with its Anglosphere cousins in the United States and Great Britain. The collapse of the Keynesian post-war economic settlement compelled all nations to pursue significant microeconomic reform in the 1980s. In the US and the UK, those reforms had a strong ideological flavour-the stirring anti-state rhetoric of Thatcher and Reagan left no question where the philosophical sources of the reforms lay-but in Australia, the privatisations and trade liberalisations of the 1980s were presented by Hawke and Keating simply as necessary modernisation, a jettisoning of economic structures unsuited to a late-twentieth century nation.
For American Democrats and British Labour, the 1980s were a long period in the political and philosophical wilderness. The loss of faith in old certainties led to the development of the Clintonian and Blairite ‘Third Way’ – the ideological amalgamation of economic policies that abandoned mid-century socialism, respected market dynamics and adopted social policies that are just as technocratic as they are ‘compassionate.’ Privatisation is pursued in order to achieve the government’s social goals; Third Way politics has no ideological or emotional reason to maintain state ownership. Education is emphasised less for its poverty-alleviating effects as its impact of national productivity. Market forces are not to be resisted, but regulated to achieve non-market outcomes.
However, being a decade out of sync with the Labour and Democratic political theorists who articulated the precepts of the Third Way has left the ALP uncomfortable with its intellectual basis. While the centre-left in the UK and US were theorising in the early 1990s, the ALP was an aging government. And when Clinton and Blair were enacting – and assessing – their Third Way policies, the ALP was floundering moribund in opposition.
Keating may have had a distinctive ‘Keating Project’-to position the ALP as the party of continuous reform, and the Liberal Party as the party of conservative stagnation-but the post-Keating era has shown just how shallow that project penetrated into the party which he led. (Certainly, there are instinctive reformers in the Keating mould within the modern ALP. But Lindsay Tanner must be a bit unsure what a Minister of Deregulation is supposed to now that deregulation is just the destructive dogma of neo-liberal ideologues.)
Only having managed to achieve government in 2007 – a decade after the Third Way-doyen Tony Blair achieved power in Britain, and fifteen years since Bill Clinton entered the White House – the ALP now faces not only significantly different challenges, but the intellectual movement which carried Blair-style government has largely dried up.
By now, the Third Way is looking a bit rusty. As one former Blair advisor commented on a recent tour in Australia:
It’s been more complex, double-edged and tricky than some would have thought. You look back at 11 years of uninterrupted Labour Government [in Britain] and the patterns of distribution of wealth and opportunity, and you see the Third Way was not the silver bullet that many thought it would be.
Nevertheless, it has been a long-standing project within some ALP circles to forge a long-term philosophical and intellectual basis for Labor governments of the future. And this has involved replicating the sort of institutional structures that the UK Labour Party used to develop and publicise their relatively coherent Third Way philosophy. A think tank, Per Capita, was set up in Australia in 2007 to explicitly replicate the success of UK think tanks Demos and the Institute for Public Policy Research. One of Per Capita’s research fellows, Dennis Glover, wrote that Rudd’s recent Monthly essay simply showed how important ‘ideas’ are to the new Prime Minister.
Indeed, the first policy director of Per Capita was a former staffer to Mark Latham – a Labor leader who genuinely thought deeply about the intellectual basis of centre-left government. Latham had the same sort of depth as Tony Blair, and the same sort of depth that Kevin Rudd is desperately trying to clone.
It is nearly impossible to imagine Rudd, or, for that manner, many people in his government, having the same sort of reflexive, self-critical approach that Tony Blair has repeatedly displayed in rethinking the tenets and effects of Third Way policy. Blair’s often-quoted speech to the Institute for Public Policy Research in May 2005 about the relationship between government, individual risk and regulation – made while he was still Prime Minister – was a candid reflection of the challenges of Third Way governance. It would be unthinkable for Rudd to be so honest in public as to draw public criticism from the national regulator, as Blair did from the Financial Services Authority after his IPPR address.
Instead, given the opportunity in his Monthly essay to describe, completely unfiltered, the direction of his government to a highly literate audience, the Australian Prime Minister could do little more than deal in vague caricatures, make broad, partisan accusations, and write empty ideological history. Rudd is more interested in trying to cast Hayek, Mises and the Liberal Party as screwballs than spelling out his plans for Australia. Rudd’s attempt to characterise his post-neo-liberal government ends up being more about what he opposes – he makes it abundantly clear that his government is not one influenced by Hayek, and it’s not a Liberal government, but he can’t seem to get any further than that.
In fact, Mark Latham’s description of Rudd’s never-released foreign policy document during the 2004 campaign fits just as appropriately to Rudd’s Monthly essay: ‘wads of commentary about world events, but next to no policy… an empty vessel. He doesn’t write books or policy material, and he never will.’
Of the few policy proposals within his essay, most concern international policy rather than Australian policy. For example, Rudd claims that the failure of the Basel accords to prevent the crisis necessitates further global regulation. This may be an argument the Prime Minister can mount in an international forum (he followed it up in an opinion piece in the Wall Street Journal) but an Australian Prime Minister’s attention would probably be better kept at home. Australia is no more likely to single-handedly reform the global financial system than it is to shame China into reducing its greenhouse gas emissions or halt North Korean nuclear armament.
Testosterone and technocracy
One of the most striking things about Rudd’s essay is its tone-presented in an intellectual frame but actually remarkably breathless. The lines that open his essay (and this one) are the sort of stirring words that one would expect to accompany dramatic economic and social reform.
But even with the escalated sizes of the stimulus packages being pushed through parliament, it is not clear that there has been any fundamental shift in policy since Rudd became Prime Minister. If the Liberal Party had held power in 2007, it is likely the government’s response to the financial crisis would not have been that much different. Perhaps the size of the stimulus package would have been smaller, but its design could plausibly have been very similar (after all, transfer payments to favoured constituencies were a hallmark of the previous government) or perhaps the stimulus could have been delivered through the slightly different medium of targeted tax cuts.
Certainly, Kevin Rudd has big rhetoric, but, looking closely at his policy initiatives, not yet a huge amount to back it up. Policy for policy, the government still resembles the one which was elected in 2007. The big ticket items have either failed to emerge (the national broadband network) or have been dramatically watered down or delayed (the government’s emissions trading scheme.) The policies which have been or will be enacted could still be hugely costly and damaging, but nobody from either side of politics seems to want to admit that, as yet, not very much has actually happened under Rudd. As significant as it is, simply dropping the Commonwealth budget immediately into a deficit is not quite a revolution. Running a deficit is not a fundamental change in the philosophy of government.
When we clear away Rudd’s misunderstandings, errors and ideological confusion, we are left with not much more than machismo and bluster.
But there has been a discernable change in the government’s approach to policy. The hallmark of Kevin Rudd’s tenure so far has been his technocratic approach to government-that is, the belief that there are no problems which cannot be conceivably fixed by regulation or legislation designed by experts and implemented by an efficient bureaucracy. Rudd has the career bureaucrat’s conceit in the infinite possibilities of government action-now in a position to personally direct policy, there are no limits to what Canberra can achieve.
The Howard Government may have been embarrassingly high-taxing and high-spending, but it at least had a certain modesty. It knew that it could not alone fix the problem of obesity, or protect all Australian minors from a dangerous internet, or reduce global greenhouse emissions.
And there is nothing more frustrating to a technocrat than ideological passion. Ideology – or any philosophical approach to political action – does nothing more than frustrate a technocrat, who, after all, is just trying to ‘get things done.’ But technocracy is an ideology, although its proponents would horrified to think so. Technocracy is inevitably a belief in the radical expansion of government power – after all, for a technocrat, there are no philosophical limits to government, and there are an infinite array of problems government can solve.
And just as intellectuals often want to be technocrats – deeply versed in the complexity and detail of public policy – technocrats often aspire to be intellectuals. And Rudd seems to think he is John Gray, assessing and critiquing the moral basis for the market economy.
Kevin Rudd’s philosophical musings may not reflect any deep intellectual thought, but they do show us the depths to which he wants to take his government.