Ausralian Fabian News Vol51 No2 2011

Australian Fabian News

Vol 51, No 2, 2011

ISSN 1448-210X / Read online at www.fabian.org.au

Regarding the Ongoing Irrelevance of Keynesian Economics November 3rd, 2009 Barry Deutsch www.amptoons.com

Australian Fabian Essay

Keynesians in the recovery by the Hon Wayne Swan, MP, p 15.

$7 AUD

Notice of

2011 Annual General Meeting Australian Fabians Inc.

5.15 pm, Friday 20th May, 2011 Annexe, Victorian Trades Hall Cnr. Victoria & Lygon Streets, Carlton South, VIC 3053 Agenda 1. Welcome: Chair 2. Apologies 3. Ordinary Business a. Confirmation of the minutes of the previous Annual General Meeting (2010) b. Returning Officer’s Report: Election of 2011 Officers National Chair National Secretary c. Executive Reports: i.

Chair ii.

Secretary iii. Treasurer – Financial Statements

d. Appointment of the Returning Officer for 2011

4. Special Business – Resolution of motions presented by the members and Board. (resolutions available on members area at www.fabian.com.au) 5. Close of meeting

Fabian Forum Following Victorian and National AGMs starting at 4.45 Forum at 6.00 pm

INFRASTRUCTURE DEVELOPMENT – WHO SHOULD PAY FOR IT? with Nicholas Gruen, CEO of Lateral Economics, and Professor Graeme Hodge, Director of the Centre for Regulatory Studies at Monash University

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INSIDE Cover / Regarding the Ongoing Irrelevance of Keynesian Economics / Barry Deutsch

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Notice of 2011 Annual General Meeting, Fabian Forum

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Editorial

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Showing the way Australia’s second-class citizens / Professor George Williams

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Ditch the deference / Dr Nick Dyrenfurth

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Has our politics become reform-shy? / David Hetherington

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Three weeks at sea... / First Dog on the Moon

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Australian Fabian essay Keynesians in the recovery / The Hon Wayne Swan, MP

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Correspondence from abroad Fukushima and the Political Economy of Japanese Power / Professor Andrew DeWit

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Maiden speech Governor-General’s Speech, Address-in-Reply, Hansard, 18 October 2010 / Dr Andrew Leigh MP

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From where I stand Overcoming intellectual black holes in the economy / Dr Shann Turnbull

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Subscriptions / Membership renewals / Donations / Bequests

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Choosing Middle Class / Fiona Katauskas

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Australian Fabian News Postal address: Postal address GPO Box 2707 Melbourne,Vic, 3001 Phone: +61 3 9662 2596 Email: info@fabian.org.au Website: www.fabian.org.au Editor: Pauline Gambley, editor@fabian.org.au Contributions and Letters to the Editor: editor@fabian.org.au Research: Andrew Hunter Editing: Maureen Todhunter Design: Céline Lawrence Media enquiries: media@fabian.org,au Young Fabians: youngfabians@fabian.org.au Publication information: This edition Vol 51, No 2, 2011. ISSN 1448-210X Australian Fabians Inc. ©2011, ABN 32 959 088 931 Printing: Griffen Press, Salisbury South, SA, 5106 www.griffinpress.com.au Disclaimer: Views expressed by individual contributors to the Australian Fabian News are not necessarily endorsed by the Australian Fabians Inc.

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AUSTRALIAN FABIANS INC.

For the common good

PATRON In his Preface to the English Edition of the Fabian Essays in Socialism, George Bernard Shaw wrote:

The Hon. Edward Gough Whitlam AC, QC

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The essays… were prepared… as a course of lectures for delivery before mixed audiences in London and the provinces. They have been revised for publication, but not recast. The matter is put, not as an author would put it to a student, but as a speaker with only an hour at his disposal has to put it to an audience. Country readers may accept the book as a sample of the propaganda carried on by volunteer lecturers in the workmen’s clubs and political associations of London. Metropolitan readers will have the advantage of making themselves independent of the press critic by getting face to face with the writers, stripping the veil of print from their personality, cross-examining, criticising, calling them to account amid surroundings which inspire no awe, and before the most patient of audiences. For any Sunday paper which contains a lecture list will show where some, if not all, of the seven essayists may be heard for nothing; and on all such occasions questions and discussion form part of the procedure.

London, December, 1889.

What started in 1884, evolved into a fine tradition as exemplified by the UK Fabian Society’s Fabian Review.

We continue the work of presenting accomplished authors in the Australian Fabian News and providing diverse and informative events and debate for our members, supporters and the general public.

Introducing the Australian Fabian Essay in 2011, Dr Tony Moore led with a fine essay on Wanted: Cultural Entrepreneurs. Ideas for Labor’s National Cultural Policy.

In this edition Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP, invokes Keynes and his ‘broader legacy … to Australia: the joining of social-democratic morality to sound and sustainable economic policy.’ in Keynesians in the recovery, p 15.

Please enjoy.

Join the debate Contributions to the Australian Fabian News are invited from Australian Fabian members and supporters; tertiary students; academics and experts in their fields; commentators; and yes – even everyday folk.

Full and robust debate is encouraged. Contributors are asked to approach their articles and letters with originality and flair, tempered by notions of civility.

Our editorial guidelines (including the Australian Fabians Inc. ‘Statement of Purpose’) are available on line at www.fabian.org.au and are subject to regular review.

Please ensure you have the latest edition of the editorial guidelines if you are considering submitting material. All submissions are to be made via email.

The Editor reserves the right to decline submissions.

The Editor’s decision is final.

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Showing the way

Australia’s SecondClass Citizens

by Professor George Williams

When it comes to democratic rights, not all Australians are treated equally.

Many citizens do not get an equal vote in referendums, elect a local parliament whose laws can be vetoed by the federal government, and miss out on the protection against discrimination provided for by the Constitution. This is the situation for more than half a million Australians living in the Australian Capital Territory and Northern Territory. In Australia’s system of government, they are treated as second-class citizens.

The status of Australians living in our internal territories has been raised by a Bill introduced into the Australian Parliament by Green’s leader Senator Bob Brown. The Bill seeks to do away with the federal veto over Territory laws. This would be a welcome step, but it does not go far enough.

It would fix only one aspect of the broken systems of self-government granted by the Commonwealth to the ACT and the Northern Territory.

In the case of the ACT, the Commonwealth held a referendum in Canberra in 1978 on whether it should gain self-government or maintain the status quo of federal administration. An overwhelming majority of 64% favoured the status quo. Despite this, the Hawke Labor government forced selfgovernment on the ACT a decade later on the basis that its residents had to take responsibility for their own affairs.

This democratic deficit undermined the legitimacy of the ACT’s transition to self-government. At the first election for its 17 member Legislative Assembly in 1989, three seats went to the No Self Government Party and one to the Abolish Self-Government Coalition. It was a far from auspicious beginning, and it was only at the third election in 1995 that the anti-self government parties lost their representation.

Self-government is now widely accepted in the ACT, but the system itself is rightly regarded as flawed. The Commonwealth imposed a scheme of self-government with several features more akin to a nineteenth century colonial possession than a modern Australian territory.

These problems have never been fixed can still be found in the Australian Capital Territory (Self-Government) Act. On the one hand, that law establishes the Legislative Assembly as a properly elected democratic parliament for the ACT. On the other, it permits the federal government a veto over all ACT laws and a power to unilaterally dissolve the Assembly. The law has also been used to pre-emptively deny the ACT’s law-making authority.

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In other areas the Act stops the Assembly from properly running its electoral system. The Act, for example, fixes the size of the Assembly at 17 members and requires Commonwealth action to make any change. This is at odds with the normal scope given to parliaments to determine their own size, a power held by all of the federal and State Parliaments, and even the Commonwealth-created Northern Territory Legislative Assembly.

The powers held by the Commonwealth over ACT affairs are far from hypothetical. They have been used, and their further use threatened, on a number of occasions.

This has created a precedent for the ongoing intervention by the Commonwealth in Territory affairs.

An early example was the Euthanasia Laws Act 1997 of the Federal Parliament. Championed by then coalition backbencher Kevin Andrews, the Act was conceived as a way to override the legalisation of voluntary euthanasia in the Northern Territory. However, the federal law went further than this and also removed the power of the Northern Territory, the ACT and Norfolk Island to make laws on euthanasia generally. It not only overrode any existing laws on the topic, it took away the power to pass laws in the future.

As a matter of good governance, the Commonwealth should not remove power from a selfgoverning jurisdiction to make laws on a topic. Removing power is a blunt instrument that prevents the making of any laws, for good or ill, including those that are clearly in the best interests of the local community.

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It also sends a clear signal that the Commonwealth believes that the Territories are not up the task of enacting appropriate laws on the subject. This is at odds with the fact that the ACT and the Northern Territory both have a larger population, and a better functioning system of self government, than some of the colonies that became a States upon the Federation 1901.

This does not deny the proper role of the Commonwealth to govern for all Australians. Where issues arise in a Territory or a State there is often a legitimate role for the federal Parliament to intervene in the national interest. The problem arises when the federal Parliament singles out and undermines democratic rights in the Territories. Where the Commonwealth overrides State laws it does so by enacting a general law for Australia, and never by taking away the power of a State Parliament. This would not only be seen as an abrogation of States’ rights, it would be invalid under the Constitution.

In 2006 the Howard government used its powers to veto the ACT Civil Unions Act. The Rudd government further threatened the veto when the ACT sought to reinstate that Act with same-sex couples able to celebrate their commitment with a ceremony.

Under the Australian Capital Territory (Self-Government) Act, the federal government can instruct the Governor-General to disallow any law made by the Assembly within six months after it is made.

There is a similar power in section 59 of the federal Constitution that allows the Queen to annul within one year any law passed by Australia’s federal parliament. Fortu-

nately, British Monarchs and their instructing British governments have had the sense never to use the power, and even though it still remains in the Constitution it has long since become obsolete.

The federal veto over ACT or Northern Territory laws can be used in a partisan or opportunistic way, with no reasons needed to be given, nor any consideration paid to the best interests of local people. The only fallback is that the veto can be overturned by one of the houses of the federal Parliament.

The Northern Territory can overcome these problems by becoming a State. Indeed, it is on the way to doing so with an elected constitutional convention to be held late in 2011. On the other hand, the ACT may never be able to escape the parental oversight of the Commonwealth. In Capital Duplicators Pty Ltd v Australian Capital Territory in 1992, the High Court left open the possibility that the ACT cannot become a State because it includes the seat of the federal government.

It would be possible to become a State by excising the parliamentary zone from the ACT, but if that occurred you would have to ask why the ACT existed in the first place.

The governance problems of ACT are further magnified by the Australian Constitution and the federal electoral system. These problems disappear, and full democratic rights are restored, should a person move across the border to Queanbeyan.

Canberra does poorly compared to other small jurisdictions when it comes to representation in the federal parliament. While Tasmania has a population of 510 000 people and has 17 representatives

in the Federal Parliament (5 in the House of Representatives and 12 in the Senate), the ACT with 360 000 people only has a total of four members (two in each House). This is the same number as the Northern Territory, which has a population of 230 000 people.

The voice of people in all of the Territories and is also muted in national referendums to change the Constitution. People living in a territory did not get to vote in any referendum until 1977, and even since then their vote has been given a lesser value than people living in the States. A successful referendum requires both a national majority of ‘yes’ votes and a majority of ‘yes’ votes in a majority of the States. The votes of people living in the ACT only count for the national vote and hence only have half the weight of people living in a State.

The Australian Constitution confers very few human rights. However, those that it does include are often expressed or have been interpreted by the High Court only to protect people who live in the States. For example, federal laws cannot discriminate between the States in how taxes are imposed, but this is possible when territories are involved.

Similarly, the Constitution says

that no law can discriminate on the basis of which State a person lives in, but discrimination is permissible against people because they live in a territory.

These legal realities leave territorians in a very unsatisfactory position. They have self-government, but pass laws that diverge from federal policy at their peril. They can also lack the numbers and thus political clout to defend their interests effectively in the federal arena, leaving them open to opportunistic interventions and as an easier target in tough times for funding and other cuts.

The position of the territories in Australia has always been awkward. The Commonwealth was given extraordinary powers over them in 1901. This included full power over the terms of self-government because the Commonwealth was expected to assume responsibility not only over internal territories but also over external territories Australia might acquire in the Pacific or elsewhere.

to statehood. The framers did not anticipate the problem of a place like the ACT that might never be able to escape this transient status and achieve its full powers of independence.

Fortunately, just as many of the problems are of the Commonwealth’s making, so they are within its power to fix. Although the Constitution can only be changed by referendum, many other matters, such as the federal veto over territory law, can be fixed by way of ordinary legislation passed by the Federal Parliament. In such areas, it is long past time that the ACT and Northern Territory were granted a better system of self-government based upon the principle that all Australians are entitled to equal democratic rights.

Professor George Williams is Anthony Mason Professor, Scientia Professor, and Foundation Director, Gilbert + Tobin Centre of Public Law, Faculty of Law, University of New South Wales, Australia. http://www.law.unsw.edu.au/staff/ WilliamsG/

Internal territories like the Northern Territory were contemplated by the framers of the Constitution as having a transitional status. Being a territory was a step on the way

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Ditch the deference

by Nick Dyrenfurth

Late last year the world learnt that after a marathon eight-year courtship an unemployed English woman had become engaged to a young man whose family were addicted to welfare benefits for much of the past century.

Ordinarily the Australian conservative commentariat would have noisily tut-tutted such shameless Gen Y exhibitionism, especially as they’ve spent that last three decades railing against welfare dependency.

But this wasn’t your typical betrothal. As it happens, Kate Middleton has married Prince William of Wales, second in line to the British throne. By virtue of that fact he may one day be Australia’s head of state. And therein lies the rub.

Conservatives fell over themselves celebrating the news. Some pronounced the Republic dead and buried. Australians for Constitutional Monarchy head honcho David Flint opined that Australia’s future as a constitutional monarchy was guaranteed: ‘people will be reminded that [William] will one day be king of Australia.’

For their part progressives, to a man and woman Republican, remained strangely deferential. Labor Prime Minister Julia Gillard sent the nation’s best wishes without daring to mention the dreaded R word. The Australian Republican Movement was almost alone in using the occasion to advocate for constitutional change. Is it any wonder that Newspoll has support for an Australian Republic at a seventeen year low?

When Gillard announced that she would personally attend the April wedding with her partner, Liberal leader Tony Abbott mockingly alluded to her non-belief in God, the monarchy or marriage. Gillard’s views on marriage and religion are frankly irrelevant, but Abbott is right to question the sense of a republican attending a monarchist love-in.

I was being tongue in cheek earlier with my reference to the employment record of young Kate and the Windsor’s welfare proclivity. No one would wish the newlyweds ill, even though I am no fan of an anti-egalitarian system which, historically, decreed social stratification and still allows Australians no choice in deciding their head of state.

So here’s some advice for progressives: drop the deference and impolitely put the case for a Republic. Just as there is no reason to wait until Queen Elizabeth II’s death or potential abdication, a royal wedding must not influence our future constitutional arrangements.

So, why are progressive Australians so eerily quiet on the subject of a Republic during a royal wedding? Obviously the defeat of the 1999 referendum under John Howard’ s watch was a psychical blow,

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notwithstanding that a majority of voters identified (and still do) as republicans only to divide over the method of electing a Presiden

his leadership, he was respected for staying true to his beliefs.

The contrast with his Laborite successors is stark.

Henceforth progressives accepted the conservative line that mainstream Australia had rejected yet another Keatingesque elite whimsy, just as the punters condemned symbolic reconciliation and political correctness to history’s dustbin as the mythology of John Howard’s supernatural political antennae took hold.

It was only on his political deathbed that deposed Labor PM Kevin Rudd advocated against a ‘lurch to the Right’ on asylum seekers. Australian Workers Union supremo Paul Howes was almost lone voice in explicitly advocating a more compassionate Labor line and recently led the charge on gay marriage.

Republican obsequiousness is, then, a deeper seated political trend, encapsulated by the Howard government’s response to the controversial Tampa episode of August 2011. Ever since, progressives have felt afraid to voice their real opinions on range of issues for fear of being labelled pinkos or, fearing the ‘wedge’, battler-hating ‘elites’.

Even today there is strange reluctance to speak out on many issues for fear of the dreaded wedge of Labor’s core constituencies – the greatly caricatured working class ‘battlers’ and middle class ‘elites’ and ‘progressives’. Instead, the apocryphal conservative narrative goes unchallenged.

Our openly atheist, self-confessed feminist PM refuses to countenance legislating for gay marriage, despite reports that she privately supports the principle and that a law change would succeed if she backed it.

Recently, the former Socialist Forum convenor declared herself to be a ‘cultural conservative’, citing her knowledge of the Bible and anti-euthanasia views. If that’s true then I’m the reincarnation of Genghis Khan. (For that matter, the euthanasia issue confounds the traditional political divide – I oppose its legalisation).

Love him or loathe him, one always knew that John Howard was a cultural conservative. He never shied away from articulating his views. And even though a majority of electors eventually repudiated

This debilitating mindset similarly means that no Laborite is willing to consistently and passionately argue for the Republic, royal wedding or not, and a host of other bread and butter progressive issues. Although 99.99 per cent of Labor voters support the change, most Labor MPs seemingly think that the political Gods will one day decree a Republic.

it’s time to start asking some impolite questions of committed Monarchist Tony Abbott, a key player in the 1999 referendum defeat.

Why does the self-styled man of the people believe that we can’t find a single Australian out of a population of 22 million – not even amongst our coterie of Rhodes scholars or Nobel Laureates – to be head of state? Isn’t it a trifle unAustralian to think otherwise?

Then again Abbott has little to currently worry about. He and his colleagues have taken to taunting the PM on an almost daily basis for her obsequiousness to the Greens.

Liberal stooges such as shock-jock Alan Jones repeatedly question the PM’s character. Polls consistently show federal Labor’s primary vote stuck in the mid-30s.

And yet Labor ought to be all over the worst Liberal leader since Billy McMahon. When he’s not attending Tea Party style anti-carbon tax rallies, Abbott has the chutzpah to advocate spending billions of taxpayer dollars on ‘direct action’ climate change policies but in fact views the science behind such public policy as ‘crap’.

Laborites seem to have forgotten that the labour movement’s epic twentieth century achievements were built on vigorous struggle.

The welfare state wasn’t somehow granted but angrily demanded.

Mass poverty was overcome by impoliteness not by singing Kumbaya.

But progressives shouldn’t hate Abbott: learn from him. It’s a welcome sign that Gillard seems intent on staring down the conservative scare campaign on a carbon tax. But she needs to go further and rally the progressive base as per Abbott’s fervent opposition to the Rudd government’s proposed ETS legislation.

Don’t get me wrong, I’m not advocating a lurch to the hard Left, but it’s time Laborite progressives muscled up to the Tories. At that,

The Republic is the perfect base issue. Combined with a legislated carbon price, progressive voters would soon dump the Greens and www.fabian.org.au

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return to Labor en masse if they saw its leader prepared to stand up on a matter of principle. The Liberals would themselves be wedged, potentially re-igniting latent leadership tensions between Abbot and former ARM convenor Malcolm Turnbull. Indeed, Gillard might even deploy a Howardesque line: ‘We decide who leads our nation and the circumstances in which they lead’.

Labor history confirms my reading.

In the mid-1900s when the party first became a real electoral force, many Laborites grew restless with federal leader Chris Watson’s political deference to then liberal protectionist Prime Minister Alfred Deakin, who ultimately relied upon Labor’s support to stay in office. But Labor was numerically stronger and its electoral strength was growing daily.

Under mounting pressure from caucus and the wider labour movement, Watson resigned during October 1907. Andrew Fisher, a former child miner, defeated Billy Hughes in the subsequent partyroom ballot. He was elected, in part, because he was expected to take a more uncompromising line against Deakin.

Fisher appeared to satisfy his caucus supporters with one of his first speeches as leader: ‘We have too long shrunk from maintaining propositions which we clearly believe in – far too long’. It was a cathartic moment. Labor soon withdrew its support for Deakin and a week later, Fisher became Labor’s second Prime Minister.

Fisher’s seven-month long minority Labor administration of 1908-09 saw little of parliament as it went into recess almost immediately.

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But two events during this period proved his prime ministerial bona fides.

Seizing upon worried cables from Britain concerning the growing naval power of Germany, in early 1909 the conservative press and non-Labor politicians, including Deakin, began a campaign for the Commonwealth to ‘gift’ a dreadnought, financed by a £3,500,000 loan, to the British government.

In what became known as the ‘Dreadnought scare’, Fisher pointedly refused the demands of conservatives, arguing that Australia’s best contribution to defending the British Empire was the establishment of an independent Australian Navy paid for and manned by Australians.

Fisher denounced the manufactured ‘hysteria’: ‘I would rather be out of public life altogether than yield to such a clamour’. In a story recounted countless times during the 1910 election campaign, Fisher boasted of how Labor had bravely founded the Australian Navy despite the fawning imperialist demands of its opponents.

NSW Labor deputy leader W.A. Holman, actually a firm believer in the British Empire, mockingly alleged that the ‘Dreadnought … patriots had their eyes on the next Birthday Honours’. Fisher stood his ground, and this political storm in a tea-cup gave the impression that he was a conviction politician.

Shortly afterwards, cognisant of moves towards a ‘fusion’ of the anti-Labor forces aimed at forcing Labor from office, Fisher delivered a widely-reported speech in his home-town of Gympie during March 1909. Fisher

committed Labor to a referendum for the purpose of reinstating New Protection (which linked manufacturing tariffs to the payment of ‘fair and reasonable’ wages), an independent Australian Navy and compulsory military service, higher spending on pensions, a transcontinental railway, and, most controversially, a graduated land tax. Conservatives reacted with fury. The Labor base was energised: the Worker newspaper hailed his speech as ‘epoch-making’. And within the year Labor became the first party of its type to win a general election in the world – in a landslide.

It was an extraordinary development. Whereas the British Labour Party was little more than a parliamentary rump and socialist parties in France and Germany pathetically weak, the planks of Labor’s platform were being made law. No Labor party existed in comparable countries such as New Zealand and the USA. Today, like many of the world’s centre-Left parties, Labor is struggling to define itself in a postCold War, globalised world where tribal loyalties of class are less relevant. And yet, modern Labor’s task is much the same: building a more prosperous, egalitarian society albeit one which prioritises environmental sustainability.

Today’s rancorous political climate is foreboding, dominated as it is by extremist voices emanating from both Left and Right, but equally one might discern an opportunity for Labor to again dominate the reforming centre of Australian politics. We’ve been here before of course and if there is any party capable of rising to the challenge of championing progressive politics

and of legislating long-term nation-building reform in the face of Abbott’s hyperbole and relentless negativity it is Labor.

Building a muscular progressive politics ultimately means that the same logic must apply to the political party to Labor’s Left, the Greens. Although Labor is compelled to work alongside the Greens for the remainder of this parliament, it shouldn’t refrain from criticism nor shy away from defining its mainstream aspirations against the fringe ideas of its ostensible ally. For instance, working Australians cannot be sacrificed like lambs to the slaughter in order to speed the nation’s transition to a low-carbon economy.

Again the pioneer Laborites can assist. Leaders such as Fisher and Watson thought of themselves as socialists, in an age when social-

ism was not yet associated with the evils of Soviet-style Communism.

Yet they also defined themselves against the ravings of the antiLabor far-Left. In 1909, NSW Labor MLA Arthur Griffith lambasted Labor’s Left critics: We are the sane and commonsense Socialists, who believe in going step by step. [You] seem to think that we have to do nothing for a long time, and then suddenly someone rings a bell, and then a new era would be ushered in – just like the falling of a drop-scene in a theatre.

Some Greens friendly readers will no doubt be offended by the last few lines. My advice to Gillard Labor applies equally to them: toughen up.

Sydney University’s Dr Nick Dyrenfurth is the editor or author of several books including All That’s Left: What Labor Should Stand For (NewSouth Books, 2010), Heroes and Villains: The Rise and Fall of the Early Australian Labor Party (Australian Scholarly Publishing, 2011) and the forthcoming publication, A Little History of the Australian Labor Party (NewSouth Books in conjunction with the Chifley Research Centre, 2011, coauthored with Frank Bongiorno). nick.dyrenfurth@sydney.edu.au

Griffith went on to allege that they were disloyal abettors of Labor’s enemies: ‘Labor is fighting against the concentrated power of wealth [and] a mighty press.

[Yet] these men come round, and instead of helping us knife us in the back’. Replace socialist with environmentalist and a muscular progressive electoral strategy emerges.

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Has our politics become reform-shy?

by David Hetherington

A hallmark of Australian politics in 2010 was the lack of progress on major policy reform initiatives. Existing proposals stood still or went backwards – think of the CPRS, the Henry Review, the household insulation scheme.

Commonwealth–State relations remained fractious, with damaging stoushes over GST, health funding, minerals royalties, the national curriculum and harmonised OH&S laws.

Specific new ideas were few and far between, and those that emerged enjoyed mixed success – superannuation reform looks promising, but the mining tax has had a difficult birth. Both sides of politics retreated from established consensus positions on issues like population growth. The honorable exception to the rule was the National Broadband Network, an important reform finally passed on the last sitting day of the year.

Some commentators have decried this state of affairs. During the 2010 Federal campaign, Paul Kelly wrote in The Australian of 28 July: This election is conspicuous for lack of ambition in policy agendas and lack of frankness in addressing the issues. It reveals a complacent nation, politically timid, psychologically divorced from the economic crisis across the North Atlantic zone and reluctant to canvass the dilemmas inherent in its success as a high immigration, high growth, China-dependent, flexible economy, short on savings and deficient in infrastructure investment.

This is a reasonable critique, but we need to go one step further and identify the factors driving this complacency. There are a number of candidates: prosperity, focus groups, risk aversion, the media, and even a lack of decent reform ideas. Before we explore these factors, it’s worth asking a prior question. Are we overly occupied with ‘reform’? Does it distract from bread-and-butter policy delivery, incremental progress on things that matter to most Australians?

I don’t think it does. As Kelly suggests, Australia faces long-term challenges that demand attention. The benefits of the Hawke/Keating reforms have now worked their way through our economy and society, and new tests of national resolve have emerged. How to reinvest the dividends of a mining boom? How to transition to a low-carbon economy?

How to manage population growth? More subtly, how do we reshape the implicit premise in the national public debate that Australians are selfish, materialist and concerned only with the impact of government on their hip pocket nerve?

If we accept that reform remains important, can we blame prosperity for a lack of public support? Certainly, the ‘ain’t broke, don’t fix it’ mindset 12 www.fabian.org.au

resonates. Issues like minerals royalties, systemic tax reform and carbon pricing don’t address pressing economic or social needs.

Australians’ day-to-day concerns centre on costs of living, job security, housing affordability and quality of life, none of which is immediately improved by bigpicture reforms. And the loudest voices in the reform debate come from those actors whose immediate economic interests are threatened by reform, and who drown out well-meaning support.

The misleading campaign by Clubs Australia on pokies reform is just the latest in a long and disreputable line.

Yet history tells us that periods of prosperity are when reform is most likely to be needed. Japan and Germany failed to reform during prolonged prosperity in the 1970s and 1980s and have since paid the price. Experience tells us that, while it might be politically challenging, reform is easier during the good times than the tough: ask the Irish and the Icelandics. Curiously, there is a lesson to be learnt here from bank reform. Prior to the financial crisis, banks were required to hold less capital in good times and more in tough periods.

Now policymakers have realised it makes more sense to hold more capital during the booms, when risktaking is likely to be higher, and less after the busts when they are trying to rebuild. The analogy holds for macroeconomic reform: overinvest during prosperity, so that you’re not squeezed when circumstances change.

A second candidate for policy complacency can be discounted: it’s not for a lack of ideas. Carbon pricing, national broadband, water markets, mining taxes – these are

all well-rehearsed policy proposals.

Progressive governments are also exploring a range of creative new ideas that might form the basis of a medium-term agenda, including market design, national disability insurance, and social impact bonds. Certainly, it has not helped the reform cause in Australia that relatively little success has been demonstrated on the bread and butter policy issues of recent years – improving housing supply, delivering infrastructure, Commonwealth–State agreements on hospitals funding. Sadly, this lack of progress has undermined the broader reform argument.

A third factor is the role of the media in shaping the public debate around reform. The tabloid media and talkback radio create a perception that all government initiatives are destructive. They cultivate a politics of fear, invoking a crisis in quality of life in Australia that just doesn’t exist.

The broadsheet media is equally culpable, albeit in a different way.

They have come to see themselves as players in the game, running campaigns against ideas that don’t suit their preconceptions.

A telling illustration is found in the media coverage of the Federal Government’s stimulus program in the wake of the GFC. The Government’s policy response was first class and is viewed by economists and policymakers around the world as a textbook case in managing a sharp downturn. As a result, Australian unemployment peaked at 6 per cent before returning to under 5 per cent, while our G20 peers wrestle with double-digit rates.

Having borrowed to sustain the economy, the Government has now committed to rapidly repay its debt

and return the budget to surplus by 2013.

Yet some commentators would have us believe that this Government is a model of fiscal irresponsibility.

There are many examples, but let’s take just one. The Education Revolution spent $15b on school infrastructure with an over-run rate that would put private projects to shame, yet ‘quality’ media outlets presented it as an icon of government waste.

Finally, we cannot ignore the role of a changing political culture in the demise of reform. Part of the reason the media see themselves as players in the game is because politicians treat them as such. Risk minimisation, combining media management and focus group research, has become a default political behaviour. This produces a race to the bottom, as the descent into populism becomes ever more tempting.

Given this, it’s worth reminding ourselves how earlier governments have approached reform. They recognised the need to air ideas, to socialise them, in order to pave the way to winning the argument.

Hawke and Keating did this with tariff reform, and Howard did it with the GST. By contrast, the Rudd government’s original mining tax was announced as fait accompli. The contrast simply highlights the importance of building consensus and a willingness to negotiate big reforms.

2011 has brought a welcome change on this front. Julia Gillard has chosen to stake her Government’s fortunes on the introduction of a carbon pollution tax, and there could be no bigger

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test of her reform credentials. So far the Government has taken exactly the right approach, proposing a framework for consultation before deciding on the specific details. Ironically it has been criticised for (amongst other things) lacking detail, which is surely the flipside of allowing time for consultation before a final decision.

Three weeks at sea...

by First Dog On The Moon courtesy of Crikey.com

The carbon tax debate still has far to run, but its outcome will go a long way to answering whether our politics has become irretrievably reform-shy.

David Hetherington is Executive Director of Per Capita, an independent, progressive, Australian think tank. www.percapita.org.au

www.fabian.org.au read online

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Australian Fabian Essay

Keynesians in the recovery by the Hon Wayne Swan MP, Deputy Prime Minister and Treasurer

Two and a half years ago the fall of Lehman Brothers triggered the global financial crisis and stock market collapse that pushed the world economy to the brink of utter catastrophe. Australia’s swift policy response saved tens of thousands of jobs, countless business failures, and a level of individual misery and hardship that can never be known. Today, despite the hammer blows of recent natural disasters, our economic outlook is strong and we are in a better position than almost any of our peers.

This second term Labor Government faces a very different set of challenges than we did for much of our first term. With private demand strengthening, unemployment falling and our economy pushing towards capacity, we need to restrain public spending, and stay the course back to budget surpluses. Just as it was the right thing to step in and support demand during the GFC, the right thing to do is to take a step back as private activity recovers. That’s why, since we first put together the stimulus package, I have adopted this motto: if we are going to be Keynesians in the downturn, we have to be Keynesians on the way up again. That means a speedy return to surplus.

As I travel around the country, I’m often asked why our commitment to rapidly return the budget to surplus is so important. In this essay I want to explain how one of the 20th Century’s great thinkers, John Maynard Keynes, helped us find the answer, in the process influencing the Government’s response to both the global downturn and our strategy for the recovery. More broadly, I want to describe how economic policy informs the delivery of not just responsible management but a modern progressive agenda. Most importantly, I want to make the point that being a Keynesian means supporting a counter-cyclical fiscal policy with government making room for the private sector when economic growth is strong.

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In the 80 years since the onset of the Great Depression, Keynes’ belief that government has a role to play in avoiding recessions and ensuring prosperity and progress has become Labor’s economic compass, helping us set a course through turbulent seas. His direct influence has waxed and waned, and in places been rightly superseded by the insights of other economic thinkers, but when recessions and depressions have hit, Keynes’ broad prescriptions have come to the fore – and they have done so in a way that has maintained the essential social-democratic nature of Australian society. Like Keynes, Labor is guided by the understanding that recessions can and do have longlasting costs through the destruction of jobs and small businesses and the erosion of capital.

When Labor returned to power in 2007, more than 11 years in opposition had filled our parliamentary party with big plans for economic reform. Our aim was to build on the achievements of the Hawke and Keating Governments, but with new emphases on human capital investment, environmental sustainability, infrastructure development and social inclusion. It was to be a modern incarnation of Labor’s social-democratic vision, designed to maximise the advantage from the shift of world economic gravity to our region and ensure the benefits were enjoyed by more of our people. Australia, it seemed, was on the cusp of perhaps the most significant burst of prosperity

in its history, and our vision was to make that prosperity economically, socially and environmentally sustainable.

This time of anticipation paralleled another moment in Labor’s history.

In October 1929, the Government of Jim Scullin was elected with plans to deliver greater prosperity to every Australian after five years of economic stagnation. But just two days after the swearing in of the new Labor ministry, those hopes were dashed when a Wall Street collapse plunged an unprepared world into economic chaos.

Within 12 months, Australian GDP had dropped by 10 per cent and real private consumption expenditure by 20 per cent. Two years after that, our unemployment rate hit 19¾ per cent – one of the highest rates in the world at the time.1 As I have recounted before, the memory of the Scullin Government’s failure weighed heavily upon us as we gathered around the Cabinet table to face an equally daunting situation in the final months of 2008.

We were determined that history would not repeat itself. Guided by Keynes and other outstanding economists, our Government was able to draw upon the lessons of what went wrong in 1929 and in other recessions since. And as Members of Parliament and former advisers to the Hawke and Keating Governments, we also had the confidence that we could win this economic battle; at no stage were we over-awed by the circumstances we faced.

Keynes and Australia The influence of Keynes on Australia has long interested Australian economic historians, including Professor Don Markwell, currently at Oxford University, and more recently Dr Alex Millmow of the University of Ballarat, whose accounts of the Keynesian revolution in Australia I have drawn on for my basic historical narrative here.2 Australia has also of course produced some of the most influential Keynesian economists of the post-war years, including Professor Geoffrey Harcourt, who spent much of his working life in Cambridge and played a role in the development of Labor’s economic platform in the 1970s and ’80s.

It was the Great Depression that first brought Keynes to the widespread attention of policy makers in Australia. As Markwell points out, the Scullin Government’s response to the crisis came down to a choice of three alternatives: the so-called Premiers’ Plan that advocated a deflationary policy through cuts to wages and public spending, and increased state taxes; the Lang Plan that sought to suspend overseas debt obligations; or the moderate expansionary policies advocated

by Scullin’s Treasurer E.G. (‘Red Ted’) Theodore.

Theodore explicitly justified his position by reference to Keynes’ early theories of fiscal expansion.

But while Keynes had made his debut on the Australian public policy stage, there was as yet an insuffi-

1 Statistics relating to the crashes of 1929 and 2008 in this paper are taken from the relevant Budget papers and from Dr David Gruen and Colin Clark, ‘What have we learnt? The Great Depression in Australia from the perspective of today’, 19th Annual Colin Clark Memorial Lecture, Brisbane, 11 November 2009, found at http://www.treasury.gov.au/documents/1689/PDF/03_ Colin_Clark_speech.pdf 2 Donald J Markwell, Keynes and Australia, Research Discussion Paper 2000-04, Research Department, Reserve Bank of Australia, June 2000; Alex Millmow, The power of economic ideas: the origins of Keynesian macroeconomic management in interwar Australia 1929-39 - an ANU e-book - http://epress.anu.edu.au/apps/bookworm/view/first/The+Power+of+Economic+Ide as%3A+The+origins+of+Keynesian+macroeconomic+management+in+interwar+Australia+1929-39/204/ 16 www.fabian.org.au

ciently broad understanding of the benefits of fiscal expansion in times of recession. As the history books record, the Premiers’ Plan was the one eventually adopted after much debate. It contributed to a reduction of real aggregate government expenditure of 9 per cent at the height of the depression, and economic historians agree that by reducing demand when private sector spending was in retreat, the Premiers’ Plan made the situation worse.3 It also led to the split of the Parliamentary Labor Party and the destruction of the Scullin Government.

Australia – and in fact almost the entire world – was not yet ready to put aside the conservative, deflationary economic orthodoxies of the past. In their contributions to the debate at this time both John Curtin and Ben Chifley, who were to adopt Keynes as their economic guiding light when Labor returned to office in the 1940s, recognised that it would take a decade for the world’s financial system to catch up with the realities of the global economy.4 They were right.

The Scullin Government, hamstrung by a conservative majority in the Senate and crippled after the resignation of Theodore, lacked the capacity to implement practical, expansionary policies in the face of the Great Depression. Labor’s plans to create a more social-democratic society ran aground. If the party was to ever implement its hopes for the nation, it had to become a successful economic manager of capitalism, and if it was to maintain the political unity necessary for holding on to government in the good times and bad, it had to find a practical economic policy consis-

tent with its social-democratic platform. It needed to be intellectually prepared to handle economic crisis without dividing and collapsing.

Keynes helped provide the solution.

During the 1930s a number of people who were subsequently to become Australia’s leading economic thinkers travelled to Cambridge to participate in what was becoming a full-blown Keynesian revolution. These included the likes of L.F. Giblin and Colin Clark, who are credited with significant contributions to the evolution of Keynesian theory. These men were to have a profound effect on the economic evolution of our nation.

One of those responsible for the adoption of Keynesian thinking – who actually studied at the London School of Economics (then the home of anti-Keynesians like Friedrick von Hayek), but who was by inclination Keynesian – was a man whose name is well-known to historians, H.C. ‘Nugget’ Coombs.

Returning from England, Coombs’ brilliance brought him to the attention of the leading politicians and bureaucrats of the day. He worked as an advisor in the Commonwealth Bank and the Treasury, before being given the posts of Director of Rationing, Director-General of PostWar Reconstruction, and Governor of the Reserve Bank. Through holding these powerful and important offices, through his closeness to successive prime ministers, and through the policies he pursued so vigorously, Coombs helped put Keynes’ stamp on the make-up of modern Australia perhaps more than any other single person.

3 Gruen and Clark, ‘What have we learnt?’, p. 42.

Those in doubt about the effect of Keynesianism on Coombs and others of his generation need look no further than the opening sentence of his memoir Trial balance: issues of my working life: ‘The publication in 1936 of Keynes’ General Theory of Employment, Interest and Money, was for me and for many of my generation the most seminal intellectual event of our time.’ And soon, Coombs admitted, he ‘had become convinced that in the Keynesian analysis lay the key to the comprehension of the economic system.’

Professional economists and public servants were not the only ones to be captured by the Keynesian revolution that was gathering pace in the world’s economic centres.

Keynesianism was beginning to influence deeply the thinking of Labor’s leading political figures, including the man who more than any other would direct the economic dimension of Australia’s wartime and post-war evolution, Ben Chifley.

As Chifley’s first biographer L.F. Crisp (himself a convinced Keynesian) points out, Chifley’s membership of the Banking Royal Commission coincided with the release of Keynes’ General Theory, which had a major impact on the Royal Commission’s findings. Those findings neatly sum-up the central economic policy prescription at the heart of Keynesianism: the expansion of public works and government expenditure in times of depression to revive private enterprise and employment; and contracting public expenditure and reducing debt once growth and prosperity have been restored.

In other words, Chifley along with the most influential public servant

4 L.F. Crisp, Ben Chifley, Melbourne: Longmans, 1963, p. 61.

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of his day, Nugget Coombs, was present at the creation of the policy that was to guide the emergence of Australia as a 20th Century socialdemocratic state: demand management in pursuit of full employment and rising prosperity through balanced budgets over the economic cycle.

The Keynesian revolution in Australian economic policy had begun, and was to be put into effect through the Curtin and Chifley Governments’ war-time economic management (which drew heavily on Keynes’ influential work, How to pay for the war), their post-war reconstruction policies, and, internationally, through their participation in the Bretton Woods Agreement (where Australia’s representatives were sometimes more Keynesian than Keynes himself).

That was another lesson Labor picked up – that recovery from, and prevention of, recession demanded Australia act on the world stage.

This Keynesianism was to remain a feature not only of Labor economic policy, but of all Australian governments until the end of the Keynesian consensus during the 1970s.

While obviously not everything was perfect, it helped produce three decades of largely full employment and mostly low inflation before eventually bogging down in a combination of rising unemployment and persistent inflation during the Whitlam era – problems which beset governments of all shades across the world in the aftermath of the first OPEC oil shock.5 This generalised prosperity was a mighty achievement. It relied on national economic consensus, but it was begun by Labor, and remains

a crucial and proud era in our nation’s and our party’s history.

Revolutions of course have a way of turning full circle, and the problems that confronted Keynesian economic managers from the early 1970s onwards led to the rise of new economic theories. Labor’s economic thinkers wisely accepted the need for change. The Hawke Government began with a moderately pro-Keynesian program, then followed an economic reform route which placed greater emphasis on boosting competitiveness and productivity through economic liberalisation and controlling inflation through a mixture of sustained fiscal consolidation, tight monetary policy and incomes policy.

This alternation of economic liberalisation, tight fiscal policy, and Keynesian demand management in times of downturn illustrates an important feature of Labor’s modern economic approach: our policies are based on an understanding of contemporary conditions and practical solutions, not on a dogmatic adherence to economic ideologies. Experience is our guide.

As I have argued here, the great crash of 1929 led to dramatic improvements in economic policy, financial regulation and, after World War II, the creation of a social safety net that provided the developed world with the base on which it built decades of economic stability. And the economic crises of the 1970s – like the British Winter of Discontent and the global oil shocks, stagflation and unemployment – led to reforms to unclog the arteries of a sclerotic capitalism, freeing up economies and con-

tributing hugely to rising living standards in the following decades.

We learned from both lessons, and Australia is far richer for it.

Labor’s policies are also based on the absolute need for fiscal responsibility. In short – and in contrast to our opponents – we understand that economic policy must bend to the needs of the times, not the other way around. What this meant was that when the GFC hit, Labor was fully prepared to adopt a pragmatic view about what policy course to take. We understood the implications of the crisis, our Labor values dictated that we must act, and Keynes provided the framework for that action. We didn’t act because it was politically expedient to do so, we acted the way we did because it was right – right by our values and right for the economy.

Keynesianism had given the ALP four valuable assets with which to confront economic crises: a practical, progressive economic policy; a psychology that recessions were no time for surrender and could be tackled by policy; an openness to ideas based on practical utility; and the makings of a short and longterm plan for recovery. Each of these four assets were to prove invaluable during the global recession.

Keynes and the Global Financial Crisis It’s easy for politically and ideologically motivated critics to downplay the threat presented by the GFC. From the comparative comfort of our strong economy, it’s tempting to forget that Australia was not immune to the biggest worldwide

5 David Day, ‘Hawke and the Labor Tradition’, in Susan Ryan and Troy Bramston (eds) The Hawke Government: A Critical Perspective, Melbourne: Pluto, 2003, p. 404.

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recession since the Great Depression itself.

In 2008 the world grappled with a synchronised downturn unlike anything we had seen in 75 years.

The banking system was under threat, asset prices dived, global trade plummeted, firms stopped producing, households stopped spending, investment almost dried up, and business confidence took a blow from which it is still recovering. In the first few months alone, financial firms worldwide recorded more than US$1.1 trillion in losses and write-downs. Wealth was destroyed on an unimagined scale.

Sixty million people lost their jobs.

One after the other, the developed world economies tumbled into deep recession. All up, annualised global GDP collapsed by 6.25 per cent in the December 2008 quarter – the sharpest fall in global output on record. For a time, the GFC wreaked economic havoc on a grand scale, and its effects are still hurting the developed world. We continue to see high rates of entrenched unemployment in the United States and Europe, and lingering concerns in countries with imposing fiscal mountains to climb.

It is too easy to forget just how exposed Australia was to the crisis.

Eight out of ten of our major trading partners went into recession.

Our banks faced dislocated global capital markets and calls from bank customers flowed into my office. The decline in production, investment and exports affected jobs, with unemployment rising by 175,000 within months. Our economy contracted by almost 1 per cent in the final three months of 2008.

This is the context in which we decided to act.

The comparison between what we did and what the Scullin Government did is of course informed by improvements in the policy levers at our disposal. We were not hampered by the gold standard, by the lack of access to international capital that restrained public and private borrowing and investment, nor by a weak central banking system. The very things that were created as a response to the Great Depression and the subsequent era – like unemployment benefits, a comprehensive social security system, a floating exchange rate and an independent Reserve Bank – would act in the recovery as automatic stabilisers.

We were also fortunate in that, unlike 1929, governments around the world acted largely in unison to guarantee their banking systems and stimulate their economies through public spending. The emerging powerhouse China, and also India and other developing nations with high demand for our exports, understood the force of the Keynesian argument for supporting their economies in this time of crisis. As a consequence they continued to grow, and history has favourably judged the outcomes.

But the fact that our Government was in a better position than Scullin’s did not constitute an argument for doing nothing. Unarguably, had the Australian Government listened to our conservative critics and done far less, the outcome for our economy and our nation would have been far worse. We would have gone into recession, hundreds of thousands more jobs would be gone, and many more businesses would have closed their doors.

Underpinning our policy response were the principles of fiscal and monetary action to boost aggregate

demand set out by Keynes in his General Theory and his activist publications of the Great Depression era: immediate stimulus measures to boost consumer spending and confidence; useful public works to create employment; lower interest rates to boost investment and spending; and concerted international action to strengthen the world financial system.

Through this prescription, Keynes’ first message to us would have been to have confidence to act and to act fast. Dithering – as policy makers did in 1929 – only allowed the economy to deteriorate further.

Like Keynes, we in the Government believed we had a moral duty to act and act decisively – hence our quick and determined response, two factors we were at pains to emphasise.

Recognising that long lead times can create a lag between the announcement and employment effect of major public works, Keynes was in favour of immediate action to boost consumer confidence and spending. In a celebrated passage at the height of the slump (referring to the multiplier effect of consumer spending – a discovery that lay at the heart of his General Theory), Keynes urged women to go out and restock their linen cupboards aware that by doing so they were creating work and preventing families from going hungry. This general principle provided the basis for the Government’s early action, which the then Treasury Secretary Ken Henry summed up as: ‘go early, go hard, go households’.

It is for this reason that one of our first responses to the crisis was the Economic Security Strategy, which provided $10.4 billion in targeted stimulus payments to pensioners,

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carers and families in December 2008, as well as immediate training places for the unemployed and additional assistance to first home buyers to stimulate housing construction.

The other element of fiscal policy Keynes recommended was public works to turn idle savings into useful investment. This constituted the second part of the Government’s stimulus measures. In February 2009 the Government began implementing a $42 billion Nation Building and Jobs Plan to support jobs and invest in future long-term economic growth. It included investments in major infrastructure such as roads, rail, ports, freight facilities, clean energy initiatives, the National Broadband Network, and school, university and hospital infrastructure. Some $16.2 billion of this investment was for the Building the Education Revolution program, which funded building and maintenance works across nearly 24,000 projects.

All up, public investment rose by 25 per cent in 2009‑10, which was the largest annual increase on record. As a result, Treasury estimated that the stimulus and public works measures added 2¼ per cent to the economy in 2009‑10 and reduced the peak in unemployment by 1½ percentage points. Without these measures our economy would have suffered a protracted recession and around 200,000 more Australians would have been put out of work.

The swiftness of our response – putting stimulus into the economy less than three months after the collapse of Lehman Brothers – was a telling factor in Australia avoiding recession, unlike virtually every other developed economy.

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In the immediate Keynesian sense, the stimulus was a great success.

But more than that, it ensured that instead of remaining idle, the capital invested has added to our nation’s future economic capacity, making economic growth more economically and environmentally sustainable and creating more educational opportunities for Australian children. It protected the skills base of our economy and prevented tens of thousands of workers from becoming permanently lost from the workforce.

Our stimulus programs helped advance our vision of a more progressive society.

The Government was heavily criticised for increasing national debt by taking this course of action. But there could be no other way. The choice was spelt out in my Budget Speech for 2009-10: Since last year’s Budget, taxation receipts have been revised down by around $210 billion over the forward estimates. This represents around two‑thirds of the write‑down in our budget position. It is the biggest downward revision in our history. Roughly equivalent to the entire Commonwealth spend on health and hospitals over the forward estimates. Faced with that reality, there are two starkly different ways to go. You can balance the budget by dramatically pushing up taxes and slashing and burning vital services in key areas like health, leading to a deeper and longer recession, and higher unemployment. Or you can offset a temporary collapse in revenue with a program of responsible borrowing that also provides for the stimulus the economy needs when private sector investment is in retreat. This is the course the Government has adopted. It is the only responsible course.

One of the reasons for the severity and length of the Great Depression in Australia was the overly tight monetary policy kept in place for so long by the Commonwealth Bank, the central bank at the time, combined with a lack of access to loans from overseas. This is a problem Keynes recognised in relation to almost all countries. In contrast, during the GFC, our independent Reserve Bank acted swiftly to reduce interest rates, with the cash rate falling from 7 per cent at the time of the crash to 3 per cent by April 2009 – the lowest level in many years.

Australia’s banking system is strong and resilient after years of tough supervision and sound management. But when governments around the world moved to guarantee their banks’ access to global capital markets, we moved quickly to do the same to ensure the continued flow of credit to our economy. To avoid the dramatic loss of depositor confidence we saw in countries around the world, we also accelerated the introduction of our Financial Claims Scheme to protect bank deposit accounts.

These actions helped to maintain confidence and stability in our financial system and improve access to money markets, ultimately enabling households to continue borrowing and business to survive, invest and grow.

Another of the major lessons of the Great Depression was that action to stave off slumps must be internationally coordinated. In a global slump, internationally coordinated fiscal action is more powerful because each country’s fiscal spillovers aid in the economic recovery of its trading partners.

1929 proved that governments must work in concert to promote

stimulus, and that protectionism and poor global financial regulation made matters much, much worse. Keynes devoted much of his remaining life to addressing this central problem by encouraging international action to promote economic stability and growth. His efforts helped produce the Bretton Woods Agreement that established the IMF and the forerunner of today’s World Bank, which are playing a major role in the worldwide economic recovery today.

The disaster of 2008 proved that many of Keynes’ lessons about international finance in particular had been forgotten or deliberately ignored. For this reason, the Australian Government was a leading voice for the coordination of international stimulus measures, the maintenance of free trade, and the redesign and reconstruction of the world’s global financial architecture.

Most importantly, we have been a major advocate for the overhaul of international economic decisionmaking, in particular by championing the G20 group of nations as the pre-eminent forum for international economic cooperation. This is of course in Australia’s interest as a middle power member of the G20, but it also recognises that in order to succeed, global economic reform must be owned by the overwhelming majority of the world’s people.

Since the onset of the crisis the G20, with strenuous input from Australia, has played an important role in coordinating stimulus measures, broadening and strengthening financial and prudential regulation, and ensuring the needs of developing nations are considered in its policies. I personally have participated in the G20’s major

summits in Washington, London, Pittsburgh, Toronto and Seoul, as well as numerous other meetings of world finance ministers. Australia has punched above its weight, and I am determined that we will continue to do so.

clical fiscal and monetary policy to avoid damaging recessions. Almost every responsible government in the world in a position to do so has followed Keynes’ advice. And this is something I as Treasurer have been at pains to stress during our response to the GFC.

Keynesianism in the Recovery

One important aspect of Keynes’ work that has been deliberately under-emphasised by conservative critics is that phrase ‘counter-cyclical’ – because it implies the opposite of the critics’ claim that Keynesian policies constitute a recipe for everincreasing rates of public spending as a proportion of GDP.

Too many ideologues dismiss the value of Keynes’ work (through unthinking philosophical prejudice).

To these people, usually associated with ultra-conservative economic think tanks, Keynesians are politically-motivated proponents of a bigger state, against liberalising economic reforms, stuck in the past, and generally unfit for office.

Such critics of Keynes like to see themselves as practical economic thinkers, not proponents of a political and economic ideology. The best that can be said for them is that they are seriously deluded. Keynes recognised the danger of such thinking, remarking famously in the final paragraph of the General Theory: ‘Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.’

These people are the slaves of the defunct economists who instructed us to ignore the lessons of the Great Depression. They have been discredited enough. But they are also wrong about Keynes’ message.

Unlike the caricature drawn by his enemies, Keynes was not against the free market, free trade or responsible economic management.

There is nothing anti-market or anti-reform about Keynes’ discovery that governments have a responsibility to employ counter-cy-

Now this brings me again to the main point of my essay.

As stated clearly in the findings of the Banking Royal Commission (on which Ben Chifley sat), while governments have a responsibility to increase public spending going into a recession, once growth and prosperity have been restored, they have an equal responsibility to restrain public expenditure, budget for surpluses and reduce debt in climbing out.

That’s why I have been at pains to stress the Government would take the hard decisions necessary to make the Budget sustainable, to chart the course back to surplus, and to reduce debt in the medium term. When we announced our stimulus plans we also articulated the path back to surplus by constraining spending growth and letting the automatic stabilisers work on the upside, just as we did on the downside. The success of our plans meant that by the time the IMF and G20 first began to talk about the need for well-articulated exit strategies, we were already implementing one. We were ahead of the

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curve in response to the downturn, and in the recovery.

This strategy hasn’t and shouldn’t change in light of recent events at home and abroad. The disasters in Japan, our second biggest trading partner and our third largest source of foreign investment, will significantly disrupt Australian exports in the months ahead.

Similarly, the floods and Cyclone Yasi that devastated Queensland this summer will reduce growth and tax revenue in coming quarters, and the Government will need to make room for the substantial rebuilding and recovery costs. This will undoubtedly have an impact on the economy and on the budget bottom-line in the short term.

But none of this has knocked Australia off its longer-term course.

The fundamentals are strong and our economy is running at close to capacity. We have low unemployment, strengthening incomes, terms of trade close to their highest sustained level in 140 years, and an unprecedented pipeline of investment. Most importantly, mining boom mark II as I have called it, will impose on us structural changes equal in magnitude to any we have seen before.

This economic environment underscores the importance of our fiscal commitments and strategy to return the Budget to surplus.

That’s why for example we’re paying as we go for the recovery costs in Queensland with a combination of spending cuts and a temporary levy. Through our cap on real spending growth and the fastest fiscal consolidation in at least 40 years, we are creating space for the significant expansion in our nation’s capital base that businesses have planned.

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Just as we supported demand during the global recession, we’re making way for private demand in the expansion. Our fiscal strategy has been consistent from day one, and consistent with our reforms to strengthen and broaden our economy by cutting business taxes, investing in infrastructure and boosting national savings. It is also consistent with our desire to ensure the benefits of the mining boom outlast the boom itself.

Many have suggested that we should be less concerned about deficit and debt, wrongly pointing to so-called ‘Keynesian’ reasons relating to their low levels in Australia compared to other developed nations. Those facts are true; Australia is in a better fiscal position.

But those facts cannot be used as excuses to open the fiscal gate and allow ill-disciplined public spending. Adopting Keynesian strategies for avoiding recession does not mean jettisoning the reform lessons that made us more prosperous over the last three decades.

Compared to the events of 1929 and the fate of the Scullin Government, the Australian story in the aftermath of the GFC has been a more positive one, though it is also true that in our patchwork economy not everybody is feeling the gains.

Even so, almost alone among the developed economies, we escaped a deep and damaging recession, with all the hardship that would bring.

One of the fundamental reasons for this is that we had the common sense to follow the broad prescriptions outlined by Keynes.

We acted confidently, swiftly, on a broad front, and in sufficient scale to rebuild consumer and investor confidence and fill the hole left by collapsing world and domestic de-

mand for Australia’s products. We also moved to shore up the fundamentals of our financial system to keep it operating effectively.

This wasn’t done because of any politically-motivated ideological preference. And it wasn’t done because we had suddenly rejected the commitment to competition-enhancing economic reforms that the ALP has championed since the beginning of the Hawke and Keating eras. We did these things because we learned the lessons of the past.

And we did them because Labor, guided by Keynes, is driven by a morality that regards unemployment, ruined businesses, foreclosed mortgages and myriad other signs of economic distress not as part of an inevitable and desirable cleansing process for the economy, but as the symptoms of a recession that should and can be avoided with the necessary will.

This is the broader legacy of Keynes to Australia: the joining of social-democratic morality to sound and sustainable economic policy. Through primarily Labor governments, assisted by great public servants like Nugget Coombs and others, Australia has made capitalism and social democracy work together to create a wealthier and fairer society. In this way, contemporary Australia and our economic strategy wears the stamp of one of the 20th Century’s greatest thinkers.

I want to thank and acknowledge friends, staff and officials who provided substantial assistance, inspiration and input into this essay and its revisions over recent months, and thanks to the Australian Fabians for prompting me to publish it.

Fukushima and the Political Economy of Japanese Power

by Andrew DeWit

The March 11 ‘Great Eastern Japan Earthquake’ was a magnitude 9 event centred about 70 kilometres off the northeastern (‘Tohoku’) coast of Japan’s main island of Honshu. The quake produced a tsunami that in some areas reached 37.9 metres high and stretched 10 kilometres inland. It has left about 27,000 people dead or missing, and caused perhaps USD 300 billion in damage to an economy already weakened by enormous debt, demographic and other problems.

But Japan and the world remain focused on the nuclear meltdown at the Fukushima power station, where several reactors are out of control.

Significant releases of radioactive materials into the sea and surrounding areas have seen 25 countries impose import bans on Japanese farm and fisheries products. Japanese domestic trade has also seen products from the surrounding Tohoku region either taken off the market or simply shunned in the shops.

The Japanese government under Prime Minister Naoto Kan, plus the corporate owner of the reactor, Tokyo Electric Power Corporation (TEPCO), have made matters worse with reluctant and conflicting communication of the facts. In a few short weeks, Japan’s international reputation for quality and safety has suffered an enormous blow. The disaster is also liquefying the political landscape of Japanese power, i.e., the nation’s use of energy resources to generate electricity.

The radioactive reactors at the core of the crisis symbolise vested interests’ dominance of Japan’s energy policy, and especially the production of electrical power. Key actors in this overweening ‘power elite’, if you will, are Japan’s 10 monopolised utilities that have the country divided into their respective fiefs. They are backed by bureaucrats in the powerful Ministry of Economy, Trade and Industry (METI) as well as a broad swath of the political class, academe and the media.

Japan has viewed nuclear power as a very important alternative energy source for generating power since the oil shocks of the 1970s. And in response to the past decade’s surge of oil and other fossil-fuel prices and risks, Japan has aggressively promoted nuclear as the key alternative.

Keep in mind that much of the coal, natural gas and oil Japan imports goes to generating electricity.1 Japan’s imports of all fossil fuels were stable at about 1 per cent of GDP until around 2003, in which year the ¥8.4

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trillion (AUS 94.3 billion) cost of imported fossil fuels represented 1.7 per cent of GDP. In 2004 the cost increased again to ¥10.3 trillion (AUS 115.7 billion) and 2.1 per cent of GDP. These figures continued ramping up to the point where in 2007, the cost was ¥20.6 trillion (AUS 231.5 billion) representing 4 per cent of GDP. In 2008, the cost was ¥23.1 trillion (AUS 239.3 billion) and 4.6 per cent of GDP.2 The power elite used this backdrop of escalating fossilfuel prices – as well as increasing geopolitical risks and the threat of climate change – to expand Japan’s commitment to nuclear energy.

Up to 11 March, Japan was generating close to 30 per cent of its electricity from nuclear reactors. Its 2010 Basic Energy Plan committed the country to making nuclear power central to Japan’s power supply by raising its share to about 50 percent by 2030.

The authorities proposed to realise this objective by constructing at least 14 new nuclear plants by 2030, nine of them by 2020. The Plan’s longer-term goals include the extraordinarily ambitious target of securing 60 per cent of all energy needs, not only electricity, from nuclear sources by 2100.

The nuclear component is also the key part of both regionally centralised power generation and a transmission network that is clearly and disastrously vulnerable to the country’s frequent earthquakes and accompanying tsunamis. The power industry overall is vertically integrated in its regional silos and largely self-regulated, with a lamentable record of cutting corners as well as outright corporate fraud.3 For decades, a host of well-informed critics has foreseen precisely this

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kind of crisis. Like those who warned of Wall Street’s derivatives and ‘too big to fail’, Japan’s nuclear policy critics were ignored by the vested interests and captive regulators who collude4 in a policymaking network seized by group-think, centred on concentrated benefits, and skilled at using the state to diffuse risks and costs.

The power elite are united not only by concrete incentives, but also by the idealism of true believers who brook no interference in their grand plans. Indeed, as the Washington Post reported on 5 April, even as their reactors melted down in Fukushima during late March, the TEPCO managers were pushing ahead with plans to construct new reactors on the site.

Japan’s policymaking catastrophe in the power sector seems certain to cost its economy tens of trillions of yen in lost production, higher electricity prices, and a deeply tarnished image. This case is striking in the scale of its irresponsibility and continuing fallout. But it is, in fact, just another example of the failure of developed country governments in the midst of an environmental and energy revolution and against the backdrop of accelerating climate change.

Consider the lead-up to this crisis.

The Japanese Democratic Party’s win in the ‘regime change’ election of August 2009 was cast in the mold of the Obama Democrats, intentionally recycling the slogan of ‘change’. Among other things, the DPJ effectively promised to dismantle the centralised dominance of the power elite. The DPJ’s election ‘manifesto’

downplayed nuclear power in favour of renewable energy and the advanced, ‘smart grid’ infrastructure and policies to foster it. Specifically, the party promised a robust feed-in tariff applying to all renewable energy, an increase in the renewable portfolio standard to 10 per cent by 2020, a 25 per cent cut in carbon emissions by 2020 (versus 1990 levels), and other policy supports.

With a policy shift such as this, small-scale renewable electricity generation, from rooftops, rivers, farmers’ fields and innumerable other locales, would diversify power production and spread its benefits more equitably. It would also help vault Japan to the head of the race to produce cheap, renewable power along with the smart grids and smart cities that are the sine qua non of meeting the energy needs of a rapidly urbanising global population swelling to nine billion over the next few decades. Keep in mind that Japan had long been falling behind the Chinese, the Germans and others who use feed-in tariffs and other robust policies to take the lead in what Australian climate advisor Ross Garnaut, along with many esteemed others, depicts as an energy-environmental revolution. Regime change offered Japan a chance to revamp its energy policy, and move forward fast.

But the power elite mobilised their cadres in the corridors of power, and beat back this challenge. As the economy failed to pick up in late 2009 and early 2010, they worked with Japan’s carbon-intensive sector of steel, cement and other industries, and compelled the DPJ leadership to abandon or at least greatly weaken

its energy and climate targets. In addition, they got the DPJ to stress nuclear exports as the leading edge of Japan’s economic strategy, with the state backing up the industry through foreign policy, preferential loans and other aid.

The extraordinarily disappointing results of the US and Japanese regime changes were not due to the personal failings of individual political leaders, no matter how much Hatoyama Yukio (the first DPJ Prime Minister) was derided.

Rather, these failures shed light on a much larger phenomenon of sclerotic institutions and policymaking. Across the advanced societies, we have a governance problem of densely concentrated vested interests versus a highly atomised public. Trade unions and other civil society organisations have been profoundly weakened as a result of deregulation and other policies adopted in the wake of the oil shocks and stagflation. In the 1970s, conservatives worried about ‘ungovernability’ via too many assertive organisations acting on behalf of organised publics. Yet from a peak of 55.8 per cent in 1955, unionisation rates in Japan have fallen to about 18 per cent in recent years (and about 12 per cent in the US, from a peak of 28.3 per cent in 1954).5 And deregulation of labour markets has made Japan’s unions even more defensive than ever, thus ready to follow corporate priorities. Ungovernability is now clearly due to the ‘plutocrats’ that worry even neoconservative public intellectuals like Frances Fukuyama.

As Nobel Prize winning economist Joseph Stiglitz and others warn, we are in an era of unprecedented inequality driven by profoundly concentrated interests who are

very capable of defending and expanding their dominance. The incentives and actors to overcome this concentration of power and benefits are generally too finely dispersed. Mass publics in ‘consumer democracy’ have great difficulty organising in any protracted fashion on issues that are more than merely superficial.

It takes a severe shock to galvanise attentions.

Japan’s current crisis in the power sector may provide this shock and a lesson for us all. Japan’s crisis shows us that the energy sector is huge and very lucrative for the interests that dominate it. They have plenty of resources to secure the support of large sectors of the bureaucracy and politics, as well as much of academe and the media. The crisis shows us, at the same time, that power generation offers an enormous potential for building more robust, sustainable and equitable political communities.

Indeed, Japan teaches us that we can no longer submit to centralised power production. It costs far too much. The people in charge of it and the people who invest in their works (largely pension funds looking for predictable returns) seem always to opt for systems with enormous fat tail risks. Big firms are biased to these kinds of technologies and to the complex, highly vulnerable structures that manage them. Small-scale and distributed power systems with their multiple redundancies and low level of complexity do not appeal to actors that seek to reap concentrated benefits and pass on diffused costs.

We have all long put up with concentrated benefits, captured

regulators and embedded irresponsibility in power markets as well as other sectors of the energy economy. But now Japan faces months of power-supply disruptions as well as increasing, and potentially escalating, electricity bills. Japanese electricity consumers are used to relatively high prices for power, but they are not accustomed to blackouts.

Especially as the hot and humid summer deepens, they will start asking why they have to pay so much for power that they are not getting when they need it. That makes a solar panel on the roof or a windmill in the local community much more attractive than it was before the crisis. After all, if you have a panel on your roof, a wind turbine in your local community, geothermal generation down the road, a biomass generator at the local farm, or a small-hydro generator at the nearby river – and if you have all these things complete with a micro-grid to link them all together – then you are less exposed to rising prices and systemic collapse through a natural disaster or some other unforeseen event. Distributed power generation with built-in redundancies not only renders you less vulnerable to these kinds of shocks and power outages, but you are also physically safer. Simply put, solar and other renewables do not spread radioactive substances in your drinking water, vegetables, milk and fish, unlike the nation’s nuclear power generation system at present.

To top it off, the household, the co-op, the small-business, the local community, and others can derive income (through the feed-in tariff) as well as a degree of energy self-sufficiency through these technologies. And as if all that

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were not enough, these various power-generation options are already at or below grid parity with conventional power costs or are rapidly falling towards parity.

So the country that gets a significant enough shock to move rapidly away from centralised power production and towards distributed power production, with micro-grids and smart grids, is perhaps strongly advantaged in the 21st century economy. Energy policy, as is often said, does not change with elections but with crises. Japan has been hit with an unparalleled crisis, and one whose magnitude has perhaps not yet peaked. The crisis is already of sufficient scale that it will leave an indelible impression on Japanese political culture and drive massive institutional change within the Japanese political economy.

Through progressive policy and politics, this energy crisis could also boost the Japanese household, farmer and small-business sectors’ organisation as power producers and put the country back into the race to build sustainability

1 The Statistical Handbook of Japan 2010 shows that roughly half of Japan’s total energy use goes to generating electricity. http://www.stat.go.jp/english/data/ handbook/c07cont.htm 2 Japan Ministry of Finance Trade Statistics, http://www.customs.go.j@/toukei/info/ index.htm 3 On this, see ‘At Utility, a Leadership Vacuum,’ Wall Street Journal, 31 March 31, 2011: http://online.wsj.com/article/SB10001424052748704559904576231742989 493576.html 4 In the wake of the incidents, the Japanese press has begun describing in detail the networks of influence that have seen, for example, three3 of TEPCO’s vicepresidents in the past 30 years parachute in from their jobs as head of the METI Agency for Natural Resources and Energy.

5 John Benson, ‘The Structure and Development of Japanese Enterprise Unions’, Japan Focus, 30 November 2008. http://www.japanfocus.org/-John-Benson/2938

Maiden Speech

Dr Andrew Leigh MP 18 October 2010

Andrew DeWit wishes to thank the Japan Society for the Promotion of Science (JSPS) for their generous research funding.

Andrew DeWit is Professor of the Politics of Public Finance and Chair of the Graduate Programme at Rikkyo University in Tokyo. His latest works include (in Japanese) with Kaneko Masaru, Getting out of the Great Recession (2009) and Global Financial Crisis (2008); ‘The Politics of Fixing Financial Crises’ in Keynes and Modern Economics (2011); and (in Japanese) ‘The Energy and Environmental Crises: Getting Beyond the Political Treatment of the Tax State as an Economic Parasite’ (2011). dewit@rikkyo.ne.jp

It is hard to imagine a greater honour than to represent your friends and neighbours in our national parliament. Each of us brings to this place the hopes and dreams of the people who chose us. I am keenly aware of both the incredible opportunity the people of Fraser have bestowed on me and the very great responsibility to them which that opportunity entails.

Let me begin by telling you about my electorate of Fraser and the city of Canberra in which it lies. Fraser rests on the right bank of the Molonglo River, stretching north from the office blocks of Civic to the young sub-

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urbs of Bonner and Forde in the ACT’s northernmost tip. Because the leaders at the time decided that a capital city must have its own port, the electorate of Fraser also includes the Jervis Bay territory, which is home to a diverse community and a school where kangaroos graze on an oval overlooking the Pacific Ocean.

In the electorate of Fraser some locations carry the names given to them by the traditional Ngunawal and Ngambri peoples, who used what is now modern-day Canberra to hold their corroborees and feast on bogong moths. Other suburbs are named after Australia’s great political leaders. For the people of Canberra, a nation’s proud history is embodied in our local geography.

Thanks to far-sighted decisions by generations of planners, Canberra’s hills are largely undeveloped. This means that many residents have the pleasure of looking up from a suburban street to see a hill covered in gum trees. From the Pinnacles to Mount Majura and from the Aranda bushlands to Black Mountain our city’s natural environment offers ample opportunities to exercise the body and to soothe the soul.

Economists like me are trained to believe in markets as the best route to environmental protection, and I do. But I also know that smart policy will only succeed if there is a will for action, if we believe in our hearts that we cannot enjoy the good life without a healthy planet.

As vital as our natural environment is, so are the social ties that bind us together. In an era when Australians are becoming disconnected from one another, Canberra has some of the highest rates of

civic engagement in the nation.

Canberrans are more generous with our time and money, are more likely to play sport with our mates and are more inclined to participate in cultural activities. Part of the reason for this is that we spend less time in the car than most other Australians, but I suspect it also has something to do with the design of Canberra’s suburbs.

During my time in this parliament I will strive to strengthen community life, not only in Canberra but across Australia. In doing so I hope to follow in the footsteps of my grandparents, who were people of modest means who believed that a life of serving others was a life well lived. My paternal grandfather, Keith Leigh, was a Methodist minister who died of hypothermia while running up Mount Wellington in Hobart. It was October and the mountain was covered in snow, as it is today. Keith was 59 years old and was doing the run to raise money for overseas aid.

My mother’s parents were a boilermaker and a teacher who lived by the credo that if there was a spare room in the house it should be used by someone who needed the space. As a child I remember eating at their home with Indigenous families and new migrants from Hong Kong, Papua New Guinea, Chile, Cambodia and Sri Lanka.

That early experience informs my lifelong passion for Australia’s multiculturalism. With a quarter of our population born overseas, Australia has a long tradition of welcoming new migrants into our midst. Earlier this year I attended a prize-giving ceremony for an art competition run as part of Refugee Week. First prize went to a KarenBurmese woman who had woven a traditional crimson tunic. Because

she did not have a proper loom the woman had taken the mattress off her bed and fashioned a loom from her pine bed base. It is hard not to be overwhelmed by the courage and spirit of Australia’s migrants.

Near my home in Hackett, the local cafe is run by the three sons of James Savoulidis, a Greek entrepreneur who in 1966 opened the first pizzeria in Canberra and taught Gough Whitlam to dance the zorba a few years later. Elsewhere in the Fraser electorate you can enjoy Ethiopian in Dickson, Indian in Gungahlin, Chinese in Campbell, Vietnamese in O’Connor or Turkish in Jamison. Canberrans who are called to worship can choose among their local church, temple, synagogue or mosque. And yet I have never heard a murmur from my religious friends about the fact that the local ABC radio station broadcasts on the frequency 666.

My views on diversity and difference were also shaped by spending several years of my childhood in Malaysia and Indonesia. Sitting in my primary school in Banda Aceh I learned what it feels like to be the only person in the room with white skin. As I moved through seven different primary schools I got a sense of how it feels to be an outsider and the importance of making our institutions as inclusive as possible.

Clearly the experience did not scar me too much, because at 38 I have spent more than half my life in formal education. Sitting in Judith Anderson’s high school English class, I learned to treasure the insights into the human condition that come from the great storytellers – the works of William Shakespeare and Jane Austen, George Orwell and Les Murray, Leo Tolstoy

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and Tim Winton. Studying law, I learned that open government, judicial independence and equal justice are principles worth fighting for. Picking my way through the snowdrifts to attend Harvard seminars with Christopher Jencks, I came to appreciate the importance of rigorously testing your ideas and the power of tools such as randomised policy trials, a topic about which members can be assured I will speak more during my time in this place.

In the decades ahead, education will be the mainspring of Australia’s economic success. Great child care, schools, technical colleges and universities are the most effective way to raise productivity and living standards. Improving education is also smart social policy. First-rate schooling is the best antipoverty vaccine we have yet developed.

Great teachers can light a spark of vitality in children – a self-belief and a passion for hard work that will burn bright for the rest of their lives.

As an economist, much of my research has been devoted to the vast challenges of reducing poverty and disadvantage. I believe that rising inequality strains the social fabric.

Too much inequality cleaves us one from another: occupying different suburbs, using different services and losing a sense of shared purpose. Anyone who believes in egalitarianism as the animating spirit for the Australian settlement should recoil at this vision of our future.

My research has also taught me that good intentions are not enough. As a professor turned politician, one of my role models is the late, great US senator Daniel Patrick Moynihan. Moynihan 28 www.fabian.org.au

was innately sceptical about every social policy solution presented to him. Indeed, his starting point was to expect that any given social policy would have no measurable effect. But these high standards did not make him any less of an idealist, and Moynihan never lost his optimism and passion. What we need in Australian policy today is not more ideologues convinced that their prescriptions are the answer but modest reformers willing to try new solutions and discover whether they actually deliver results.

This spirit of optimistic experimentation has deep roots in our nation.

Manning Clark once said that Australia was an experiment for the multiple faiths of the Holy Spirit, the Enlightenment and a new Britannia. So you get the sense that in these early days the Australian project was one of expansiveness, enlargement and possibility, where people were prepared to take risks and try new ideas in an effort to show that in Australia we did things differently and better than anywhere else around the world.

This Australian project is not finished. It is not something that stopped with the end of the First World War or with the death of Ben Chifley. All of us, as today’s Australians, are the custodians of this project, a project that stretches back over generations and centuries and binds all Australians— past, present and future – together in this greater cause. It is like the red sand that Gough Whitlam poured into the hands of the great Gurindji elder, Vincent Lingiari, who declared: ‘We are all mates now.’ We have a responsibility to make sure that the Australian project, for the time that it rests in our hands, is advanced and continued.

To me, the Australian project is about encouraging economic growth while ensuring that its benefits are shared across the community. It is about making sure that all Australians have great public services regardless of ethnicity, income or postcode. And it is about recognising that governments have a role in expanding opportunities, because no child gets to choose the circumstances of their birth.

Internationally, the Australian project will always be one of principled engagement. Australia’s influence overseas will always rely on the power of our values. A respect for universal human rights and a passion for raising living standards should guide the work of our military and our diplomats, our aid workers and our trade negotiators.

In the shadows of World War II, Australia helped create the United Nations, guided by a belief that all countries had to be involved if we were to create a more peaceful and prosperous world. That ideal must continue to inform how we engage with the rest of the world.

Another important part of the Australian project has been democratic innovation. What we call a secret ballot is elsewhere termed the Australian ballot. We introduced female suffrage a generation before many other nations did. We made voting compulsory, recognising that with rights come responsibilities.

Yet, for all this innovation, Australians have increasingly become disenchanted with their elected representatives. The problem has many sources: the rowdiness of question time, too much focus by the commentariat on tactics rather than ideas, and a tendency to oversimplify problems and oversell solutions. I hope to help rebuild a sense of trust between citizens and

politicians. It starts with respect and a recognition that we can disagree without being disagreeable.

Working as an associate to Justice Michael Kirby taught me that intellect and compassion together are a powerful force for change. Admit that most choices are tough, listen to others, be flexible and remember that the fire in your belly does not prevent you from wearing a smile on your face.

Australian politics is not a war between good parties and evil parties. At its best, it is a contest of ideas between decent people who are committed to representing their local communities. I am happy to count among my friends people on both sides of this House. I am sure some of those friends will be happy to know that I do not plan to name them today. That said, choosing between the parties has never been an issue for me. I was born in the year when Gough Whitlam won office. When my mother’s pregnancy reached the nine-month mark she pinned an ‘It’s time’ badge onto the part of her shirt that covered her belly.

It is a true honour to serve as a Labor representative today alongside so many capable and talented individuals. Thank you to those who have given me advice already.

There is much more I have to learn from each of you. In the Labor pantheon the parliamentarians I most admire are those who have recognised that new challenges demand fresh responses. Among these I count John Curtin and Bob Hawke, Paul Keating and John Button, Lindsay Tanner and Gareth Evans.

For each of these men their ideals and values were their guiding light yet their proposals were as flex

ible and innovative as the situation demanded.

I also had the privilege to work briefly as trade adviser to the late Senator Peter Cook. Peter was an instinctive internationalist as keen to chat with a visiting Chinese delegation as to swap stories with the Argentinean ambassador. He believed in ideas, enthusiastically working to persuade colleagues that anyone who cared about poverty should believe in free trade.

Peter passed away in 2005 – far too early. I wish he were with us today.

I also count among my role models two former members for Fraser. As a 16-year-old, I came to Canberra to volunteer for John Langmore and was struck by the depth of his principles and the breadth of his knowledge. Never did I imagine that one day I would succeed him.

My immediate predecessor is Bob McMullan. Over two decades in federal parliament the people of the ACT supported Bob for being a superb parliamentarian and because they were proud to have on their home turf a true statesman who embodied every day the best of what politics can be. I acknowledge Bob and all those elected by the people of Fraser before him. Their service has set a high bar.

As elected representatives one of our most important jobs is to speak out on behalf of those who struggle to have their voices heard. The Labor Party has a proud tradition of defending individual liberties.

Past Labor governments outlawed discrimination on the basis of gender or race. This Labor government has removed from the statute books much of the explicit discrimination against same-sex couples and strengthened disability discrimination laws. And all Labor govern-

ments strive to protect the rights of workers to bargain collectively for better pay and conditions. Our party also stands firmly committed to democratic reform, including the simple yet powerful notion that every Australian child should be able to aspire to be our head of state.

The Labor Party today stands at the confluence of two powerful rivers in Australian politics. We are the party that believes in egalitarianism – that a child from Aurukun can become a High Court Justice and that a mine worker should get the same medical treatment as the bloke who owns the mine. But what is sometimes overlooked is that we are also the party that believes in liberalism – that governments have a role in protecting the rights of minorities, that freedom of speech applies for unpopular ideas as for popular ones and that all of us stand equal beneath the Southern Cross. The modern Labor Party is the true heir to the small-L liberal tradition in Australia.

Alfred Deakin was one of the earliest Australian leaders to make the distinction between liberals and conservatives. Deakin argued that liberalism meant the destruction of class privileges, equality of political rights without reference to creed and equality of legal rights without reference to wealth. Liberalism, Deakin said, meant a government that acted in the interests of the majority, with particular regard to the poorest in the community.

As for conservatives, to quote Deakin’s description of his opponents, they are: … a party less easy to describe or define, because, as a rule it has no positive programme of its own, adopting instead an attitude of denial and negation This mixed body,

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which may fairly be termed the party of anti-liberalism, justifies its existence, not by proposing its own solution of problems, but by politically blocking all proposals of a progressive character, and putting the brakes on those it cannot block.

A century on, it is hard to escape the conclusion that if Deakin were in this parliament today he and his brand of progressive liberalism would find a natural home in the Australian Labor Party – and, given the numbers in today’s parliament, I am sure my colleagues would welcome his vote!

For my own part, I would not be here without the support of the Australian Labor Party – Australia’s oldest and greatest political party – and the broader trade union movement. Ours is a party that believes in the power of collective action. When the goal is just and we are one, our movement and our party are unstoppable.

On a more personal level, I would also not be here without the bevy of volunteers who doorknocked, staffed street stalls and handed

out on polling day. Let me thank all of those who worked with me on this campaign and gave up vast amounts of their time for a cause greater than any of us. Thank you also to my staff, who make me proud to walk into the office each day. I am deeply touched that so many friends, staff and supporters are here in the galleries to share this special day with me.

Let me also acknowledge and express my love for my parents, Barbara and Michael, who instilled in my brother Timothy and me the simple values that guide us today: be curious. Help others. Laugh often. I hope that I can be as good a parent to my two sons, Sebastian and Theodore, as you have been to me. To my extraordinary wife, Gweneth, who left her home state of Pennsylvania for the unknowns of Australia: no matter how chaotic our lives become, you will always be the fixed point that puts everything else into perspective. In the words of John Donne, writing four hundred years ago to the love of his life: Thy firmness makes my circle just, And makes me end where I begun.

Finally, to the people who sent me here, the voters of Fraser: with the exception only of the neighbouring federal seat of Canberra, more votes were cast in Fraser than in any other electorate in Australia, and I am keenly aware both of the deep and diverse needs of our seat and of the great trust and confidence Fraser’s voters have placed in me.

To them I express my enormous gratitude for the honour they have given me of representing them in our nation’s parliament. And to them I make this pledge: to do my utmost always, to represent their interests to the very best of my abilities, to remember always that their support for me is not my entitlement but their precious gift, and to ensure that, in their name, I make Fraser’s contribution to securing a better, fairer, more prosperous and more just future for our great nation.

Dr Andrew Leigh Mp is the Member for Fraser in the 43rd Australian Parliament.

Andrew.Leigh.MP@aph.gov.au

www.fabian.org.au read online

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From where I stand

Overcoming intellectual black holes in the economy Dr Shann Turnbull

“Retirees will cause an economic ‘black hole’,” according to a headline in the Sunday Telegraph of 12 March 2011 (p. 30).

The news item by Nick Gardner was based on the Treasury’s latest Intergenerational Report on Australia’s aging population that states, ‘From 2018-19 onwards, aging and health pressures are projected to lead to a gradual deterioration in government finances’.

The article claimed, ‘A spokesman for Treasurer Wayne Swan said the Government faced an uphill battle’. But instead of an uphill battle, supporting our aging population should represent an opportunity to harness the support of a large majority of voters obscured by an intellectual black hole in policy analysis.

The opportunity being missed by the Treasurer and Treasury would make Australia a role model for the world on how to establish an environmentally sustainable prosperous economy. It would provide a solution for the concerns of the Hon. Bill Shorten MP in the Australian Fabians News (November 2010, pp. 7–8) on how to fund citizens with disabilities. It would also provide a way of ‘Coping with the grey masses’ discussed by Dr Andrew Leigh, the Federal Member for Fraser, in his article in The Australian Financial Review (15 February 2011). Leigh too was concerned about how to fund retirees. He noted that the baby boomers are now reaching retirement age and will require pensions for many more years than previous generations because they live longer.

However, none of the solutions discussed by these commentators are sustainable economically or environmentally. The Sunday Telegraph article states: “experts warn the labor Government’s already-flagged measures such as increasing the Super Guarantee from 9 per cent to 12 per cent, raising the retirement age to 67 from 2017, and targeting ‘improved productivity’ – especially from older workers – are ‘too little, too late’ to avert the impending financial crisis”.

A solution described in the Sunday Telegraph article is to ‘radically increase the number of taxpayers through more immigration – and increase the amount of tax we pay’. Increasing taxes to cope with the

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grey masses of baby boomers now retiring does not represent a voting winning policy, especially with new imposts already proposed to reduce the nation’s reliance on burning carbon. Increasing immigration is also contentious in the short term and becomes increasingly unviable over the long term, as a 2001 United Nations report explains.1 Arguments for restricting immigration were set out in the last Australian Fabians News (November 2010, pp 27–28) by Kelvin Thompson MP, in his article arguing, as per its title: ‘It’s time for population reform’.

As Thomson points out in the article, immigration increases environmental problems. And over the longer term, immigration becomes increasingly problematical partly because, as a 2003 United Nations report posits, the global population is most likely to start decreasing in 2075.2 Already 20 advanced economies are depopulating, with ghost suburbs expected in some countries like Japan that could de-populate by 21 per cent by 2010 according to a 2003 United nations report.

Unused infrastructure will result, including excess facilities for water, sewerage and transport and unused schools and hospitals. As more countries de-populate, more competition could arise between nations to attract immigrants from a declining number of countries that still have a growing population. The 2003 UN report expects only three nations – Niger, Uganda and Yemen – will contribute half of any national population increases when the global population begins to decline in around 65 years time. Citizens inclined to emigrate from these countries may be motivated by

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other cultures that they find more attractive.

Shorten’s solution is disability insurance, while Leigh’s is superannuation for ‘coping with the grey masses’. Both solutions are based on voters and/or the government foregoing income today to fund expenditure in the future.

Both mean a reduction in current expenditures, and therefore in consumption and prosperity today.

Both solutions propose using existing financial institutions such as insurance companies and pension funds. This would increase the cost of the financial sector, a process described as ‘financialisation’ of the economy.

In many advanced economies resources consumed by the financial sector have doubled over the last 25 years. The solutions proposed

by Shorten and Leigh would also concentrate money and power within a small elite of insurance and pension fund mangers.

A better solution democratises both the ownership and control of investment income and so reduces the size, cost and influence of the financial sector. This solution was recognised by Zhu Rongji a year before he became Premier of the People’s Republic of China; at the University of NSW in 1997 he stated: ‘You cannot have political democracy unless you have economic democracy’.

However, Treasury officials and economists in general suffer an intellectual black hole on how to achieve economic democracy without taxes, welfare and big government. They consider that the only two practical ways to distribute national income are through work

or welfare. Unbelievably, economists generally do not consider democratising the ownership of income-producing assets as a way to democratise wealth.

The intellectual black hole in the thinking of economists can be traced to Scotish economist and moral philosopher Adam Smith.

The modern study of economics has its roots in his book, An Inquiry into the Nature and Causes of the Wealth of Nations, generally referred to as The Wealth of Nations, published in 1776. Smith used ‘wealth’ to refer to income not assets. So if you look up ‘wealth’ in economics textbooks, most refer readers to ‘income’. However, many people, like bankers, use ‘wealth’ to refer to the surplus of assets over liabilities. This surplus is shown in a financial statement that business people call a balance sheet.

A balance sheet showing assets, liabilities and net wealth is a fundamental requirement for any business. Many business people think it unbelievable that economists do not include a balance sheet in the national accounts. But this explains why most economists did not see the third world debt problem emerging in the last century or the global financial crisis in 2008.

Economists do not measure and compare the wealth of nations through assets less liabilities but through Gross National Product (GNP). British and Australian economist and statistician Professor Colin Clark, who worked in both the United Kingdom and Australia, pioneered the development of GNP measures as the basis for studying national economies and so became an international authority on the

wealth of nations. It took me some time to understand the extent of the intellectual black hole of economists when Clark informed me that my 1975 book, Democratising the Wealth of Nations,3 was not about economics because it was about the distribution of assets.

However, Dr Jim Cairns’ review of my book recognised the value of adding the distribution of assets as a new policy option when he launched my book as Deputy Prime Minister in 1975.4 It provides the opportunity to attract voters with solutions to the problems discussed above by providing politically attractive ways for distributing national income with less taxes, welfare payments and smaller government. An outline was provided in my article in the Australian Fabians News (November 2010, pp 34-35) on ‘Enriching Australians with a new tax regime: Not a resource tax’.

As set out in greater detail in my forthcoming book chapter ‘Achieving environmentally sustainable prosperity’, distributing income through distributing the ownership of corporations, introduces the processes found universally in nature of cyclic termination and rebirthing. While business operations could continue indefinitely, they would need to be continually recapitalised from the re-investment of dividends to give birth to ‘offspring’ corporations. A dozen other profound benefits arise from: (1) Reducing the inefficiency and inequity of capitalism that allows investors to be overpaid with profits that are surplus to providing the incentive to invest.

(2) Avoiding corporations becoming too big to fail as firms obtain an incentive to distribute all profits;

(3) Allowing market forces to allocate corporate resources more efficiently through dividend reinvestment in offspring firms and/or cyclic recapitalisations instead of relying on a very imperfect market for corporate control through takeovers; (4) Establishing many more smaller firms with less market power to improve competition in providing goods and services; (5) Reducing the economic and political power of corporations that can undermine democracy; (6) Reducing taxes, welfare and the size of government: (7) Reducing alien disconnected capitalism by increasing local ownership with strategic stakeholder engagement; (8) Facilitating protection of the host environment of firms through greater local control; (9) Introducing ‘boomerang’ ownership to attract more foreign investment with more local ownership long term; (10) Furthering the financial independence of local communities, and so (11) providing environmentally sustainable prosperity even without growth.

1 United Nations (2001), Replacement Migration: Is it a solution to declining and aging populations?

Population Division, Department of Economic and Social Affairs, http://www.un.org/esa/population/ publications/ReplMigED/Cover.pdf.

2 `United Nations (2003), World population in 2300, Department of Economic and Social Affairs, December 9, New York: United Nations, http://www.un.org/esa/ population/publications/longrange2/ Long_range_report.pdf.

4 Cairns, J. (1976), A review of Shann Turnbull’s book – ‘Democratising the Wealth of Nations, JASSA’, The Journal of the Securities Institute of Australia, 1:9–13, http://cog.kent. edu/lib/cairns.html.

References and links: Turnbull, S. (1975), Democratising the wealth of nations, Company Directors Association of Australia, Sydney, available at: http://ssrn.com/abstract_ id=1146062.

Cairns, J. (1976), ‘A review of Shann Turnbull’s book – Democratising the wealth of nations, in JASSA, The Journal of the Securities Institute of Australia, No. 1, pp. 9–13, available at: http://cog.kent.edu/lib/cairns.html.

Turnbull, S. (2010), ‘Out of left field: Enriching Australian with a green tax regime: Not a resource tax’, Australian Fabian News, Vol50, No2/3 November, pp. 34–35, available at: http://www. fabian.org.au/1133.asp Turnbull, S. (2011), ‘Achieving environmental sustainable prosperity’, in Alternative Perspectives of a Good Society, John Marangos (ed), Palgrave Macmillan (Forthcoming), available at: http://ssrn.com/abstract=1769349.

United Nations (2001), Replacement Migration: Is it a solution to declining and aging populations? Population Division, Department of Economic and Social Affairs, ST/ESA/SER.A/206, available at http://www.un.org/esa/ population/publications/ReplMigED/ Cover.pdf.

United Nations (2003), World population in 2300, Department of Economic and Social Affairs, December 9, ESA/P/WP.187 DRAFT, New York: United Nations, available at: http://www. un.org/esa/population/publications/ longrange2/Long_range_report.pdf.

Shann Turnbull is the author of Democratising the Wealth of Nations, The Company Directors’ Association of Australia, Sydney, 1975; and ‘Building a Stakeholder Democracy’, in Ambitions for our Future: Australian Views, Economic Planning Advisory Commission, Canberra, 1994, pp. 83-90.

Dr Turnbull is the Principal, International Institute for Selfgovernance, Sydney, Australia. sturnbull@mba1963.hbs.edu

3 Turnbull, S. (1975), Democratising the Wealth of Nations, Company Directors Association of Australia, Sydney, http://ssrn.com/abstract_ id=1146062.

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Choosing Middle Class Courtesy of Fiona Katauskas

newmatilda.com

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