This book came out in 2005, and as far as I can remember, attracted remarkably little interest. Hugh Stretton is one of Australia’s foremost thinkers, and he has an international reputation for his work in the area of values in the social sciences. Though he started off teaching history – at Oxford, then Adelaide University – he finished up as a researcher in economics. This book is a work of political economy; it looks at how we got into the political and economic trouble we are in, and what we might do to fix it. Stretton argues ‘that we should be doing whatever it takes in our changing historical conditions, by old means and new, to keep Australia fair
’. And this was before the GFC. How could such a relevant and important book be overlooked now?
In this post, I’m going to look at what Stretton says about how we got where we are, and in a later post I’ll outline what he thinks we could do about it.
It’s actually quite easy to see why the book was largely ignored. It takes a lonely stand against the economic orthodoxy accepted at the time by the Labor Party, the LNP and most economic commentators. It sees the changes to the operation of the economy, started by the Hawke-Keating government and pursued further by the Howard government, not as great and necessary reforms that have benefited all of us, but as an abdication of the power to control the economy for the general good. Stretton wrote too early. It’s only since the GFC dented confidence in the free market’s ability to deliver a fair society that such arguments are again being entertained. Well, he certainly makes a good one and it’s time to look at it again.
Paul Keating, Stretton says, brought about a U-turn in Labor economic policy. Instead of using the state to pursue full employment and balanced development, Keating gave up the power to do this. As well as removing most tariff protection, he ‘reduced the regulation of business, privatised some public services and slimmed others to cut their costs, maintained some unemployment to restrain inflation, shifted taxation downward from the highest incomes, and thus increased some inequalities.’ Stretton says that Keating knew that this would hurt some citizens, and accepted that there would have to be a safety net that provided good health care, welfare and education to those left behind. He argues Keating’s motivation was good, that he believed such changes would result in optimum foreign investment, employment, growth, and low inflation. The wealth thus produced could be used to compensate the losers.
I well remember how inexorable this program seemed at the time, particularly as most commentators endorsed it. Labor values seemed to be disappearing, but what was the alternative? Once the process had begun, LNP governments, state and federal, would only take it further, and so it proved. In the face of frustration and impotence on the economic front, Labor activism shifted to the identity issues of gender, race and sexuality – important in themselves, but cutting across the economic divide of the haves and have nots. Other activists turned to the battle over conservation of heritage and biodiversity, and joined the Greens. And some of us withdrew from politics altogether. A pox on both your houses.
Stretton agrees that for some of the time – when for example the business cycle is in an up-swing, or there are (or were) short term profits from asset sales (or there is a mining boom) – some of these good things have happened. But he argues that the downside has been greater than any benefits. Our current arrangement, he says, ‘trusts production to private enterprise and market forces with minimum public aid or regulation. Government’s role is to rescue the resultant losers and correct the misdistribution of income by tax and welfare means. In practice that has become so expensive for an under-employed and ageing population that we don’t do it very well.’ He deals with specific downsides in the chapters about what might still be done to correct the situation in areas such as employment, housing, health and education, income and natural resources. But as a quick summary, the downsides include unemployment, rising numbers on welfare, a smaller tax base to pay for welfare, unaffordable housing, less effective public services (cut to trim costs), more user pays, unproductive investment aimed at speculative returns, some spectacular corporate failures and more inequality. And his point is that much of this comes down to an economic policy chosen by a Labor government which gives undue freedom to the market.
Stretton is far too subtle a thinker simply to be making a case for ‘government intervention’ versus ‘the free market’. He argues that government always has a role in even the most free of markets; it is a question of the public-private mix – with the addition of the contribution of the not-for-profit sector and households. After all, as he points out, ‘It takes work by more than one of them, and often enough by all four, to get your dinner on the table, your car on the road or your children educated.’ Furthermore, unlike with market solutions, there is no ‘one size fits all’; it is a question of working with an eclectic mix of old and new, theory and practice, and experience and imagination. For the detail, see my next post.
Quite apart from the overall sweep of Stretton’s argument – and I have in no way done it justice here – there are two insights that in the light of current circumstances, struck me forcibly. One concerns pokies. As a result of spending cuts in pursuit of smaller government, revenue grants to states have been cut, leaving them less and less able to afford to provide the services for which they are responsible. ‘Desperate needs breed sickening remedies,’ writes Stretton. Most of the States have acted to expand gambling and their revenue from it … unlike the capital proceeds of privatisation, the gambling revenue is reliably, seductively sustainable
.’ So the current plague of gambling addiction is an unintended consequence of economic rationalism.
The second insight is that where both sides of politics agree on the fundamental primacy of the market, politics easily degenerates into arguments about management – think BER and pink batts – and the trustworthiness of leaders – think JuLiar and sexism. These may be important, but they shouldn’t be all there is. What Stretton had before him at the time of writing was Mark Latham’s apparent acceptance that ‘the voters who matter are self-interested battlers, contemptuous of idlers living on welfare, and easily frightened by talk of higher taxes or interest rates or inflation.’ I would argue that Labor is now making some effort to initiate a debate about the role of the state, with the carbon tax, the mining tax (however watered down) and a modest assault on middle class welfare. But I’m not sure what direction these baby steps are going in – certainly Hugh Stretton would not be satisfied.
For all there is so much good stuff in it, I can’t say this is an easy book. You’ll see in my next post that his proposed solutions, though sometimes simple, aren’t easy either. But it’s a book that deserves much wider reading and discussion. Perhaps someone should send it to the Prime Minister for Christmas. Kay Rollison also blogs at What Book to Read – reviewing everything from crime to literary fiction.