Is Rudd returning to social democracy?

“Seismic changes are underway”, writes Kevin Rudd in the latest issue of The Monthly. He declares that a “regime change” from the neo-liberal order to a renewed emphasis on the role of government intervention is now taking place.
The global economic turmoil has thrown the confidence of governments in neo-liberalism and the unfettered working of the free market into crisis. With the entire banking system in the US and Europe facing collapse, governments have been forced into pragmatic bailouts and hitherto inconceivable nationalisations.
This comes after three decades where governments worldwide have argued for cutbacks to services like health and education, privatisation and wage cutting as part of the neo-liberal policy prescription. Everywhere this has meant a massive transfer of wealth upwards into the hands of corporations and super-rich CEOs.
Now, as even former hardline neo-liberals abandon some of their most dearly held beliefs, many are asking whether the age of neo-liberalism is over. Rudd goes further. He claims that we are seeing a shift back to social democratic policies around the world, with the election of Obama in the US and a renewed faith in Keynesian economic policies.

A return to social democracy?
Does the scale of the measures governments are taking mean a break with the neo-liberal era? Above all, neo-liberalism was an attempt to restore corporate profitability in the face of the re-emergence of serious economic crises in the 1970s, following the end of the long post-war boom. Its dominance caused a crisis for social democratic parties like the Labor party in Australia, as well as its counterparts in countries like Britain and Germany.
Social democrats accept the capitalist system but argue it can be reformed to improve ordinary people’s lives by using the state to tame the worst excesses of the free market.
Key to social democratic politics was an understanding of the class divide in society, and therefore implementaton of policies like the welfare state, nationalisation of important parts of industry and government spending on services to benefit the mass of the population.
In its early years Labor fought for the introduction of the aged pension and established the Commonwealth bank. The Whitlam government doubled spending on education in its first year, introduced free tertiary education, Medibank health insurance and equal pay legislation.
But in a situation where business profitability was threatened, and it became more difficult for the capitalist system to afford the social spending on the welfare state that developed after the Second World War, there was pressure on Labor to abandon redistributive policies.
As a result social democratic parties capitulated to neo-liberalism. This is true of parties ranging from Britain’s New Labour to France’s Socialist Party or the Workers’ Party in Brazil. The Australian Labor Party was one of the earliest to make this shift, pioneering much of the neo-liberal agenda in Australia under the Hawke and Keating governments.
Rudd claims in his essay that Hawke and Keating were able to both “improve the productivity of the Australian private economy, while simultaneously expanding the role of the state in the provision of equity enhancing public services”.
In fact their time in power saw a massive increase in inequality. Qantas and the Commonwealth bank were privatised, corporate tax rates slashed and wage cuts forced on workers through the Accords. As a result the profit share of the Australian economy rose from about 18 per cent before Labor came to power to 23 per cent when they lost office in 1996. By that time one per cent of the Australian population controlled 20 per cent of the national wealth, up from 10 per cent in 1983.
Until recently, Kevin Rudd had no disagreement with this basic policy framework. During the last election he boasted of being an “economic conservative”. As he explained in a speech to the Australian Industry Group, this meant he was in bipartisan agreement with the Howard government about “fiscal discipline” and keeping government spending low. Both in that speech and at the 2020 summit he held out the prospect of continuing to cut corporate tax rates in order to keep them “internationally competitive”. His first budget last year demanded a 2 per cent “efficiency dividend” and thousands of job cuts in the public sector.

Rudd’s Keynesianism
But the scale of the economic crisis has not led him to abandon his previous economic policies. Rudd’s essay is scathing of the bankers who ran up huge profits through dodgy financial instruments. However, his attack on neo-liberalism is mainly targeted at lack of regulation of financial markets.
He is right to point to this as a major precipitator of the banking crisis. This was a product of the jettisoning of the regulation introduced as governments learnt the lessons of the 1930s. Combined with the US Federal Reserve’s strategy of slashing interest rates to provide cheap credit and lift the US economy out of successive crises, this led to the bubble in sub-prime housing loans that triggered the crisis.
A repudiation of the underfunding of health and education, the fiscal conservatism and the wage cutting at the heart of neo-liberalism is nowhere to be found.
Rudd’s response to the economic crisis has been to massively increase government spending in a series of Keynesian stimulus packages. This is a marked contrast with the usual diet of cutbacks and spending restraint that have characterised the neo-liberal era.
Socialists can welcome some of the measures in Rudd’s spending packages—increases in public housing, the subsidies for housing insulation and money for school buildings. They will create jobs and help moderate the crisis. But they do not signal a complete break with neo-liberalism. At the same time as Rudd is pouring $14.7 billion into school buildings he maintains a funding ratio that sees government schools get $1.4 billion a year less for teachers and basic costs than when Labor lost office in 1996.
Rudd may be pouring money into the economy but he is not using the opportunity to establish an ongoing higher level of funding for public services, or even to reverse the cutbacks that Howard has made in universities, to expand the public health system or to increase public sector jobs.
Rudd clearly sees his current spending packages as a temporary measure. His hope is that the economic crisis will pass quickly, so that the government will be able to return to tightly balanced budgets and spending restraint. Treasurer Wayne Swan has promised that as the economy recovers, the government will act to keep real spending growth to 2 per cent a year and will not increase taxes as a proportion of the economy.
Rudd could be creating well paid government jobs whether in teaching, hospitals or employing people to build infrastructure. But instead he is leaving it to the private sector to generate jobs—and to determine pay and conditions. There is a good reason for this. As the government’s calls for wage restraint show, it intends for the working class to pay to get us out of the crisis. The result of this is that those who keep their jobs will see living standards drop.
How then can Rudd’s introduction of such enormous Keynesian economic stimulus packages be explained?
The economic crisis has united governments of all stripes behind similar resorts to bank nationalisations and Keynesian spending. Even the IMF, which has been one of the key global institutions to promote neo-liberalism though its Structural Adjustment Programs, is encouraging governments to spend big. IMF Chief Economist Olivier Blanchard declared in November, “We think that global fiscal expansion [government spending] is very much needed at this point”.
The truth is, despite the ideological commitment to neo-liberalism, governments have always responded to recessions through Keynesian spending. The Reagan government, which pioneered neo-liberal policies in the US, pursued deficit budgeting as did the Bush administration following the 2001 dot.com crash in the US.
The scale of the current shift towards Keynesian spending simply reflects the scale of the economic crisis, widely described as the most serious since the 1930s depression. The response by governments around the world is best understood not as some shift to a more equitable economic model, but as British socialist Jacob Middleton puts it, “pragmatic crisis management”.
Every government understands that without the drastic action taken in nationalising the banks an economic collapse of unimaginable proportions would have resulted. This explains why the most committed neo-liberal government—the Bush administration—spent hundreds of billions on bailing out its banking system.
The actions of governments around the world, then, are certainly understandable, as Rudd puts it, as designed “to save capitalism from itself”. Despite his attack on “market fundamentalism” Rudd has repeatedly made it clear that he is a firm supporter of free market capitalism. In an earlier attack on neo-liberalism in the form of economist Friedrich Hayek, delivered just before he became Labor leader, Rudd declared he has “always respected and accepted the creativity, the efficiency and wealth-generating capacity of markets.”
As job losses mount more and more people will come to question the madness of capitalism and the misery it produces. Socialists insist that society can be run for the benefit of the majority of ordinary working people. This requires wresting control of the economy away from the shareholders and CEOs who run the huge corporations—and enrich themselves in the process.

By James Supple

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