Review: Goodbye to all that: The failure of neoliberalism and the urgency of change
Edited by David McKnight and Robert Manne, Black Inc, $32.95
You can ask the right question at the right time and still get the wrong answer. Robert Manne and David McKnight have brought together various social democratic commentators and Keynesian economists to ask—“is neoliberalism in Australia finished?”
The authors use the 2008 global economic crisis to kick the free-marketeers in the guts. This is always welcome. But it’s not too long before their confused ideological lens compromises the critique.
This confusion is highlighted by the book’s treatment of the most important figure in this equation—Kevin Rudd. The authors want the end of neo-liberalism, but they can’t decide whether Kevin Rudd’s election represents an assault on neo-liberalism, or its continuation. More to the point they want to believe Rudd’s rhetorical self-identification with social democracy, despite all the evidence to the contrary, plenty of which is covered in their book.
The times they are a…
The book understands the importance of the 2008 economic meltdown in undermining neo-liberal hegemony. Most of the chapters focus directly on the consequences of this. There are others that focus on the challenge of climate change, but there is not space in this review to discuss them.
Robert Manne argues, “the market faith that was at the heart of neo-liberalism was deeply implicated in it’s collapse.” Rudd’s Monthly essay, which is reproduced in the book, makes the same point about the crisis, using bold phrases about its “…truly seismic significance… a turning point between one epoch and the next, when one orthodoxy is overthrown and another takes its place.”
Manne’s says that 2008 will come to be seen as the historical equivalent of the 1974 “stagflation” crisis. This was the turning point that ended the post-war boom. From the mid 1940s until then, Western governments had subscribed to the belief that welfare spending had overcome capitalism’s boom-bust nature and led to a continually expanding economy.
1974 saw the first global recession in 30 years. It was a strange combination of rising inflation and economic contraction that lead to mass unemployment (hence the term “stagflation”). For the first time, Keynesian measures of deficit budgets and “pump-priming” were employed in earnest by governments desperate to halt the recession. But these measures failed completely, taking with them the legitimacy of Keynesian economics.
Within five years of the 1974 crisis neo-liberal politics had taken deep root within the ruling class globally.
Manne’s essay looks at this transition period—the curtain raiser for Reagan and Thatcher. He argues that the 1974 crash swept away Keynesianism, and hopes that within five years of the “great recession” of 2008, neo-liberalism will be similarly relegated to history.
The crimes of neo-liberalism
This collection summarises some of the worst excesses of neo-liberalism in the US and Australia. Michael Pusey’s essay ‘25 Years of Neo-Liberalism in Australia’ charts the impacts of, and attitudes to, neo-liberal restructuring here.
Pusey’s research is an important counter to the popular myth that Australian workers are swimming in flat-screen TVs and multiple cars. His research shows that most workers feel that economic restructuring has reduced their quality of life.
This perception reflects reality: “From 1980 to 2007, the wages share of gross national income fell from 60 per cent to 53 per cent as the profit share rose from 17 per cent to just over 27 per cent.”
As Manne points out, in the US, the post-WWII boom was accompanied by real growth in wages—2.5-3 per cent per year. In contrast, while GDP tripled between 1975 and 2006, real wages stagnated. CEOs went from earning on average 25-30 times as much as their workers post-war, to 300-500 times as much by 2006. The Wal-Mart CEO was paid 900 times the average Wal-Mart wage, “earning more each fortnight than [his workers] would earn in their lifetime.”
Pusey produces a useful table of average costs for the median family to run an average car, raise two children, and pay for the average mortgage. Even before food, holidays or any other living expenses are accounted for, these costs are $3-4,000 more each year than the median family income. He makes the point that “mischievous ideologies about the new affluence and the illusory benefits of rising nominal and average incomes amount to little more than a cynical joke on the majority of people, who have been forced, for the benefit of others, to live at the sharp end of economic reform.”
Pusey also shows how consistently unpopular neo-liberal measures such as privatisation have always been, despite their immense popularity with government treasury departments of all stripes: “public approval for the privatisation of Telstra and Australia Post respectively declined from a peak approval rate in 1987 of 39 and 32 per cent to 9 and 5 per cent in 2003.”
What and why?
While there is unity among the authors about the problems of free-market capitalism, when it comes to a coherent view of what caused these, and by implication what can be done about them, they are divided and unclear. Robert Manne concedes the point: “When the Keynesian consensus collapsed, a party-in-waiting existed, ready to seize its chance. No equivalent anti-neo-liberal party exists today. Old-style social democracy is dead. Left-of-centre neo-Keynesians are far less ideological, far more divided and far more cautious than their neo-liberal adversaries.”
Many of the essays blame financialisation for the economic crisis. They follow a long tradition of thinkers who see finance as parasitic on the rest of capital, and see banks as the cause of economic crisis.
As evidence, Manne holds up the fact that during the post-war period less than 20 per cent of US corporate profit came from the financial sector, a figure that had reached 40 per cent by 2007. He also charts the explosion of the derivatives market, which by the eve of the crash, was worth $US650 trillion: “more than forty times the size of the annual gross domestic product of the United States”.
If you think that neo-liberalism is caused by this financialisation, then the solution is financial regulation. In ‘Australia and the Global Financial Crisis’ John Quiggin puts the well-worn case for re-regulating finance markets, including a Tobin tax (which taxes financial transactions).
What these neo-Keynesian and social democratic writers can’t coherently explain is why financialisation spun out of control when and how it did. Despite lessons from the 1929 stock-market crash, governments again allowed credit gambling to flourish. This was done not out of stupidity and greed, as Manne and his friends suggest, but out of necessity to maintain profits.
It is Pusey’s chapter that mentions the falling profit rates between the 1940s and the mid-1970s. But nowhere is this crucial fact integrated into the picture of the proliferation of bizarre and risky financial practices that accompanied neo-liberalism. Yet it is precisely the falling profitability in the productive economy globally that explains why in the late 1990s, for instance, US car companies were making most of their profits on the stock exchange.
Marx’s theory of economic crisis saw the falling rate of profit as endemic to capitalism. As capitalists invest in new technology to get a competitive edge over their rivals, they reduce the amount of human labour needed to make each commodity. But because labour is the source of profit—the one part of the productive process that produces more than it is worth (more than the wages paid)—over time technological advances lead to lower rates of profit.
Low profitability caused the ballooning of this hyperworld of fake money—and when that balloon popped, it almost took the global economy with it.
Quiggin sounds warning bells about Rudd’s “high-risk” decision, in the face of crisis, to re-inflate the housing market bubble through the first home buyers allowance. But he argues this was necessary to protect Australian banks from the kinds of mortgage defaults we saw in the US, which led to the credit crisis.
This is a small example of why governments won’t regulate to prevent the growth of bubbles. The credit system (and housing bubbles) are necessary to get “green shoots” of growth in a situation where low profitability is a disincentive to investment. These problems are endemic to the system itself.
Blind-sighted by Rudd’s rhetorical attack on the free market, Goodbye ties itself in knots trying to find the social democracy in Rudd’s market-driven policies.
From climate change to childcare to stimulus-funded construction, Rudd’s support for “market-knows-best” is on show. The closest Goodbye gets is a few whimsical comments from David McKnight to the effect that Rudd’s vision is “certainly an unusual form of social democracy”. This comment is countered by numerous congratulations of Rudd’s “opening up of discussion” by McKnight and others.
Despite its timid conclusions, David McKnight’s chapter on ‘Labor’s Market in Public Services’ contains important insights into Rudd’s commitment to UK New Labour inspired “quasi-markets” in health, education and childcare.
He sheds light on the ideology behind the fight over NAPLAN. In the case of schools, parental choice is seen as the driver of educational quality and productivity. That’s why Gillard is prepared to fight so hard to preserve the MySchool website—it is the mechanism where parents can shop for schools on the open market. Tony Blair’s advisors were involved in formulating Rudd’s “education revolution” policy.
We have seen the degradation of teaching quality in the UK under the market-imposed system. We have seen the same thing in Australia with the childcare market Howard created. In both cases the introduction of the market led to less parental choice. When the for-profit ABC Developmental Learning was able to monopolise and drive community providers out of business, costs increased markedly and quality fell.
Then ABC collapsed, leaving the government to clean up its mess. But rather than nationalise and run ABC in the interest of the community, staff and children, Gillard stood back and waited for new buyers to take over the centres.
Rudd has floated the idea of imposing a government-funded voucher system in universities, TAFE, aged care—again driven by the ideas that creating a competitive market will improve services. Rudd’s New Labour-inspired markets for social services are every bit as neo-liberal as the derivatives market and sub-prime.
Manne and his friends shy away from the obvious—Rudd’s government comes in the tradition of Hawke, Keating and Blair—the Labor representatives of neo-liberalism. It’s time to truly say goodbye to all that.
By Jean Parker