The economy as a depreciating political asset

In late September, Newspoll asked its respondents: ‘John Howard or Kevin Rudd – who do you think is more capable of handling Australia’s economy?’. 48% thought the Prime Minister was more capable, while 33% thought the Opposition Leader.

The ACNielsen poll reported in yesterday’s Fairfax broadsheets used a different question to probe the same issue. They included an option saying ‘it makes very little difference which party is in power, economic performance would be the same’, and it was the most popular choice on 43%, with the Coalition regarded as the better manager by 40% of voters, and Labor by 12%.

That’s consistent with the increasing belief, as seen in the Australian Election Survey, that the government makes ‘not much difference’ to either general or household economic situations (I blogged on this in July; the full AES time series has been published here, but unfortunately in a generally very useful publication the ‘bad effect’ and ‘not much difference’ numbers have been transposed).

Though the Coalition is still well ahead of Labor on this indicator, it is not as strong as Newspoll would suggest. As more people come to believe that the economy is going well on autopilot, and Labor won’t try any Whitlam or Keating crash landings, the more the Coalition loses one of its clear policy strengths and the more likely people are to take a chance on Labor. It’s probably one factor explaining why, despite the best set of economic indicators in a generation, the Coalition faces the kind of wipeout normally reserved for goverments that have presided over serious economic downturns.

22 thoughts on “The economy as a depreciating political asset

  1. Andrew, the instincts of many Australians that the economy can run on auto-pilot is half right. Fiscal management is largely irrelevant these days: when revenue is pouring in by the billions from the mining boom, even a drover’s dog can run a surplus and variations in the surplus are not of much importance for economic stability as the role of the Reserve Bank is dominant.

    However governments are important for the economy in two big senses. First, they have a big say in the pace of microeconomic reform. Second, the structure of government spending (e.g. how much for middle class welfare and how much for skill enhancement and infrastructure) and the method of revenue raising (what impact it has on incentives) can have considerable impact.

    I have no idea which party will perform best on these two latter counts. Both have a reasonable track record on the first and both have a tendency towards pork-barreling and political targeting in determining their pattern of spending and revenue instruments.

    So I sympathise with voters who say it is all too hard.

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  2. The assumption is that a government which has a reputation for sound economic management will continue winning elections even if it has no reputation for sound management of any other area of policy. It comes from the notion of “economic man”, and while I do not expect a Rudd government would depart from economic orthodoxy in practice it must be said that those who are more concerned with how reality fits into theory are in for a tough time.

    The government that is not merely led by but embodied in John Howard seems to have an extraordinary commitment to proving this assumption. Pro-Howard articles, and articles in which pro-Howard people are quoted (even if anonymously) take this assumption as given.

    I wouldn’t be surprised if the Keating government’s reputation for sound economic management improved over its term in office. Going by the result of the 1996 election, this would be cold comfort to those who hold fast to this assumption.

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  3. This is the large assumption underpinning much of the media commentary on economic ‘management’ – the notion that the government somehow ‘runs’ the economy.

    It amazes me that no-one in the media ever challenges Costello or Howard when they proclaim the commodity boom and the resulting surplus as their own doing or that they boast about “low” interest rates when ours are among the highest in the OECD.

    One suspects that the opinion polls reflect an emerging sense among the voting public that global circumstances are the overwhelming influence in our good fortune – that of course and the legacy of the Hawke/Keating reforms.

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  4. There’s a bit of “who do you trust” coming back to bite the coalition here. Every time the Reserve Bank raises interest rates, a little more economic manager shine comes off.

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  5. Its interesting to ponder what effect Paul Keating’s public intervention a few months ago, where he challenged to supposed economic achievements of the Liberals, had. Labor had not been willing to raise this issue, then Keating did and suddenly the issues were being debated in the media. The bad numbers during Howard’s time as Treasurer came to light, and Howard and Costello were forced into admissions that not all the current sunshine is their doing. I wonder how much impact this episode had on the wider public’s views.

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  6. His other intervention was to state that Labor’s IR policy stank; I don’t think that has had much of an impact.
    .
    Even though Keating preempted it, I’d put the prevalence of the “mining boom” view down to Rudd’s consistent use of the phrase in all his rhetoric, as well as his general sense of steadiness compared with Latham.

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  7. “… take a chance on Labor”. I agree, but why? Because the Coalition has won 4 elections in a row? It’s not like Labor is really offering any change of substance.
    How about this hypothesis – the punters believe it doesn’t really matter to *anything* which party is in power and are willing to change teams after one side has won a few in a row? If that’s the case, then it means Howard really blundered by not stepping down last year, a la Bracks and Beattie this year. Of course, it’s easy to say these things in hindsight.

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  8. Rajat, It’s not like the Libs have an unblemished record (the stuff-up with Telstra is hardly insignificant), or that they might still do unpopular things (sell of Medibank Private etc). And many of us do remember the truly awful Fraser/Howard years – how would you rate that for economic management? – but, yes, I know people who, if given a reasonable opposition, think it’s a good idea to change parties after a couple of terms – a bit like voting differently for the Reps and the Senate.

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  9. It’s shameful that a Liberal government has wasted huge reserves of political capital on something like WorkChoices. Company tax is still where it was 5 years ago, there is still a capital gains tax and they’ve been happy to prop up largely socialised health and education systems. Economic liberals ought to feel betrayed…

    BBB

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  10. nothing has really happened to say the government can do anything.

    The punters may have thought that the ALP in the 80s had got through a currency crisis as well as completing significant economic reforms that were not electorally popular but were clearly stated.

    The present circumstances seem similar to 96

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  11. Andrew E – I think it comes less from an ‘economic man’ assumption than a legacy of several decades in which economic issues rated mostly highly among the important issues in voters’ minds. Due to a long stretch of good economic news, other issues have moved up the agenda, issues on which the Coalition is not as strong.

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  12. The Laborites will no doubt trumpet this as proof of Rudd’s genius in agreeing with Howard about practically everything. And maybe it is, if you adopt the line that the ALP should say anything to get elected and repudiate most of it afterwards. It all seems a bit cynically opportunistic to me and hard to distinguish from the behaviour Howard’s mob have been rightly accused of.

    I tend to believe that a Rudd Government would actually behave pretty much like the one it replaced, in which case the fun when the true believers realise they’ve been dudded will be hugely entertaining.

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  13. Andrew N, I can’t agree.

    My experience within the Liberal Party is that there is a strong culture of focus on economic management as the sine qua non of government: economic competence = re-election to government, that is all ye know and all ye need to know.

    Federal Government has changed five times since World War 2, and in all cases “other”, non-economic factors predominated over mere fiscal competence (yes, even in 1949 and 1975). The argument for economic competence = re-election to government has been a constant theme of the Howard government, and may explain why they seem so unable to change course so as to make polling more favourable.

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  14. Russell, the major stuffup with respect to Telstra was the ALP’s fault. The ALP chose not to seperate the fixed line wholesale part of Telstra from the retail part when they first partially privatised Telstra. They should have split these two parts and perhaps even split the retail part up further. It much harder to force this type of separation after part of the company has been sold. There are all types of takings issues that might be raised. Furthermore, Australia does not have separation provisions in the TPA. I think that the ACCC might be able to seek to have a merger undone under some circumstances, but that is about it.

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  15. Damien, the Coalition has been behind all the Telstra privatisations, the first 33% share being a key plank of John Howard’s 1996 election policy. It is true that the ALP considered some partial privatisations in the mid-1990s’, and probably should have implemented some structural separation, but they never cracked that now scrambled egg.
    Here’s a good overview of the privatisation process.

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  16. Damien, I thought that privatisation began in ’97. Didn’t Howard have to play ball with the intolerable Brian Harradine?

    jc, I reckon we’ll get a Bracksy/Brumby Mk II kind of deal out of Rudd. So not that bad. As Ken says, the true believers will not be happy. I suppose they will have to take comfort from the fact that they voted Greens and only preferenced the ALP under compulsion of the electoral laws…

    Cheers
    BBB

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  17. Telstra was not split up because it would have meant all out war with the unions. I’m firmly of the view that wireless technology will make the idea of structurally separating Telstra almost entirely irrelevant. A good reform at this point would be to privatise all the spectrum and then get out of the way.

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  18. BBB, if that is the case, then the decision not to structurally separate may have been taken when the ALP first introduced competition to the market.

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  19. Thinking about it, it may have been when the ALP introduced competition by allowing Optus into the market. They didn’t break up Telstra, which resulted in Optus deciding to duplicate some facilities that had natural monopoly characteristics. Second, they foistered Aussat on Optus. Of course, given Matt and BBBs comments, the liberals did no better. They had an opportunity to separate Telstra before the first phase of privatisation but failed to do so.

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  20. Yes, that seems to be the recent history of telecommunications in this country, Damien. A series of missed opportunities to get it right. The galling aspect of it all is that these opportunities were missed so that Minchin could get his hands on as much cash as possible (ie. to maintain the value of Telstra shares). That is anything but leadership. Why people have been willing to give Howard a free pass on the macro side of things when he seems to get so much of the micro stuff wrong is a little beyond me.

    BBB

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  21. Telstra is the devil spawned from the loins of the jackal of government ( no , not you Damien). Whichever way we look at it the privatization was always going to be messy as that monster was a creation structured in the only way a government department could be.

    Only time will see it change for the best.

    What I know is that if that Telco industry would be hugely different than it is now if we had never had that ugly intervention from the very beginning.

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