Labor and ‘neoliberal’ policy

One of the most difficult problems Kevin Rudd faced in writing his Monthly essay was the extensive, and indeed dominant, role of the Hawke and Keating Labor governments in implementing ‘neoliberal’ policies.

When he says that the political home of neoliberalism in Australia is the Liberal Party he is giving the Howard government more credit (from a reformist perspective) than is warranted by the historical evidence. While the Coalition moved further ahead on labour market deregulation, waterfront reform and the privatisation of Telstra than was likely under Labor, most of the major reforms had already taken place by the time Howard took office in 1996, and what the Coalition did was incrementally advancing or fine-tuning reform processes initiated by the previous government.

Apparently when the Coalition introduces a market reform it is ‘economic fundamentalism’, but when Labor implements a market reform it is ‘economic modernisation’.

The differences between social democratic market reformers and ‘neoliberal’ reformers are larger in their underlying philosophical perspectives than in their substantive policies. In The Australian this morning, Dennis Glover put it this way:

Rudd does not believe the free market is an end in itself; it exists to serve society. For Rudd greater social equality is a moral good.


I think this is right. Social democrats have a largely utilitarian view of markets; the wealth produced by markets is of value in itself and provides the tax base for big-spending social democratic programs. The fiscal problems caused by the 1970s combination of a stagnant economy and ever-expanding government spending necessitated measures to increase economic growth. In this perspective, ‘society’ is conflated with the state, and the market economy exists to serve the state.

While there is a strong utilitarian streak in liberalism as well, liberals also believe that there is intrinsic value in voluntary exchange and cooperation, whether or not this helps or is approved of by the state. On this view, people should be able to sign labour contracts or buy a higher education if they think this will make them better off, without being second-guessed by the state.

In the liberal perspective, society is equated principally with civil society and individuals rather than the state, and so voluntary exchanges are by definition serving ‘society’. It is just that society collectively, as represented by the state, does not have veto power on transactions.

On many issues, these philosophical differences won’t matter much. This is why I have long argued that ‘economic rationalism’ was a useful term in describing an issue movement of the 1980s and 1990s dedicated to economic reform, which included social democrats, classical liberals, neo-classical economists, and business interest groups. Issue movements are characterised by shared or overlapping policy goals rather than ideological consensus.

In the end, business and social democrats achieved more from the 1980s and 1990s reforms than did classical liberals. Business profits increased, and partly out of taxes paid by business discipline on government spending could again be relaxed. Far from opposing this, the Coalition were enthusiastic spenders. Classical liberals picked up much of the intellectual glory because the key ideas came out of their intellectual tradition. But ultimately ‘neoliberal’ policy served social democratic ends by sustaining a high-expenditure state.

31 thoughts on “Labor and ‘neoliberal’ policy

  1. “liberals also believe that there is intrinsic value in voluntary exchange and cooperation” – and so do social democrats, but with protections for those not in a powerful negotiating position.

    “ultimately ‘neoliberal’ policy served social democratic ends by sustaining a high-expenditure state”. Social Democrats want spending on certain things – a huge amount of money might be spent on financing a private school system, for example, but many social democrats wouldn’t approve of it.

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  2. Brilliant post Andrew.

    I like this: “society is equated principally with civil society and individuals rather than the state”. Its a more elegant way of conveying Margaret’s “there’s no such thing as society” message.

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  3. Russell – I think your second sentence puts your claim that social democrats value voluntary exchange and cooperation into perspective. On the most important thing most people will do with their lives, raise their kids, a vital decision about schooling is taken out of their hands.

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  4. Andrew – aren’t you always saying people shouldn’t be taxed to provide benefits to others? If private schooling is a voluntary exchange between parents and school why am I being roped into the deal as a taxpayer? I don’t like involuntarily paying to subsidise some kids to go to very fancy schools.

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  5. Andrew – you’re being roped in to paying for a public education system because social democrats believe, as Rudd wrote, that “all human being have an intrinsic right to human dignity, equality of opportunity ….”.
    The community pays for a public education system because the community believes in making an effort to provide equality of opportunity. We could have a parallel private school system (like the one I was ‘educated’ in), which could be government funded – I don’t think my school was – but not a subsidised elite system which accentuates differences in opportunity.

    Your ‘voluntary exchange’ idea leaves out any concept of fairness.

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  6. “but not a subsidised elite system which accentuates differences in opportunity”
    .
    Russell — this is a weird belief Australians have — somehow it seems that if you are not good at something, you are more deserving than someone who is good at something, and so we spend all our money on achieving mediocrity. The alternative way to think about this is that if elite private schools increase the performance of kids going to them as much as their non-elite counterparts, they should not be punished for it (i.e., they should have equal rights to equal funding — which could potentially be zero if you don’t think the government should fund private schools). I might note here too that providing really smart academically able kids is a huge favor for the community, and this is what these schools are doing.

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  7. To move back to your topic – I agree that Rudd could have done a better job in distinguishing the Hawke-Keating model from what is popularly meant by ‘neo-liberalism’.

    Interesting that you say “Social democrats have a largely utilitarian view of markets”. I think this is where most people differ from most economists. Economists are theory-fundamentalists and ignore the wider consequences of applying their theories to everyday life. This was well put by Henry Rosenbloom on yesterday’s Book Show segment on the parallel book import debate – there’s no transcript but you can listen.

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  8. Conrad,

    Let’s see what happens: my grand-niece just moved from a state school to a very elite private school. All her marks were reasonably good at the state school, though my sister knew her grand daughter’s spelling wasn’t up to scratch. In the first week at her new school all the kids were tested and my grand-niece now has one-on-one remedial spelling lessons with a specialist teacher. Looks like the same will happen with maths. I predict, that with these resources, her marks and opportunities, will be better than if she was depending on the state system. If so, is it fair that because her family can afford it, she gets these chances, but other kids won’t?

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  9. No, under my system the state schools would also have enough specialist teachers. (I’m the person who wants free universities and vast amounts of money spent on education, remember? – pity we don’t have any wise politicians with a gift for leadership who could persuade and inspire the hoi polloi that that would be a better use of our wealth than mansions and limousines).

    Is it impossible to use standards, tests and comparisons to find out who needs extra help, and provide it?

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  10. Russell, you are dreaming. It has always been possible to use standards, tests and comparisons to find out who needs extra help. It is not even all that expensive. So, why does it not systematically happen?

    If Eddie McGuire, as President of Collingwood, said “I have a great idea: we will abolish the AFL bureaucracy and Collingwood Club will take over running AFL, setting the rules and appointing the umpires”, folk would ask what he was on. Yet, somehow, if politicians and bureaucrats are the main provider and set the rules and enforce them, the patent conflict of interest goes away.

    If one stopped subsidising private education, the general quality of schooling would fall, both because the total expenditure would shrink as people moved back to the public system and because there would be less of a private system to push the public system along. (The public schools in the Wangaratta area, for example, apparently improved notably after the Anglican Bishop started opening low-fee Church schools.)

    If there was only a public system, the effect would be worse. There is a strong argument for public expenditure on school education since we all have an interest in a literate citizenry and for equality of (or at least basic) opportunity reasons. Both purposes would be better achieved if the government did not also run schools.

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  11. “If so, is it fair that because her family can afford it, she gets these chances, but other kids won’t”
    .
    It’s fine by me Russell — and, incidentally, I don’t think that trades off with wanting better public schools — they’re basically independent issues unless you really want to stop people spending money on the education of their kids. (Off topic, I also believe you could identify kids with many of these problems pretty easily via testing — some of the work I do has looked at the development of these types of test, and for things like early literacy and mathematics, it’s simple enough. I could do it for early reading/language and get a specific profile of deficits in less than an hour).

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  12. I make a prediction about what would happen if the Federal Government stopped subsidising private schools: The elite schools will continue to exist and thrive, because they gain very little in any case under the SES funding formula. It would be the middle- and low-fee schools that would be driven out of business. The kids that presently go to those schools would start going to local schools and their parents would ramp up demands for greater local autonomy in staffing and curriculum. To the extent this occurs (as it already does in certain Victorian state schools like Balwyn High, Glen Waverly High, Uni High and the selectives), certain schools would develop stronger reputations than others. People would then seek to locate in their catchment zones and their willingness-to-pay for this would become capitalised into property prices, as in the UK. As the value of schooling services historically increases faster than CPI, parents buying in to these areas would effectively be acquiring an appreciating asset (the capitalised value of education services) instead of having to pay rising fees. I suspect the ultimate result will be more favourable to the middle class.

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  13. Rajat, a very plausible scenario given it is essentially extending what happens already.

    This is the old ‘voice’ versus ‘choice’ argument. As someone who goes to lots of schools, the variation in government schools is dramatic and directly connected to how “plugged in” and motivated the parents are. The notion from ‘voice’ advocates that middle class activism would raise the standards of the entire public school system is simply not supported by experience.

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  14. You don’t need specialist teachers do do remedial spelling. A concerned parent could do it after a word of advice from a competent and concerned teacher. I want to see people like Russell volunteering to help out with that kind of thing so people don’t need to shift their kids to a better school. My wife spent some time reading to other’s people’s kids at the local public school because the parents were apparently not willing or able to do so.

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  15. Rafe – I assume one of the reasons people send their kids to schools better resourced than state schools is precisely because they don’t feel competent to do the remedial teaching themselves! Spelling might be OK, but maths? From what we read in the papers not even the teachers understand the curriculum, how are parents supposed to do it?

    I think these education debates between social democrats and neoliberals probably end with exchanges such as:

    “If so, is it fair that because her family can afford it, she gets these chances, but other kids won’t”
    .
    It’s fine by me Russell”

    We have very different ideas about ‘fairness’. I’m kinda attached to the idea of the state providing free, compulsory and secular school education, as a basis for a fairer start in life.

    BTW, I doubt many of you read that excellent Australian journal Dissent – the latest issue is about the school system, very informative. Citizens of NSW are lucky to have John Kaye in their parliament, who points out in his article that “the exercise of choice has consequences for everybody: for all of society …”

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  16. “John Kaye in their parliament, who points out in his article that “the exercise of choice has consequences for everybody: for all of society …”

    Indeed, that’s why we need to make good choices, rather than let the likes of John Kaye make them for us.

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  17. “From what we read in the papers not even the teachers understand the curriculum, how are parents supposed to do it?”
    Russell, let’s stop and think how we got to that situation? Which organisation dominates teacher training and curriculum design?

    The notion that family effort and dynamics will not affect life chances even if public education had a monopoly is a nonsense.

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  18. MJ Warby,

    Of course family background has a huge effect on life chances; social democrats just don’t think that family background should determine how well equipped you are to take advantage of the opportunities life will offer. It doesn’t seem fair to us that because your family inherited wealth, for example, you should also get a much, much better education as a child. The community/state can make a difference in evening up the opportunities by giving every child a good education.

    Andrew – “that’s why we need to make good choices” – and what’s the fate of the many kids whose parents don’t make good choices? Are all parents equally well equipped to make good choices? There’s got to be some protection for kids whose parents don’t make good choices.

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  19. “Which organisation dominates teacher training and curriculum design?”
    .
    A number of state governments do — and the interesting thing that is rarely talked about is the massive differences in performance between states (as big as differences between countries in those OECD surveys, and much better controlled for cultural conditions etc.). That’s why a single federal curriculum is all bad news — it means if NSW does really well (it does), and QLD doesn’t, the often non-obvious differences causing this cannot be tracked down to exploit.
    .
    “There’s got to be some protection for kids whose parents don’t make good choices”
    .
    There is — it’s called public schooling, which is generally not nearly as bad as many people make out (it’s just the private schools do very well on some things), so it’s comparatively worse.

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  20. The community via the state should, I would argue, pay to ensure that students get a basic education for the literacy, numeracy and basic opportunity reasons I previously mentioned. Indeed, I think the payment should be weighted by educational disadvantage. In fiscal terms, I am there all the way.

    What I do not buy into is all the manifold problems of having the government run schools. That reduces transparency and effectiveness, it does not increase it.

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  21. social democrats just don’t think family background should determine how well equipped you are to take advantage of the opportunities life will offer.

    If that is so, why should government control be limited to only education? Why not have the government determine the choices of food and clothing made by the parent? Once you think about, there is little that a parent can do that won’t affect the life chances of their child. There is no way the state could ever achieve such an outcome without drastically interfering with the lives of citizens.

    It doesn’t seem fair to us that because your family inherited wealth, for example, you should also get a much, much better education as a child. The community/state can make a difference in evening up the opportunities by giving every child a good education

    Everyone can receive a “good” education whilst some may still receive a better education. It’s not clear how everyone receiving a “good” education must exclude some from receiving a better one.

    what’s the fate of the many kids whose parents don’t make good choices?

    What’s the fate of those kids where a distant government bureaucrat makes those choices instead?

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  22. Brendan – I wouldn’t, surprisingly, like to create year zero and march all those little rich kids out of their palatial schools. I would just fund schools according to the facilities they already had. Elite schools would get nothing then, but that wouldn’t mean they would all disappear. Some would survive and usefully keep raising the bar.
    As long as we kept resourcing all other schools, public or private, so that the bar wasn’t too much over their heads, that would do. (What degree of autonomy ‘private’ schools that were almost entirely tax-payer funded would enjoy is another question).

    These kind of decisions, if implemented, are likely to be in response to public demand, or, as with vaccinations, are introduced because governments are persuaded that it is in everybody’s interest. Not dreamed up by a distant government bureaucrat.

    Very few people these days want to go back to some Dickensian society where you’d better have money to look after yourself, or else.

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  23. “As long as we kept resourcing all other schools, public or private, so that the bar wasn’t too much over their heads, that would do”
    .
    Russell, as much as people complain about it, most public schools are reasonable enough — people always simply focus on the worst of the worst and you get an incorrect perception of what is really going on. In addition, if you want your kid to go to a really good public school, then the solution is simple. Simply rent a place in an area where the good public school is. Looking through rentals near where I live (where there is an elite but zoned public school), almost anyone could do this (the border of the school goes to about 14ks away from the city centre — so we are talking about middle suburbia for Melbourne — rent is not ridiculous). Given the number of rental properties suitable for families available in my area, obviously even this level of effort is too much for many people. If I compared this to some places in Asia, there is chasm of difference. So what we have here is not so much a funding problem, but a cultural one.

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  24. Conrad – I agree about the cultural problem, but don’t believe that most schools are reasonable enough. Every commentator I’ve heard (with the exception of Sinclair Davidson) thinks schools need the $10 billion stimulus money – that overdue maintenance alone could swallow up that money. They’ve been starved. My local state school was recently in the paper because it was 44 degrees in the classrooms.

    Simply moving to a suburb with a better school is not a solution. State schools with good academic results have been accused of favoring those kids who are easily capable of getting good marks – they get a good education, in their ‘gifted’ programs, and improve the schools ranking in the league tables, but ordinary kids are quickly shunted off to some other stream.

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