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National Affairs

As luck would have it

28 June 2012

Market liberalism has defined the past three decades, writes John Quiggin, and George Megalogenis provides a valuable guide


Common ground: Paul Keating (above) after he defeated Bob Hawke to become prime minister in December 1991.
Photo: Russel Mcphedrand/ AP

Common ground: Paul Keating (above) after he defeated Bob Hawke to become prime minister in December 1991.
Photo: Russel Mcphedrand/ AP

The Australian Moment: How We Were Made for These Times
By George Megalogenis | Viking | $32.95

THE set of ideas variously called economic rationalism, neoliberalism or, more neutrally, market liberalism has dominated public policy in Australia and elsewhere since the 1970s. The official advocates of market liberalism have produced vast numbers of reports, white papers and other policy documents in which the case for market liberalism is argued or, more commonly, assumed. There’s also been a small but vigorous academic debate about the phenomenon, notably including Michael Pusey’s Economic Rationalism in Canberra: A Nation-Building State Changes Its Mind, a book that turned what was previously an elite term of praise into a popular pejorative.

But little of this work had an explicitly political dimension. The authoritative account of the political process that drove market liberal reform in Australia has been Paul Kelly’s End of Certainty, published in 1992. Kelly’s book is a compelling narrative, but he was too close to the events he described and he focused very much on the Hawke–Keating government, with its immediate predecessors Fraser and Whitlam treated primarily as a contrasting background.

We’ve been waiting twenty years for a more up-to-date perspective. Now we have George Megalogenis’s The Australian Moment. With one or two provisos, which I’ll come to later, the result justifies the wait.

The primary new source for the book is a series of interviews with five of the six prime ministers whose terms in office encompass the period of transformation covered by the book. Gough Whitlam declined an interview, but allowed Graham Freudenberg to speak on his behalf. In addition, Megalogenis makes good use of declassified State Department cables, which report off-the-record discussions between US officials and Australian politicians, giving uncensored (if not always honest) observations both about policy issues and about their own colleagues. This material is combined with Megalogenis’s own observations, drawing on his long career as a political journalist.

Inevitably, the result is an insiders’ view of the Australian political scene. There is little room for critical perspectives on the dominant story of Australian policy, in which heroic reforms undertaken in the 1980s and 1990s laid the foundations for our current prosperity. This story is common ground for Hawke, Keating and Howard: the only dispute among them is over who should get most credit.

Moreover, while the reformers present themselves as making a sharp break with their immediate predecessors – Whitlam for Hawke and Keating, Fraser for Howard – Megalogenis notes some important continuities. It was Whitlam, after all, who made the first break with key elements of what Paul Kelly called the Australian settlement (including tariff protection, White Australia and the minimum wage) by lowering tariffs, for example. During his time in office, Fraser was seen as a radical right-wing reformer, sympathetic to Ayn Rand and Milton Friedman, a fact somewhat obscured by his subsequent shift to the left.

Within the constraints imposed by the nature of his source material, and with the exception of his forays into generational cliché, Megalogenis has done a first-rate job. He makes judicious use of the inevitably self-serving accounts presented by his interviewees, balancing them in a way that makes for a convincing assessment. He’s also good at picking out the key events that have defined Australian politics over the last forty years, starting with the acute observation that, if Whitlam had won the “Don’s Party” election of 1969, the course of events would have been entirely different, at least in terms of the political careers of Whitlam and his successors.

The great flaw in Megalogenis’s approach appears in the very first sentence, when he writes, “Every rich nation reveals its character in its most selfish generation – the baby boomers.” Political and social analysis based on the concept of discrete “generations” is almost invariably nonsense, and Megalogenis shows this in spades. He claims to demonstrate the selfishness of the baby-boomers with an opinion poll of voters taken in 1972, the year Gough Whitlam was elected and the year before his government lowered the voting age from twenty-one to eighteen.

The baby boom began in 1946, when returning members of the armed services started having large families. The end is usually placed somewhere between 1960 and 1963. Whichever end date you choose, even the many boomers who were still in primary school ought to have been capable of doing the subtraction that would inform George that anyone born after 1951 (that is, the vast majority of boomers) was not a voter in 1972.

Then, on page 29, we get a quote from a young-fogeyish Paul Keating in 1970, saying that “husbands have been forced to send their wives to work.” Graciously admitting that Keating is too old to be a baby-boomer, Megalogenis nevertheless asserts that he “spoke for boomer men.” Really? The youngest of them were no more than ten years old at the time, and even the oldest were only twenty-four. I doubt that many were “sending their wives to work,” if indeed any baby-boomer thought in terms redolent of the crankiest version of 1950s gender roles.

A bit later, Megalogenis touts his own “generation W” (an amalgam of Gens X and Y, consisting of those born between 1964 and the early 1990s) as being responsible for punk rock. He mentions in particular the Sex Pistols (fronted by John Lydon, aka Johnny Rotten, born 1956), the Saints (Ed Kuepper, born 1955) and the Ramones (Joey Ramone, born 1951).

My point here isn’t that Megalogenis needs to redo his generation stuff with more accurate dating, which would, for example, require splitting the baby boom into the members of the Vietnam generation, born before 1954, who entered a booming labour market, and those boomers born later, who experienced the full impact of the 1970s crisis. It’s rather that any approach to political analysis that classifies people by birth date is doomed to failure.

By the time the members of a given cohort reach their late twenties, their life courses have diverged so much that they cease to form a well-defined group with common experiences. The differences between men and women, rich and poor, workers and bosses, married and single, parents and non-parents count for much more than the commonality that comes from sharing a date on a birth certificate.

Fortunately, precisely because they are of no analytical value, the generational asides that mar the book don’t undermine the flow of the argument. The critical issue, central to any evaluation of the last three decades, is the claim embodied in the title, and even more in the subtitle, How We Were Made for These Times. Megalogenis argues that our success in avoiding the global financial crisis that engulfed much of the developed world was the result of the decades of reform undertaken by the leaders he has interviewed.

Megalogenis’s thesis, representing the dominant view of the Australian policy elite, is an explicit counter to Donald Horne’s The Lucky Country, whose title needs to be read in conjunction with Horne’s observation that “Australia is a lucky country, run mainly by second- rate people who share its luck… According to the rules Australia has not deserved its good fortune.” Megalogenis’s argument is that the reforms of the 1980s and 1990s left us well-placed to avoid the recession – that in this case we did deserve our good fortune.

YET I suspect that Megalogenis’s book has, like Gough Whitlam, appeared too late. If it had come out in 2009, when the successful macroeconomic stimulus that drove our escape from the crisis was generally endorsed and when the leaders who designed and implemented it were still in place, the story would seem more convincing. Looking at today’s public debate, and at the generally ill-tempered response of the Australian public to a time of unparalleled prosperity, it’s hard to believe that we earned our escape from the global crisis.

It was purely a matter of luck that Kevin Rudd was in office at the time of the crisis, and that Malcolm Turnbull, as opposition leader, felt constrained by the need to present a policy alternative with some intellectual credibility. Given the way our political parties have evolved, the current prime minister and opposition leader are far more typical examples of the leadership on offer. And, without saying anything against his successor, we were also very lucky to have Ken Henry in charge at Treasury.

More generally, the claim that our good macroeconomic performance is the result of the microeconomic reforms undertaken in the 1990s does not stand up to scrutiny. Although microeconomic reform may have improved the productivity and flexibility of the economy, there is no link between microeconomic flexibility and macroeconomic stability. In fact, just as in the Asian crisis of the 1990s, the countries hardest hit by the initial round of the global financial crisis (Iceland, Ireland, the Baltic States) were precisely those that have undertaken the most comprehensive reforms along market liberal lines. And, as Treasury has noted, the United States, which has the most flexible labour market in the developed world, experienced one of the biggest increases in unemployment as a result of the crisis.

The view that our financial system is more soundly structured than others has a substantial element of paradox, since the current structure of our financial system is a result of the rejection of market liberal policy reforms. Most notably, the four pillars policy against bank mergers, long derided by supporters of financial deregulation, prevented the banks from adopting risky strategies in the pursuit of competitive advantage. Even more strikingly, our status as a net international borrower meant that our banks showed less interest in toxic US assets. The absence of a home-grown component to the financial crisis exemplifies the Lucky Country at its luckiest – even aspects of our policies and economic fundamentals that seemed likely to increase our vulnerability turned out to work for the best.

Still, even if you don’t accept the central thesis, and even if you have to swallow hard every time the word “generation” appears, Megalogenis is essential reading. Whether you applaud or deplore the fact, market liberalism has defined the past three decades and it must be understood if we are to do better in future. The Australian Moment is probably the best exposition of Australia’s political history over the period of market liberal reform, and from the viewpoint of the reformers, that we have seen, or are likely to. •

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