Inside Story

The plight of the Right

Reality fails to align with theory in a new conservative analysis of what makes Australia exceptional

John Edwards 5 December 2016 3470 words

Meriel Jane Waissman/iStockphoto

In July 2014 a group of right-leaning academics and columnists from the Australian gathered at the Fremantle campus of the University of Notre Dame to examine Australia’s “bent to collectivism.” Sponsored by a libertarian foundation run by Western Australian mining industry executive Ron Manners, a political ally of Gina Rinehart’s, and by the campus’s market-oriented Freedom to Choose program, the conference was to focus on Australian political peculiarities. Wide in scope, high in ambition, it would look at labour regulation, state enterprise and “facade federalism.” The result, two years later, is Only in Australia: The History, Politics, and Economics of Australian Exceptionalism, a collection of essays edited by ANU economist William Coleman.

For contemporary Australian politics, and for thinking about Australia’s place in the world, an inquiry into Australian exceptionalism is timely and pertinent. Political rebellions in Britain and the United States have raised questions about the inevitability of growing trade, migration and globalisation. Growth in the major advanced economies has slowed. Is Australia, gliding tranquilly into its twenty-sixth year of uninterrupted economic expansion, merely behind the trend? Is it possible that this country’s exceptionalism is an “indulgence of simplicity and fancy, made possible only by lenient economic circumstances,” as Coleman darkly asks, and that the “hour of severe depression” is “nigh”? Or is there something about Australia’s exceptions that contributes to its unusual success and might shield it from the rebellions evident in otherwise similar economies?

The debate with which the new book engages is about not only where we are now and where we are going, but where we have come from. Drawing on the historian Keith Hancock’s Australia, journalist Paul Kelly argued in his early Australian political chronicles that Australia was built on a Federation “settlement” of high tariffs, the White Australia policy, wage arbitration and “imperial benevolence.” According to Kelly, the settlement weighed on Australian development for decades, until it was undone by the Hawke and Keating government in the 1980s and early 1990s. In Kelly’s account, Australia had indeed been exceptional, but not in good ways. By the 1990s much of the exceptionalism had gone, permitting Australia’s long run of prosperity.

To this “Australian settlement” view of Australia’s peculiarities, Adelaide economic historian Ian McLean provided a compelling alternative in his 2013 book Why Australia Prospered. Much of what was said to have been agreed at Federation, he wrote, already existed in the colonies. And much of what was important in Australian economic history, especially the relentless rise of Commonwealth authority, wasn’t part of any Federation compact and only emerged through High Court decisions, two world wars, and big changes in the global economy.

Nor was it evident that tariffs, arbitration and racially restricted immigration weighed on Australia’s prosperity. In the quarter century following the end of the second world war, for example – a period in which Australia had high tariffs, wage arbitration and the White Australia policy – real GDP increased by 230 per cent, just short of twice the gain of the celebrated upswing of the past twenty-five years. Real income per person increased 157 per cent, well over twice the increase of the past twenty-five years. The productivity gain was around 150 per cent, nearly three times faster than in the upswing of the past twenty-five years.

It’s true that arbitration and high tariffs were proving poisonous by 1971, and White Australia had been largely abandoned. But it is surely hard to argue that Australia would be a better place if it had permitted entry of the cheap labour the squatters demanded, had accepted the low wages and racial apartheid that would inevitably have followed, and had remained dependent on mines and farms.

This is the debate William Coleman and his colleagues have entered. In his introductory chapter, Coleman appears to agree with Paul Kelly that a settlement was struck at Federation that set Australia on its peculiar path. But he disagrees with Kelly in arguing that the settlement described by Hancock in 1930, and revisited by Kelly more than half a century later, still exists. And he differs from McLean not only in assuming there was such a settlement but also in thinking – though here Coleman is not entirely clear – that it is a very bad thing.

Coleman’s central claim is that “Australia is the country that won’t move on, which is stuck in its way.” Australia’s character, he writes, remains “egalitarian, collectivist, dirigiste.” And while Australia is “stuck,” other countries are moving ahead. In the early twenty-first century, he writes, “Australia appears to be drifting from the tendency of the English-speaking world in matters of economic and social policy.” Australia is following a “special path… laid down more than a century ago.” Moreover, there is a “silence” on the subject that this book will “breach.”

Australian exceptionalism is evident, he writes, in a tightly regulated labour market, a tax–transfer system heavily reliant on direct taxation and means testing, a mere appearance of federalism that belies the reality of a unitary state, the lofty prominence of an “official family” of senior bureaucrats and independent statutory bodies, and certain electoral peculiarities. He challenges the view that Australia changed course when the Hawke and Keating governments deregulated the financial system, floated the dollar, scrapped tariffs and eventually switched from the arbitrated national wage increases of the Accord to enterprise-based bargains.

The “cited shifts,” Coleman argues, “are more a matter of form than nature.” The White Australia policy has gone but the “nature” of the White Australia policy “remains unchanged” because Australia regulates immigration on economic grounds. Tariffs have fallen but budgetary assistance has “ballooned.” And while enterprise bargaining may have replaced wage arbitration, “bargaining remains the legal monopoly of ‘registered’ trade unions.” He concludes that “it is Australia’s much-vaunted period of ‘microeconomic reform’ of the 1980s that has been temporary and passing,” while “Australian exceptionalism is better described as enduring.” By contrast, Sweden and Switzerland have made a deeper and more enduring shift to the market since 1980, as has New Zealand.

In a related contribution, Henry Ergas supports Coleman’s view, writing that by “echoing Hancock’s three pillars of the Australian settlement” Paul Kelly had “prematurely” declared it over in the 1980s and 1990s. On these points, Coleman is not entirely convincing. There is surely more than a cosmetic difference, for example, between a migration policy that rigidly excludes non-whites, skilled or not, and a policy that readily accepts people of all races if they are skilled.

In writing that “tariffs have fallen” but budgetary assistance has “ballooned,” Coleman implicitly suggests the fall of one has been compensated by the rise of the other. Not so, according to the Productivity Commission. It calculates the total effective rate of industry assistance as the sum of tariff protection, tax concessions and budgetary support, and finds that assistance to manufacturing has fallen from 35 per cent of value added in 1970–71 to 5 per cent on the most recent number, 2014–15. In agriculture, the proportion fell from 25 per cent to around 4 per cent. Since 1991, the effective rate of assistance has fallen by two-thirds. In recent years, according to the same report, budgetary assistance has declined.

In industrial relations, Coleman writes, the change is illusory because “bargaining remains the legal monopoly of ‘registered’ trade unions.” Again, not so. Provision for non-union agreements was legislated over twenty years ago. Under the current legislation, employees may choose the bargaining agent they please, including themselves.

I take it that Coleman’s contrasting of Sweden, Switzerland and New Zealand to Australia is intended to suggest that those countries have gone further in free-market principles than Australia has. Perhaps in some respects they have. But all of them have markedly higher ratios of tax to GDP than Australia’s, and markedly higher ratios of government spending to GDP. That would make them, I would have thought, more dirigiste and collectivist than Australia.

On World Bank numbers, tax in Australia in 2014 was 22.2 per cent of GDP, and government spending 26.5 per cent. In New Zealand, tax to GDP was 26.7 per cent, four percentage points higher, and government spending to GDP 32.6 per cent – very much higher. Sweden’s tax to GDP was 26.4 per cent, and spending 33 per cent. Calculating them a different way, the OECD gives bigger numbers for both tax and spending to GDP, but the order of countries remains the same. In the OECD numbers, Australian government spending to GDP is not only markedly below the rates in New Zealand and Britain but also below that of the United States.

Nor is Coleman completely persuasive on other aspects of Australia. In social policy, he contrasts Australian state-run public schools with charter schools in the US and academy schools in Britain. This difference is, he writes, the “best illustration” of Australia’s tendency to keep pressing along its path. But even there he has to contend with the fact that Australian schools score well above their counterparts in the US and Britain (and a bit better than in New Zealand) on the OECD’s PISA tests. One might understand why Americans would want to experiment with charter schools without agreeing that Australians should do the same.

There is a tone in his work that suggests Coleman thinks Australia’s path is errant or dead-ended, but he doesn’t pursue the argument. Instead, he says “the aim of this book is to get an understanding of this situation” rather than to inquire whether it has made Australia richer or poorer, or fairer or less fair. How one could get an “understanding” of Australian exceptionalism without inquiring about its economic and distributional effect is mysterious. It’s a major weakness in the book.

But if Coleman did go there, he would be presented with some problems. One of them is the uninterrupted prosperity of the past twenty-five years, despite Australia’s being stuck in the alleged rut of dirigiste collectivism. Growth has been markedly faster here than in either the US or Britain, the countries to which Australia is unfavourably compared.

Coleman’s is the plight of the Right. A sensible public policy argument is difficult unless participants recognise that Australia has done quite well, and in recent decades very well indeed, compared to other advanced economies. Once recognised, this changes the debate. If Australia is doing a lot better than Britain or the US, for example, it doesn’t follow that we should do as they do. If, indeed, we are “drifting from the tendency of the English-speaking world in matters of economic and social policy” and “following a special path,” that might be no bad thing. It would at least require that public policy arguments should be well informed by detailed and quite specific data.

Perhaps attempting to escape the plight of the Right, Coleman creates a new “long boom” that begins in 1979. This dates its origin to well before the float of the Australian dollar, the big tariff cuts or replacement of arbitration with bargaining. Happily, it also credits its initiation to Malcolm Fraser (or perhaps his then treasurer, John Howard) instead of Hawke or Keating. There is, however, some cost in plausibility. Coleman’s “long boom” includes the two worst recessions Australia has experienced since recovering from the Great Depression eighty years ago. It certainly could not, as he suggests, be based on favourable terms of trade, since for most of that time Australia’s terms of trade were flat or declining. Nor could it be based on a favourable world economy, since it would include not only the global financial crisis, the 2000 “tech wreck” and its aftermath, the 1997 Asia Crisis, and the 1994 bond sell-off, but also the global downturns of 1989–90 and 1979–80. And it could not be based on China, since for most of the time China was a relatively small (though fast-growing) economy and for three-quarters of the period Australia’s exports to China were quite modest.

Another strategy to deal with the plight of the Right is to claim Australia’s economic success is an illusion, one based on favourable export prices and China’s growth, and is about to vanish. “Looming over public discourse,” Coleman writes, “is the apprehension that Australian exceptionalism amounts to an indulgence of simplicity and fancy, made possible by lenient economic circumstances.” He asks, “Could the hour of severe depression be nigh?” Well, it could be. It is, after all, a world of infinite possibility. But it is difficult to engage an argument that doesn’t proceed beyond the question. I would call it an indulgence in simplicity and fancy.

Yet there are some strong pieces in the volume. Coleman’s own essay on “Theories of Australian Exceptionalism” is a thoughtful survey of some interpretations of Australian peculiarities (though in a very long list of references he omits Ian McLean’s book).

In a remarkably wide-ranging and clever contribution, Henry Ergas compares de Tocqueville’s Democracy in America with Keith Hancock’s 1930 Australia. As Ergas points out, Democracy in America is still published today and still widely discussed, while Australia has not been republished for decades and is rarely discussed. The reason, Ergas supposes, is that “Australia lacks a foundation myth that shapes political culture and political controversy,” so that discussion of the “Australian settlement” is less likely to turn up in an actual contemporary political discussion.

Another reason, Ergas supposes, is that Hancock criticises the Australian pursuit of “fairness,” which does not “sit easily” with the “dominant tendency” to “rehabilitate that ‘settlement’ and, with it, at least some elements of the radical-nationalist view of Australian history.” He writes that “the declining prominence of Australia reflects the renewed acceptance of the radical-leftist view of Australian history,” a view that “glorifies the continuing validity of the settlement’s underlying goals.”

Those two reasons seem to me to sit uneasily together – Hancock is forgotten because we have no foundation myth and don’t discuss the “settlement,” and Hancock is forgotten because he criticises that settlement and there is a “dominant tendency” to rehabilitate it. Ergas is at least aware of McLean’s work, instancing it as the (only) example of this “dominant tendency.”

Political scientist John Nethercote writes on Australia’s “talent for bureaucracy” and “the atrophy of federalism.” A “quest for equality” comes at “the expense of federalism,” he says, and encourages Australia’s “talent for bureaucracy” and thus “uniformity and standardisation.” He critically notes the recent Australian government green paper on federalism, which poses the question, “what is the problem we are trying to solve?” but doesn’t answer it. I’m not sure Nethercote does either. At the end of his interesting and well-written account I was left wondering what exactly he objects to, and why.

Similarly, another of Coleman’s contributions may well become the classic account of Australia’s “electoral idiosyncrasies,” especially compulsory voting, preferential voting, and the persistence of a distinct country party. But it is not at all evident how the puzzles and curiosities he describes support his conclusions that “the Australian sense of democracy is undeveloped,” that there is “poverty of the democratic spirit in Australia” and (most severely) that “Australian democracy smacks too much of the polling booth and not enough of the parliamentary chamber.”

Adelaide economist J.J. Pincus contributes a sensible piece about the state and railways. Canberra academic Phil Lewis takes us through the Australian industrial relations framework, asserting without explanation that the system is today “more regulated” than it was following the Keating government reforms. The industrial relations system “has now gone into reverse and is falling behind other countries.” Without example or amplification, it’s difficult to discuss.

While Coleman might not be persuasive in his argument that Australia didn’t really change in the 1980s, I think he is quite right in arguing that some aspects of Australian exceptionalism remain, and some of them have a long history. Industrial disputes might no longer be arbitrated, and we no longer attempt to calculate a “basic wage” or “margins,” but Australia still has high and legally enforceable minimum wages, especially compared to the United States. It is still possible for workers to unionise relatively easily if they wish, and to strike collective bargains with their employers. In practice, most workers are paid either at or over the award, with no formal enterprise bargain, but the existence of a right to unionise, to strike during a bargaining period, and to reach enterprise agreements is a useful check on the boss.

Coleman is also right to see a passing resemblance between today’s skilled migration program and the old White Australia policy. Quite a few White Australia proponents were outright racists, but many more thought of it as a policy to keep out cheap, unskilled labour. A skilled labour migration policy achieves the same effect, without the racism.

And while they are not so much historical remnants as more modern creations, Coleman is also right to detect some other exceptions to the trend in other English-speaking economies. Australia does rely more heavily on a progressive personal income tax than many other advanced economies, its value-added taxes are certainly lower than those in Europe, Britain or New Zealand (but not the US), and it does means test government benefits more than most countries. The result is a progressive tax and transfer system with a reasonably high level of benefit payments, but smaller shares of tax and government spending to GDP than the countries to which Coleman compares us.

There is a sense in Only in Australia that these exceptions are not only at odds with trends elsewhere but also inimical to Australia’s success. In a recent Lowy Institute analysis, How to Be Exceptional: Australia in the Slowing Global Economy, I argue the contrary. Many of Australia’s peculiarities are entirely consistent with and facilitate Australia’s engagement in the global economy. In the US, the median income has only just climbed back to the level it last reached seventeen years ago. In Britain, income inequality has dramatically widened. Little wonder rust-belt states swung to Trump, who promised to cut migration and cheap manufactured imports. Little wonder the old and the poorly educated in Britain voted against an open European labour market.

By contrast, even households in the lowest income quintile in Australia have experienced an increase of nearly 60 per cent in their real disposable income over the past twenty years. The twenty-five-year upswing explains some of that, but the relatively fairer income distribution also depends precisely on those elements to which Coleman and his colleagues are most hostile. The combination of high minimum wages, skilled migration, and a progressive tax-and-benefit structure help ensure a less unequal society than the US. Australia has been able to run a far larger migration relative to its size, has a larger trade share, and is quite as engaged in the global economy as the US, without the political fractures now evident there and in Britain.

For the coming decades Australia has an immense demographic advantage that can underpin stronger growth in living standards than is likely in most other advanced economies. Realising this advantage depends on a continuing large immigration program, which in turn depends on sustaining political consent through a reasonably fair spread of prosperity. In Australia today, there is plenty of distress, plenty of rural annoyance with Chinese investment, and widespread objection to rorting 457 visas, but no rebellion against the openness to trade and migration which has supported Australian development for well over 200 years. That is another aspect of the plight of the Right: what we have retained of Australian exceptionalism works. •