Howard’s workplace and welfare reforms and Australian values

The utilitarian case for SD

While the nation’s total employment and economic “cake” would increase by a similar amount under both the Howard and SD agendas, the net gains would be very differently distributed. Under SD, the losers would be relatively well-off taxpayers - at least until the social programs have had time to “pay off” and enhance the revenue base.

Under Howard, the losers (in income, opportunity and quality of life) are low-paid workers - at least until the benefits start to trickle down to them. The losers under Howard are almost certain to have a higher marginal utility than the losers under SD. On utilitarian (aggregate utility) grounds, therefore, SD seems superior.

Many doubt that the SD model can be successfully transposed to Australia (the Scandinavian version has evolved over decades and in a different cultural environment). Even those who accept that it might work in theory warn of the pervasive risk of “government failure” in implementation. Such fears would be justified if a government were to try to quickly embrace the Scandinavian system lock stock and barrel. But no one is proposing that. Most economists (like the author) are only suggesting that a few of the more successful elements of the model be gradually adopted over time.

Which strategy best captures Australian values?

SD allows the benefits of economic reform to be more widely shared than the Howard formula. But equality is only one dimension of “equity”. There are two other dimensions highly prized by Australians. They are “personal freedom” and “self-reliance”.

On the criterion of personal freedom, there are pluses and minuses for both agendas. The Howard agenda is superior in that it allows an individual to retain what he or she earns or produces and to choose more freely from the consumption possibilities in the market. But freedom is also about capability or “positive liberty” - the ability to actively participate in society and attain one’s full potential. From this broader “capability” viewpoint, the SD strategy offers a better outcome: it widens the range of longer term employment opportunities and choices available to low-paid workers and jobless workers and makes it easier for them to rise up the income ladder over their lifetimes.

On the other hand, the SD agenda does involve more government paternalism and therefore scores lower on the criterion of self-reliance. For those of libertarian inclination, this will weigh heavily against it.

It is not clear how such value conflicts will ultimately be resolved. We may see mainstream Australia lose patience with the state of the social and environmental infrastructure and with the growing inequalities of opportunity and demand. This could mean that governments would give these problems higher priority, even if it means higher taxes and government borrowing. But it is equally possible that the steady individualisation of Australian values will continue unabated - to the point where it will be hard for any leader or political party to reverse.

Main points

Australia needs to remove unnecessary barriers to workforce participation so as to ease the fiscal and economic pressures of an ageing population. Howard’s workplace and welfare agenda offers one policy route to higher participation, but it relies overwhelmingly on market forces to achieve its goals, so the costs and benefits are unevenly spread. The divisiveness it is creating could sow the seeds of its own destruction.

Howard’s way is not the only way to improve workforce participation rates. There is an alternative, equally effective and in many respects more sustainable policy agenda which retains some of the market friendly ideas of Howard but throws out the harsher ones and instead relies heavily on social investment.

The two strategies produce different sets of winners and losers and appeal to sharply different social values.