Neoliberalism: fact or fiction?

I do see problems ahead and urge effective centre-left and centre-right policies to emerge to provide an effective balance between compassion and competitiveness. I certainly do not want to live in a world dominated by communist China or in a society where a growing minority will no longer be able to afford homes. I also suggest that Australia’s social welfare system will come under further pressure if Australia remains committed to a similar level of taxation as a proportion of GDP in order to remain competitive in international terms. The trend towards greater difficulties for a growing minority may be indicated by a recent Ninemsn poll (20 April 2010) finding majority support to the question ‘Should the dole be banned for under 30s? (Yes: 70012 (52 per cent) and No: 65186 (48 per cent).

But writing about future policy trends is for another story. I am concerned with Manne’s inability to understand recent policy trends and the difficulties faced by the influential Western nations in responding to the 1970s economic crisis.

Sure references to neoliberalism owe much to the freer economic processes largely initiated under Thatcher and Reagan’s monetarist revolution. But policy trends attributed to neoliberalism were accepted by virtually all Western and developed nations. After the US abolished its own capital controls in 1974 and floated the US Dollar to address its deteriorating trade position and make its currency more attractive against expanding private international finance including Eurocurrency and Eurobonds, various Western nations made their policy choices.

With no other Western nation/s prepared to unilaterally introduce exchange controls due to the enormous costs involved, many (which also experienced adverse economic conditions during the 1970s from higher oil prices; unemployment and inflation; and a worldwide collapse in property markets) eventually supported floating exchange rates and market discipline 

While Manne (and others) whinged and watched as the world change before their eyes, Western publics mostly supported recent policies at the electorate box, notwithstanding the ongoing struggle for political dominance between centre-left and centre-right political parties and their supporters.

Western societies were not hoodwinked. While Manne’s disdain for totalitarianism in the past has given way to virtually ignoring the role played by public support (for better or worse), most Australians accepted the argument that freer trade would promote both national and international prosperity. This was despite lower taxation rates for both companies and high-income earners, greater labour market flexibility, and a growing reliance upon debt (public and/or private) to pay for imports and aid domestic consumption patterns.

In a world where even Western nations have hardly enjoyed a long period without some chaos or misery, the failure of Keynesian policies by the early 1970s meant that new players would have a greater say, notably the private sector as governments could no longer be all things to all people.

Sure, Manne and others would have preferred that Australia adopt policies more in line with their beloved social democracy examples (Sweden, Norway and Denmark) who did manage to maintain high standards of living with much higher levels of taxation (and still generous social welfare systems). 

But this is Australia. While some Australians expressed opposition to so-called neoliberal policies, with One Nation 1998 also attracting support by denouncing economic rationalism and globalisation while advocating the restoration of import tariffs to revive Australian industry, small business and the rural sector, it worth noting that party’s demise after greater scrutiny of its economic policies.

In other words, with per capita national income increasing substantially in all OECD nations between 1994 and 2007, there were few reasons why many democracies would oppose recent policy trends, especially given that greater trade also helped reduce poverty by half a billion people since 1980, albeit mostly in Asia.

I do not deny that immense problems lie ahead, but what is achieved by Manne just bagging recent policy trends, certain political leaders or parties, or even the public itself as it supports certain policies in a world of hard choices.

While the US housing crisis was fuelled by unscrupulous lending, what ideas does Manne offer to help the US now achieve its housing needs given its own struggle to balance old and new issues, including international military and economic leadership?