Can Western nations remain fair and affluent?

Can Western societies remain fair and affluent, even if developing nations continue to gain greater global GDP share in coming years? Perhaps, but achieving such goals is an increasing struggle.

Even Australia is being tested, despite being one of the few Western nations fortunate to have vast amounts of raw materials to export. While Australia has been one of the best performing OECD nations since the early 1980s in terms of maintaining similar levels of income inequality, the benefit of cheaper imported consumer goods has been somewhat offset by recent higher prices for housing, food and utility bills.

If measures cannot be introduced to address rising everyday living costs, then Australia will indeed produce a class of people whose life opportunities will increasingly perish.

So what are the chances of such measures being introduced to help the more vulnerable?

On recent trends, there is considerable uncertainty. In a climate where freer trade is still viewed as the concept most capable of upholding national and international aspirations, many urge further reform in regards to taxation, labour markets and welfare to further improve national productivity and competitiveness.

As major budgetary and debt pressures continue to emerge amongst Western nations, fiscal constraints are testing the prowess of their government to adopt an appropriate policy mix. For instance, recent budget cuts by the UK Government, introduced to address budget deficits and increasing debt, led British universities to increase fees by 300 per cent from £3000 to £9000.

As for the US, the nation which has most promoted freer trade and military security (at least from a Western perspective), it remains to be seen whether it proves capable of reform in an orderly and reasonably equitable way given the immense social cleavages that exist between Democrats and Republicans.

For now, US policy makers appear still reliant upon higher debt. Take the December 2010 decision to extend the Bush tax cuts and trim workers’ payroll tax contributions which Moody’s predicts will raise the US federal debt-to-GDP ratio at 2012 to 72-73% from around 62% in 2010, whereas previously it was predicted to be 68% in 2012. With higher US borrowing costs, Moody’s has warned the likelihood of a negative outlook on the US government’s credit rating during the next two years.

If Western democracies turn in on themselves via much greater income disparity which diminishes opportunity, then democratic politics will indeed be little more that a focused political strategy to win the most seats.

But democratic politics can work despite budgetary difficulties, at least if societies remain committed to pluralism by adopting reasonable measures to ensure reasonable equity and ample opportunity.

Both centre-left and centre-right political parties must remain committed to commonsense. If we are to accept the need for further taxation and labour market reform, it should never be accompanied by a slave labour mentality.