Economics with social conscience

Economics is the dismal science, as the 19th century Victorian historian Thomas Carlyle put it.

The term has gained currency as the pejorative description of the branch of social science that studies the production, distribution and consumption of goods and services. Former British prime minister Margaret Thatcher exacerbated the unfortunate perception in her identification with the work of Nobel prize-winning monetarist economist Milton Friedman.

Yet from Ibn Khaldun - six centuries before Carlyle - down to Adam Smith, 300 years after Khaldun, there has been a social conscience to economics. Friedman's contemporary foils, John Maynard Keynes and John Kenneth Galbraith, held firm to the Smith tradition.

The argument goes on today. Economics makes and breaks governments. It figures in judgment of new governments.

Seven months into the frenetic pace of Prime Minister Kevin Rudd, one question swirls: what does the Rudd Government stand for?

Economics looms large.

Where does the government stand on economics? Rudd has not been explicit on this question. One might piece together a picture from his pronouncements, and people he looks up to, not least the German theologian and political activist Dietrich Bonhoeffer.

In Rudd's maiden speech to Parliament (November 11, 1998), he had this to say:

"Competitive markets are massive and generally efficient generators of economic wealth. They must therefore have a central place in the management of the economy.

"But markets sometimes fail, requiring direct government intervention ... There are also areas where the public good dictates that there should be no market at all."

Or, one might draw conclusions of the Rudd position from the company he keeps.

One pointer might come from Rudd's Minister for Small Business Craig Emerson in a speech he gave to The Sydney Institute, Prosperity & Fairness in a Market Democracy.

Emerson, 53, the only professional economist in Rudd's cabinet, has a "unifying political philosophy" that he describes as embracing the universal values affirmed in the United Nations Millennium Declaration.

He counts among these values freedom, equality, solidarity, tolerance, respect for nature and shared responsibility, summarising them as "prosperity and fairness through opportunity for all in a market democracy".

For the economist with a doctorate from the Australian National University, the traditional Labor values of prosperity, fairness and compassion fit well with "supporting an open, competitive economy that rewards effort, risk-taking and entrepreneurship, and where opportunity, not welfare, is available to all".

Does Emerson speak for Rudd then, in his description of Labor as the party for competition and compassion, drawing as he does his inspiration from Adam Smith, David Ricardo and Karl Marx, liberally sprinkling his speech with references to "the Rudd Government"?

We cannot be sure. Emerson is yet to respond to questions New Sunday Times put to him.

Bank economist Saul Eslake is afraid that may not necessarily be the case. "Rudd is no economist," Eslake says of Emerson's fellow alumnus who came after him at ANU.

Rudd, 50, graduated with first class honours in arts (Asian Studies), majoring in Chinese language and Chinese history. "Rudd is a clever, able politician first and foremost," says Eslake, chief economist of ANZ and sought-after commentator among market economists.

Eslake, appointed to advisory panels on trade and foreign affairs to the government of John Howard, was moved to seek a transcript from Emerson of his Sydney Institute address. He finds Emerson’s thinking on equality of opportunity beyond equality of outcomes appealing. "It is a philosophy that reflects mainstream economists," Eslake maintains.

The challenge for government, as Rudd saw it in his maiden speech in Parliament, is "the creation of a competitive economy while advancing the overriding imperative of a just society".

Some people call this the "third way", he said then. It is, he asserts, "a repudiation of Thatcherism".

Emerson echoes this in his Sydney Institute address, describing what he calls market democrats as a "modern incarnation of the traditions of the Hawke/Keating (Labor) governments (1983-96), later imported by (former British Prime Minister) Tony Blair and refined as 'the third way'."

"Market democrats harness the power of the market for the public good," says Emerson, who at ANU studied under the tutelage of Hawke/Keating adviser Professor Ross Garnaut.

"They dedicate themselves to remedying social disadvantage out of prosperity by giving every child the opportunity of a quality education through excellence in teaching and high-quality school facilities.

"Market democrats understand that simply providing opportunity to the underprivileged does not guarantee it will be taken up. That's why market democrats support underprivileged children and their families through early childhood development and early intervention programmes."

The extent to which Emerson reflects Rudd's line of thinking, and vice versa, is not apparent to us, but much is reflected in the platform that Labor took to its election campaign, now adopted as policy.

They are manifested in the social democratic party's "education revolution", and policies on "economic prosperity", climate change and water, industrial relations and health.

It's mirrored in the composition of the Rudd Cabinet, which for the first time includes a Minister for Social Inclusion, part of the "super ministry" of Deputy Prime Minister Julia Gillard, carrying on her shoulders the many "firsts" in Australian politics.

The ironic criticism of "intellectual" Rudd today is of a man with a populist bent entangling himself in everyday issues ranging from petrol prices to dysfunctional families neglecting the care of their children, rather than occupying himself with the big picture of policy.