Rudd's breathtakingly cynical essay

Australia's political class is in a buzz following weekend revelations that the Prime Minister, Kevin Rudd, was busy beavering away on a major essay for The Monthly on the current economic crisis during his summer holiday. The essay is to be published in the next edition of the journal of record for the intellectual and cultural avant-garde. The weekend reports provide us with a view of the underlying argument, the bit that matters, if not the essay itself.

It has been reported that Rudd blames neoliberalism for the crisis and that he will assert that the Liberal Party is the natural home of neoliberal doctrine. Furthermore, the Rudd essay reportedly calls for a new philosophical framework to underpin government policies post the financial crash. This framework cannot be developed by the Liberal Party given its strong commitment to free market fundamentalism, Rudd will reportedly argue.

The best thing that we might state about this thesis is that, unlike with Julie Bishop's similar attempt at philosophical reflection, the Rudd essay won't give off the appearance of plagiarism.

The worst we can say is that Kevin Rudd is displaying a level of breathtaking cynicism the likes of which Australian political life has not seen for many a year. The only thing that comes close is the way that the Liberal Party used concerns about terrorism and boat people in 2001 to craft a governing narrative built around the politics of "strong on national security".

Michelle Grattan, writing in The Age, cites Rudd as stating "the time has come, off the back of the current crisis, to proclaim that the great neo-liberal experiment of the past 30 years has failed, that the emperor has no clothes. Neo-liberalism, and the free market fundamentalism it has produced, has been revealed as little more than personal greed dressed up as an economic philosophy."

Rudd furthermore reportedly states that the Liberal Party is the "home" of neoliberalism in Australia and that thereby only the Labor Party is able to fashion a credible alternative to neoliberalism for social democrats have "a consistent position on the central role of the state - in contrast to neo-liberals, who now find themselves tied in ideological knots".

The key task now for social democrats is to "recast the role of the state and its associated political economy of social democracy as a comprehensive philosophical framework for the future".

It is true to say that the neoliberal economic reforms of the past 30 years have dominated Australian social, political and economic life. But what Rudd seemingly fails to seriously elaborate upon is that it was the ALP, under Hawke and Keating, that was largely responsible for ushering in the neoliberal economic reforms that he now decries.

The former senior Treasury official, now senior banker, David Morgan rather melodramatically told us that the free market Treasury had more of its agenda implemented under Hawke and Keating "than all of the post-war governments combined; easy". (Labor in Power ABC TV series). Rudd's Minister for Finance has stated that "the Rudd Government is committed to upholding the tradition of reform established in the Hawke-Keating era" for "the Australian economy desperately needs further reform".

Immediately after the reports of the Rudd essay emerged the Minister for Resources, Martin Ferguson, warned the workers of Australia at a union conference "not to use the global financial crisis as an excuse to abandon the quest for productivity gains or seek protection from competition".

It is only natural that Ferguson should say this for Tanner has revealed that "our default position will be to liberalise, not restrict". Both Tanner and Ferguson are from the "socialist left" of the ALP, as is comrade Greg Combet who added another property to his multi-million dollar portfolio according to weekend reports (Combet's beach pads, Sunday Herald-Sun, February 1 2009).

We might recall that it was not so long ago that everybody was singing odes to joy about the wonders of our miracle economy. These wonders, we were told, could be attributed to the neoliberal economic reforms of the past 30 years no less.

Now, however, we have begun to appreciate, what should have been all too apparent, that economic growth (such as it was) was largely due to the housing boom (actually an asset price bubble) and the effect that rising commodity prices had on the terms-of-trade and capital investment. Tanner, in a further display of cynicism, now attributes that growth to the resources boom, having previously been a part of the herd that attributed growth to neoliberalism. Consider also the "we'll keep pursuing major reforms" declaration that Tanner makes in the above linked article.

Moreover, much of the economy was actually under performing as evidenced by the "two-speed economy" discussed by economists. The housing and commodity booms actually masked what was happening in the wider economy, especially in manufacturing.

During the run up to the 2007 election the ALP was looking for an economic narrative to try and break through the perception that Howard and Costello were superior economic managers. They adopted a two-track strategy. The first was to blame alleged government induced bottlenecks for rising inflation and the consequent tightening of monetary policy. The second was to point out that the economic reforms that had given us such a miracle economy were largely the responsibility of the previous Labor government.

Overnight Rudd has over-turned the dogma from one of "we are responsible for the economic reforms" to "the economic reforms are a failure, and the Liberal Party is the home of neoliberalism".

What complete, total and utter cynicism.

In essence, however, this only scratches the surface of the depth of cynicism that Rudd betrays in his essay and his policies.

We can begin to appreciate this by asking; what precisely is neoliberalism?

It is commonly supposed that neoliberalism is a doctrine that extols the virtues of the free market and that it is a philosophical doctrine that values the market in and of itself and where the operation of the free market is moreover seen as an ethic in itself. Policy has reflected a philosophical commitment to these views, it is supposed.

There are two problems with this common position which is even held by critics.

First, for Adam Smith, taken to be the intellectual father of free market economics, the market is not valued in and of itself. Smith was a philosopher of the Scottish Enlightenment who considered his most important work to be The Theory of Moral Sentiments not An Inquiry Into the Nature and Causes of The Wealth of Nations.

For Smith the free market was to be valued and promoted for the unfettered operation of the free market would lead to equality. The obvious logical corollary to the Smithian view is that if markets do not lead to equality then they can have no moral justification. There is a chasm between Smith's viewpoint and the idea that the operation of the market is self-justifying through a process of reification as the sophisticated would say.

However, there is a second more basic problem with the common view. To appreciate this we again turn to Smith. In his critique of mercantilism, the mercantile era never really ended we might add, he famously stated that "all for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind".

The origins of neoliberalism can be found in the crisis of corporate profitability that was occasioned by the stagflation of the 1970s. Neoliberalism arose as an attempt to restore, indeed increase, corporate profitability, in the context of declining economic growth.

Despite all the accolades that were directed towards "the masters of the universe", as the glitterati at the World Economic Forum used to call themselves, economic growth has tended to trend below that of the "golden age of capitalism" during the Keynesian era of the 1950s and 1960s.

However, as a result of neoliberalism, corporate profits have never been higher as a proportion of the economy than they are now.

The shift towards profits in the wages-profit share was not a mere consequence of policy it was the object of policy. To restore profits in the context of growth rates trending less than that of the 50s and 60s required greater labour productivity, but with less of the pie going to wages or to the poor through social welfare. This process has been accurately described as "the revolt of the elites". Disciplining the poor and workers through free market policies enabled this revolt to proceed.

Neoliberalism merely serves to cover the vile maxim. It is true that financial market liberalisation has under-priced risk but this should not obscure how the broader system functions and will continue to function. A new financial edifice will be created to internalise systemic risk, true, but the vile maxim is invariant.

But what has happened since the financial crisis reached critical mass I can hear the critics proclaim?

The government has spent $10 billion on a fiscal stimulus package and promises to spend more in the near future. This replicates the actions of governments the world over. In Australia the fiscal stimulus will put the budget into deficit and is directed towards the poor.

The best way to understand this policy reaction is by considering Keynes. Did not the rise of Keynesian economics in the 1930s and 1940s see to it that the vile maxim was banished for the first time in history? Should not now its revival be seen in similar terms?

Hardly.

Keynesian theory and the economic policies that ushered it in may be described as "Keynes' addendum" to Smith's vile maxim so that it now becomes "all for ourselves, and nothing for other people, except when it suits us, seems, in every age of the world, to have been the vile maxim of the masters of mankind".

The Rudd Government is not spending money on the poor for the sake of helping the poor. It was not long ago that pensioners marched on Flinders Street Station decrying government policy following its first, neoliberal, budget.

No, the government is spending on the poor because economists cynically inform us that they have a greater propensity to spend transfer payments. It thereby follows that spending on the poor is the best way to help bailout the rich. Some have bemoaned the poor for not taking into account the needs of the rich more readily, for instance by their use of the stimulus payment to increase savings or to pay off debt.

In other words, Keynes' addendum.

Chris Richardson of Access Economics, and a chorus of others, demand that the current period of state activism must be temporary. Of course, when the addendum is of no use we return to the vile maxim in its classical form.

The Australian Financial Review has instructed the government in a recent editorial (January 30, 2009) not to not engage in what it disgracefully referred to as "welfare padding".

Welfare padding is for the rich given the vile maxim and must at all times be consistent with the addendum thereto if directed towards the poor.

As comrades Tanner and Ferguson have revealed the masters of mankind have no need to fear that these orders will not be obeyed.

Whatever the new Rudd framework may be, it will be totally irrelevant, for the vile maxim will hold as usual as the comrades in the Rudd cabinet have told, nay warned, us it will.

The Rudd essay is a political tract designed to fashion a narrative where hitherto none has existed and to opportunistically establish mastery over his political opponents in much the same fashion that Howard was able to achieve following September 11, 2001.

September 2008 was Rudd's September 2001.