Rudd's essay is much more than spin

Let’s do something novel, and assume that Kevin Rudd’s essay in the latest Monthly is a sincere effort to put an organised version of his own recent thoughts on the public record. Let's assume it's an essay, rather than an effort to get under Malcolm Turnbull’s skin.

If we take the essay seriously, something remarkable happens. We see that the criticisms of recent economic orthodoxy are just a prelude to a meditation on the idea of social democracy. We discern legitimate fears about the consequences of economic dislocation for the social and political landscape of Australia. And we can sense Rudd publicly steeling himself to carry out the social democrat’s risky work of moderation. From this point of view, Rudd’s essay begins to look like a deeply democratic gesture - he has laid his cards on the table, and is asking us to engage him in conversation in a moment of collective danger.

Rudd’s criticisms of “neo-liberalism” seem to have stung those in the national press who have not yet accepted the Howard era is over. But this is not the essay's chief purpose. Early on it's made clear that “the intellectual challenge for social democrats is not just to repudiate the neo-liberal extremism that has landed us in this mess, but to advance the case that the social-democratic state offers the best guarantee of preserving the productive capacity of properly regulated competitive markets.” The essay does both.

First comes the critique. In taking on recent orthodoxies, Rudd hardly sounds like a revolutionary. The way in which Rudd describes them would be considered unremarkable outside all but the most hermitic, faith-based, monetarist communities. Rudd correctly points to the way in which the administration of governments and economies has for three decades been driven by a “core theoretical belief in the superiority of unregulated markets”, resting on the efficient-markets hypothesis. The corollary was that government intervention could only coercively distort market dynamics.

Hayek - dredged from an obscurity to which he may soon return - provided some dubious philosophical respectability for all of this. Rudd is correct in saying that Hayek considered concepts of social solidarity, social justice, even society itself as “atavistic” holdovers, and argued that the market should be the lone distributor of social and economic goods, and even the lone arbiter of civilisation.

The general lines of the history that frames his criticism are familiar. For three decades in many Western countries, taxation has been insufficient to maintain governments’ capacity to invest in social goods. This has been in order “to provide maximal space in the economy for private markets”. If the state has actually enlarged its role in some respects during this time - say through the general increase in defence spending, or programs like the Howard government’s expansion of “middle-class welfare” - the ideas that Rudd describes have nevertheless underwritten a general retreat from market regulation and state provision of social services.

The analysis of the consequences of the deregulation of finance are, again, hardly idiosyncratic. For at least ten years, markets have been operating without adequate oversight, but taxpayers are now liable for their follies. The Chinese wall between commercial and investment banks was removed. The conglomerates that were allowed to form exposed themselves to massive debt, and though they were “too systemically important to [be allowed to] fail”, "self-regulation" through credit ratings and internal risk assessment was compromised and inadequate.

New institutions emerged with large debts and dodgy books. Crises round the turn of the decade were papered over with lax monetary policy. (Here even Greenspan has admitted his mistakes.) The resulting cheap money was sold hard to mortgage borrowers with poor credit histories. New financial instruments severed the link between “the assessor of credit-worthiness and the ultimate holder of the loan”. An asset bubble formed, and when it popped, “links to the mainstream commercial-banking system, with its implicit government guarantees, meant that the state (not the market) [was] left carrying the can”.

The links between recent crises and Rudd's "neo-liberal" ideology are clearly drawn. As Rudd puts it, “neo-liberals were so convinced of the ideological rightness of their cause, and so blinded by their unquestioning belief that markets were inherently self-correcting, that they refused even to recognise the severity of the problems that emerged”. The dangers emerging from the confluence of poorly regulated banking, easy lending, bad credit risks and too-clever financial instruments were missed due to ideology and - yes - greed. There is sincere anger here, I think, about a gigantic privatisation of profit and socialisation of debt by the world’s largest financial institutions.

Rudd has been accused of making "neo-liberalism" into a straw man. But he's covering significant ground in a short essay, and needs to leave space for more positive claims. Besides, this essay hasn’t been written so satisfy the pedantry of economic historians or conservative columnists. Rudd’s description of recent history will answer perfectly to the way that many Australians feel that markets and economies have fatefully slipped the leash of our democratic institutions.

Even before this crisis emerged, many Australians knew their lives and economic positions were no better - or were even worse - after more than a decade of prosperity. (See Mark Davis’s Land of Plenty or David McKnight’s Beyond Left and Right.) Australia’s receding boom was experienced as insecurity by many. Work colonised private life, rising debts kept pace with on-paper equity, and the forces governing all our lives seemed increasingly remote.

Australians may have gone along with the direction of the last decade because their accountants told them their houses were worth more. But Rudd’s wager in this essay is that like him, enough Australians are instinctive social democrats to now want a more interventionist state. Especially now, they want governments to moderate market excesses, and to cushion the impacts of the downturn. Australian history suggests an ingrained preference for a relatively equal distribution of wealth, a strong role for the state in framing the operations of the market, and a high degree of common ownership of public goods. My money is with the Prime Minister’s, rather with that of his critics.

Predictably, there has been some grizzling about the essay's linking the actions of the previous government to the fix in which we find ourselves. But the cap fits. There is little to argue with in Rudd’s description of the Howard government’s direction:

[They] reduced investment in key public goods, including education and health. [They] also refused to invest in national economic infrastructure … [They] set about the comprehensive deregulation of the labour market ... [They were] driven by a philosophy of minimal government intervention in the market. Most critically, the Howard government oversaw an unprecedented expansion in household and national debt.

In other words, despite chest-beating over "border security", the Howard government dismantled some of the structures and institutions that made Australians feel safer. They enacted their determination to increase private wealth at the expense of our store of social goods. By comparison, Rudd sets out some principles that can underpin the actions of a more interventionist state. As if he needed to say it again, or any more explicitly, he signals that the heyday of the ideas that animated the last decade has passed.

Rudd’s answers to our current dilemmas draw on a range of big ideas about the state’s proper role in the economy, but the stakes are appropriately high. Rudd thinks that governments must now move to regulate capitalism, while cherishing the market's fostering of innovation and enterprise. Otherwise, “there is a grave danger that new political voices of the extreme Left and nationalist Right will begin to achieve a legitimacy hitherto denied them.” While the commentators' employers run supplements on “credit crunch chic” or talking up cheap real estate, the Prime Minister - a student of Bonheoffer - is meditating uneasily on the 1930s.

He takes this opportunity to ask and answer the questions social democrats have always asked themselves. What is the state for? Can the market’s destructive effects be contained at the same time as its powers for concentrating innovation and enterprise are preserved? How to resolve the tension between democracy and the inequalities of the market? How to defuse the social tensions brought by widespread poverty? How can a society under pressure safeguard both freedom (in the form of the market), and the democratic demands of justice? How to demonstrate that democracy is worth fighting for?

These questions are not treated airily. Most reviews of the essay have completely ignored concrete proposals Rudd makes. He suggests “credit-market regulation, intervention and demand-side stimulus in the economy”. The stabilisation of banking systems is justified as protecting a “public good”. The current intervention in credit markets may be wound back, but “clearly the days of effective non-regulation and unconstrained financial innovation are gone, and must not be allowed to return. The consequences for the economy are too great.”

Demand-side stimulation is happening around the world, but Rudd buttresses it both with neo-Keynesian theory and clear-eyed appraisal of events. Unlike some critics, he wants above all to minimise large-scale unemployment, so “the state must involve itself in direct demand-side stimulus to offset the large-scale contraction in private demand”. For good reasons, this approach has achieved widespread currency. At present in the US, for example, a huge fiscal stimulus package is in train because it’s clear to anyone with eyes that monetary policy has nowhere left to go. The difference is that Rudd tries to give the strategy some intellectual ballast.

The spectre of poverty is a strong presence in this essay. I’d argue it's also a significant element in the Prime Minister’s character and political beliefs. Rudd was poor as a child. I’m inclined to believe the Prime Minister when he says that his family's near-destitution was formative. He would be personally aware of the particular effects of economic downturn on rural and regional areas. It’s probably only those who have never been poor who can dismiss its impact on individuals and families, or discount it as a political motivation. Those who have known it understand the anger it can elicit, and the risks it carries of disenfranchisement or disengagement from mainstream life.

I’m prepared to accept that Rudd’s most fundamental beliefs - as a politician, and perhaps as a Christian - are expressed in the passages where he outlines the commitment of social democracy to ameliorate poverty:

The social-democratic pursuit of social justice is founded on a belief in the self-evident value of equality ... human beings have an intrinsic right to dignity, equality of opportunity, and the ability to lead a fulfilling life ... This contrasts with the Hayekian view that a person’s worth should primarily, and unsentimentally be determined by the market.

For Rudd, “trickle-down” solutions to poverty are far too slow.

Rudd's essay has been painted as an exercise in political spin, but it's much more than this. Of course there are problems. Passages are verbose where they should be clear, and prosaic where they could be lyrical. There is some jargon that mystifies what it would explain. But these may just be attributes of the democracy we live in, and the Prime Minister we’ve elected. Another problem: if this is an invitation to talk about the direction we feel Australian governance should go in, its unclear how we might best respond. The Australian government is still dragging the chain in embracing new possibilities for public debate and consultation.

Despite these quibbles, we should acknowledge that an essay is a natural way for Rudd to open up this conversation. And we badly need to have some kind of national discussion about the disbursement of so much public money, and so many guarantees. Rudd argues that social democracy, and a view of the state as a social utility, can justify his current efforts. The argument is considered. Those who disagree with his world view should do him and the rest of us the courtesy of responding in kind.

The essay's reception raises larger questions. We’re sometimes poorly served by those whom we trust to interpret political events. Some Canberra commentators, and not a few bloggers, seem unable to take anything that comes from a politician at face value. This is a sign of immaturity in our political debate, not sophistication. A comparison with political commentary in the US will show that writers there are capable, when necessary, of the seriousness that citizenship and democracy occasionally demand.

The glaring element of realpolitik that hasn’t been considered is that Rudd’s opponents in the Liberal Party are the very least of his current difficulties. For the moment, he doesn’t need to write long essays during his Christmas break to create trouble for Malcolm Turnbull. Turnbull and his colleagues are taking care of that. We currently have a Prime Minister who’s prepared to take risks in putting his case for change on the public record. How long will we need to wait for a media class that is equal to this gesture?