Australian policy: rational choices versus wishful thinking

As suggested by the self-declared social democrat Lindy Edwards at the “Crunch Time Conference” in Sydney’s Trades Hall on April 22, 2009, Australia will struggle to address its current economic woes.

Though arguing that the current global financial crisis offers a new opportunity for social democracy, Edwards recognises that any hope for a return to Keynesian policies to manage the economy (controlling interest rates and offering stimulus packages) is likely to be short lived. This is because “governments do not have enough money to fix the size of the problem” and much higher debt is likely to lead to “the worst downturn in the electorate’s memory” and ultimately be “dubbed a failure and a huge waste of resources”.

So, Edwards, in her “search for new models of social democracy”, suggests that “one possibility might be to foster and build a new generation of not-for-profits” which can pressure corporations to become guardians of the public interest by providing good products and jobs. For instance, Edwards cites the example of not-for-profit credit unions which now provide lower cost banking and superannuation services.

But Australia’s ability to remain economically successful will long remain determined by its competitiveness and efficiency, at least until the wealthy democracies decide greater protectionism is needed. All a competent Western government can do is adopt policies that balance competitiveness and compassion, a task that is indeed helped by sophisticated and extensive interaction between political parties, interest groups and public opinion.

Despite the Rudd Labor Government’s recent reliance upon much greater debt, Australia’s policy options, including any ability to fund extensive social welfare needs, remain tied to its ability to benefit from the demands of the international economy.

For instance, given that Australia does have a high reliance on foreign investment and supports greater trade, just imagine what would have happened to national wealth if we had maintained a company tax rate of 49 per cent in 1986 in such a competitive world. Even bigger spending nations with much more extensive social welfare systems now have company tax rates lower than Australia’s 30 per cent rate, including those often cited as successful social democracies (Denmark, Finland, Norway, and Sweden).

Australia may indeed come under greater pressure with governments picking up more of the burden placed on businesses to keep them here, a concern expressed by Edwards.

And while the centre of politics may be shifting to the left in democratic societies (including the US), at least in some policy areas, more painful reform may lie ahead as each nation continues its struggle to acquire enough resources to meet a variety of economic, social and environmental needs.

Difficulties for funding a variety of issues will indeed be complicated by ongoing economic competition, whether it be lower labour costs in many poorer nations (including China and India); or an ongoing push for lower corporate tax rates, although upcoming budgetary funding shortfalls may in time lead to a greater public demand for higher tax rates, especially if cuts to social welfare programs are not tolerated by democratic societies.

But there may also be a need to provide greater resources to foreign aid or security needs around the world if democracy and the rule of law are to be promoted successfully or ignored. As long as national governments do not provide enough resources to help the vulnerable around the world, then there will be potential for militant organisations to rise either with the support of people or through violence, as is the case with the Taliban in Pakistan.

As I have argued consistently, despite concerns about the rich benefiting most in recent decades, any move away from freer trade will send the wrong message to the world, notwithstanding the right of anyone to highlight adverse effects evident in our societies.

While Edwards stresses our obsession with market liberalism which has allowed the powerful “to leverage” greater benefit and power which increases “the scope for exploitation”, many disagree. A 2007 international poll by The Chicago Council on Global Affairs and WorldPublicOpinion.org found that support for globalisation was strong in most of the 18 countries surveyed with support less than 50 per cent in just three nations. This included Australia (65 to 27 per cent), the US (60 to 35 per cent), and France (51 to 42 per cent), although well behind support in China (87 to 6 per cent).