“Seismic changes are underway”, writes Kevin Rudd in the latest issue of The Monthly. He declares that a “regime change” from the neo-liberal order to a renewed emphasis on the role of government intervention is now taking place.
The global economic turmoil has thrown the confidence of governments in neo-liberalism and the unfettered working of the free market into crisis. With the entire banking system in the US and Europe facing collapse, governments have been forced into pragmatic bailouts and hitherto inconceivable nationalisations.
This comes after three decades where governments worldwide have argued for cutbacks to services like health and education, privatisation and wage cutting as part of the neo-liberal policy prescription. Everywhere this has meant a massive transfer of wealth upwards into the hands of corporations and super-rich CEOs.
Now, as even former hardline neo-liberals abandon some of their most dearly held beliefs, many are asking whether the age of neo-liberalism is over. Rudd goes further. He claims that we are seeing a shift back to social democratic policies around the world, with the election of Obama in the US and a renewed faith in Keynesian economic policies.

A return to social democracy?
Does the scale of the measures governments are taking mean a break with the neo-liberal era? Above all, neo-liberalism was an attempt to restore corporate profitability in the face of the re-emergence of serious economic crises in the 1970s, following the end of the long post-war boom. Its dominance caused a crisis for social democratic parties like the Labor party in Australia, as well as its counterparts in countries like Britain and Germany.
Social democrats accept the capitalist system but argue it can be reformed to improve ordinary people’s lives by using the state to tame the worst excesses of the free market.
Key to social democratic politics was an understanding of the class divide in society, and therefore implementaton of policies like the welfare state, nationalisation of important parts of industry and government spending on services to benefit the mass of the population.
In its early years Labor fought for the introduction of the aged pension and established the Commonwealth bank. The Whitlam government doubled spending on education in its first year, introduced free tertiary education, Medibank health insurance and equal pay legislation.
But in a situation where business profitability was threatened, and it became more difficult for the capitalist system to afford the social spending on the welfare state that developed after the Second World War, there was pressure on Labor to abandon redistributive policies.
As a result social democratic parties capitulated to neo-liberalism. This is true of parties ranging from Britain’s New Labour to France’s Socialist Party or the Workers’ Party in Brazil. The Australian Labor Party was one of the earliest to make this shift, pioneering much of the neo-liberal agenda in Australia under the Hawke and Keating governments.
Rudd claims in his essay that Hawke and Keating were able to both “improve the productivity of the Australian private economy, while simultaneously expanding the role of the state in the provision of equity enhancing public services”.
In fact their time in power saw a massive increase in inequality. Qantas and the Commonwealth bank were privatised, corporate tax rates slashed and wage cuts forced on workers through the Accords. As a result the profit share of the Australian economy rose from about 18 per cent before Labor came to power to 23 per cent when they lost office in 1996. By that time one per cent of the Australian population controlled 20 per cent of the national wealth, up from 10 per cent in 1983.
Until recently, Kevin Rudd had no disagreement with this basic policy framework. During the last election he boasted of being an “economic conservative”. As he explained in a speech to the Australian Industry Group, this meant he was in bipartisan agreement with the Howard government about “fiscal discipline” and keeping government spending low. Both in that speech and at the 2020 summit he held out the prospect of continuing to cut corporate tax rates in order to keep them “internationally competitive”. His first budget last year demanded a 2 per cent “efficiency dividend” and thousands of job cuts in the public sector.

Rudd’s Keynesianism
But the scale of the economic crisis has not led him to abandon his previous economic policies. Rudd’s essay is scathing of the bankers who ran up huge profits through dodgy financial instruments. However, his attack on neo-liberalism is mainly targeted at lack of regulation of financial markets.
He is right to point to this as a major precipitator of the banking crisis. This was a product of the jettisoning of the regulation introduced as governments learnt the lessons of the 1930s. Combined with the US Federal Reserve’s strategy of slashing interest rates to provide cheap credit and lift the US economy out of successive crises, this led to the bubble in sub-prime housing loans that triggered the crisis.
A repudiation of the underfunding of health and education, the fiscal conservatism and the wage cutting at the heart of neo-liberalism is nowhere to be found.
Rudd’s response to the economic crisis has been to massively increase government spending in a series of Keynesian stimulus packages. This is a marked contrast with the usual diet of cutbacks and spending restraint that have characterised the neo-liberal era.
Socialists can welcome some of the measures in Rudd’s spending packages—increases in public housing, the subsidies for housing insulation and money for school buildings. They will create jobs and help moderate the crisis. But they do not signal a complete break with neo-liberalism. At the same time as Rudd is pouring $14.7 billion into school buildings he maintains a funding ratio that sees government schools get $1.4 billion a year less for teachers and basic costs than when Labor lost office in 1996.
Rudd may be pouring money into the economy but he is not using the opportunity to establish an ongoing higher level of funding for public services, or even to reverse the cutbacks that Howard has made in universities, to expand the public health system or to increase public sector jobs.
Rudd clearly sees his current spending packages as a temporary measure. His hope is that the economic crisis will pass quickly, so that the government will be able to return to tightly balanced budgets and spending restraint. Treasurer Wayne Swan has promised that as the economy recovers, the government will act to keep real spending growth to 2 per cent a year and will not increase taxes as a proportion of the economy.
Rudd could be creating well paid government jobs whether in teaching, hospitals or employing people to build infrastructure. But instead he is leaving it to the private sector to generate jobs—and to determine pay and conditions. There is a good reason for this. As the government’s calls for wage restraint show, it intends for the working class to pay to get us out of the crisis. The result of this is that those who keep their jobs will see living standards drop.
How then can Rudd’s introduction of such enormous Keynesian economic stimulus packages be explained?
The economic crisis has united governments of all stripes behind similar resorts to bank nationalisations and Keynesian spending. Even the IMF, which has been one of the key global institutions to promote neo-liberalism though its Structural Adjustment Programs, is encouraging governments to spend big. IMF Chief Economist Olivier Blanchard declared in November, “We think that global fiscal expansion [government spending] is very much needed at this point”.
The truth is, despite the ideological commitment to neo-liberalism, governments have always responded to recessions through Keynesian spending. The Reagan government, which pioneered neo-liberal policies in the US, pursued deficit budgeting as did the Bush administration following the 2001 dot.com crash in the US.
The scale of the current shift towards Keynesian spending simply reflects the scale of the economic crisis, widely described as the most serious since the 1930s depression. The response by governments around the world is best understood not as some shift to a more equitable economic model, but as British socialist Jacob Middleton puts it, “pragmatic crisis management”.
Every government understands that without the drastic action taken in nationalising the banks an economic collapse of unimaginable proportions would have resulted. This explains why the most committed neo-liberal government—the Bush administration—spent hundreds of billions on bailing out its banking system.
The actions of governments around the world, then, are certainly understandable, as Rudd puts it, as designed “to save capitalism from itself”. Despite his attack on “market fundamentalism” Rudd has repeatedly made it clear that he is a firm supporter of free market capitalism. In an earlier attack on neo-liberalism in the form of economist Friedrich Hayek, delivered just before he became Labor leader, Rudd declared he has “always respected and accepted the creativity, the efficiency and wealth-generating capacity of markets.”
As job losses mount more and more people will come to question the madness of capitalism and the misery it produces. Socialists insist that society can be run for the benefit of the majority of ordinary working people. This requires wresting control of the economy away from the shareholders and CEOs who run the huge corporations—and enrich themselves in the process.

By James Supple

1 COMMENT

  1. EFFICIENY AT A COST TO QUALITY:

    I want to elaborate on the meaning of the so-called ‘efficiency dividend’. As I understand the agencies of the APS were told to tighten their belts in accordance to an ‘efficiency dividend’ of 3.25% in the 2008 Federal Budget. I basically take that to mean cut-backs in the agencies spending of 3.25% relative to living standards – I stand to be corrected on this minor detail and not lose the essence of my argument.

    In a capitalist system that inherently suffers from regular crises in profitability, and is generally underpinned by
    more obscurred longer term trends towards lower profitability, then it follows that proponents of the system have to look for ways to maintain profitability. In the real economy this can be achieved by cut-backs on workers pay and conditions. In the agencies of the APS I’d argure these cut-backs come under the misleadingly titled and innocously sounding ‘efficiency dividend’.

    What does efficiency mean? To the captalist it most often means cost minimisation. Cost efficiency may be achieved in
    the short term in the way that capitalists compete with each other for the limited market shares in things, investing in the development of new technology that increases the productivity of the labour producing these things (i.e increases the relative exploitation of workers), and laying off costly workers in the process.

    But what happens when the efficiency gains from this relative exploitation begin to fail – perhaps
    due to staleness in an aging capitalism, or environmental stresses feeding back on the capabilities of the system,
    among other possible reasons? They can still layoff workers, but the net effect of a technological staleness is that those workers who remain employed have to work harder if there are cost efficiency gains to be had for capital. They can also cut wages relative to living standards. Both of these options represent an increase in absolute exploitation of the workforce. Additionally, valuable services can also be cut.

    The consequences and severity for workers of these essentialy pro-capital policies will quantitatively vary in
    accordance to the unique circumstances of each public agency. In the Bureau of Meteorology, where I’m employed, workers have been offered a pay rise of a mere 3% per annum. Negotiations for the Bureau’s Certified Agreement on pay and conditions have continually been delayed, as executive management almost purely under the dictates of capital are reported to be keep walking away from the negotiating table, saying that they can’t afford to offer workers a higher wage increase, and accusing the workers of being “unreasonable” in their demands for a better offer.

    In the Bureau job cuts appear to have been achieved so far without making workers redundant. These cuts are achieved by not replacing workers as fast as they are leaving. Some workers have retired and others have been lured by the incentives of capital to take flight out of the Bureau. Simply, public services can have difficulty holding onto their valuable resources in an economy dictated by capital.

    Cost efficiency in the Bureau is arguably also gained by shifting resources to other sections of the agency, and this can involve a shift to different geographical regions, disrupting workers who desire settling down in one region. A recent proposal put forward by the executive management is the relocation of many weather observers from regional
    centres to capital cities. The proportion of these shifts that are due to cost effiency is complicated by the fact that the Bureau has a responsibility in fulfilling objectives towards providing a quality public service. Executive management may use language that suggests these changes are to ensure that the Bureau keeps up with the requirements of modern society and the like. But one can’t stop help thinking that underpinning the predominantly neoliberal agenda of the Australian government that there is a cost-cutting motivation behind the relocation human resources.

    Workers, to some degree, have resisted taking on larger work loads as staff levels are gradually run down. The solution to this resistance has been to stop providing some services. At the same time there is an increased demand for more services in order to cater for the agency’s public and registered users objectives. One can clearly observe a
    contradiction being fought out between the objectives of capital and those objectives fulfilling the provisions of a
    quality public service.

    People often complain about the quality of the services of the various public agencies. This may be long waits to speak to an operator on the telephone or the reservation of a complaint for a service delivered, such as a weather forecast. But has one ever contemplated that underpinning an apparent deficiency in service quality may be the lack of sufficient funding – insuffient funding in compliance with capital-fulfilling objectives of the agency. If there were more workers employed, then there can be more prompt attendance to public telephone enquires. If agencies were allocated more funds, then they have greater ability to act to improve the delivery of services.

    Getting labour to work harder, and cutting valuable services, has to at some point come at a cost to the quality of the services that the agency delivers. Tired and overworked labour may be too stressed, and lack the energy and time to achieve the delivery of higher quality services – energy and time needed to engage in projects aiming to develop the quality of delivery. It can be perceived as degrading and dehumanising for workers only having time to fulfil the objectives of capital, an agenda of cost-cutting at the expense of quality. It is within the innate capacity of workers to critically review and change the way that they and society do things, providing for the real democratic input into things, and not merely having to be subjected to the exploits of capital for the rest of their working life.

    Overall, we see that efficiency for capital is an ideologically narrow definition that serves to maximise the return to capital, potentially neglecting the quality of things, and exploiting workers. An efficiency measure that doesn’t serve the needs of capital, and instead being compatible with the innate capicity of humans to be democratic, is an efficiency maximised by a fully
    employed society that is critically engaged in the issues and decision making that effects everyone, solving environmental problems and alleviating society from economically exploitative forms.

    RUDD’S STIMULUS PACKAGE

    On the one hand we are being told that the purpose of the stimulus package is to create or save jobs, but on the other hand there is talk of more cuts to the funding of APS agencies in future federal budgets. I get the feeling that Rudd’s stimulus package will be largely misallocated in giving concessions to the private or financial sector (i.e concessions to wounded capital).

    Instead, we can demand that a proportion of Rudd’s economic stimulus is used to create more jobs in the public sector, providing for public services that meet the basic material needs and security of every worker, and eliminating poverty. The so-called ‘efficiency dividend’, which has a track record of serving the needs of capital at the expense of societal well-being, can be abolished.

    Economic stimulii can also be channelled into nationalising companies that employ many workers, such as Pacific Brands, where unemployment as such may have discernibly negative effects on aggregate spending of goods and services through other parts of the economy, leading to more job losses. We can also demand the construction of more publicly affordable housing, having the double effect of taking some burden off neglected sections of the working class and creating jobs for construction workers. Along with public spending, this can provide the buoyancy needed to save the beloved capital of the ownership classes, temporarily
    alleviating, or at most postponing the inherent tendencies of capital to crises. More importantly however, is the benefits of guaranteeing job security, a security that is one of the main imperatives we should demand of any government stimulus package.

    One of the major unions servicing the Bureau of Meteorology, the CPSU, recently announced an ‘essential services’ campaign, a campaign taking a critical slant on the “efficiency dividend”, shedding light on how this dividend is contributing towards the degeneration of the quality of services that the APS produce. We have to keep in mind that CPSU officials, as with officials in other unions, generally have interests that are not necessarily the same as those who produce the things of value in society – the workers. The ‘essential services’ campaign is one area where workers can support the CPSU, but at the same time realising the limitations of the CPSU to the extent that their officials have economic interests that differ from ordinary workers. Overcoming these limitations would require an organised workforce that consciously shapes the agenda that workers demand of their unions. If the proposed union strategy is insufficient in meeting workers’ demands, then this needs to be discussed among workers’ themselves. Sufficiency would require that the governments neoliberal agenda is put in check, or rolled back, and any union strategy that falls short of this will be rendered insufficient in providing for healthier public services.

    The sentiment of many workers in the Bureau of Meteorology is overwhelmingly against having their pay and conditions subjected to the dictates of capital. However, the consciousness of most of these workers is not one where they recognise this adverse relationship between their interests and those of capital. The challenge will be in resolving this consciousness into a form where the workers see their interests as those of a working class in contradiction with the needs of capital.

    I’m in agreement with James Supple – despite the talk of Rudd’s stimulus package as representing a move to the left – that the neoliberal agenda of the Australian government is likely to continue. The talk of more cuts to public spending at future federal budgets’ would support this claim, as cuts in such spending is complicit with neoliberalism. For as long as neoliberalism is the
    main show in town the likelihood of achieving workers’ demands will be remote. The only force capable of challenging the neoliberal order are organised workers that dictate their needs and desires to unions for the common good.

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