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An Australian story: the troubling experience of economic reform.



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An Australian Story

The Troubling Experience of Economic Reform Michael Pusey FASSA University of New South Wales

The Senate, Parliament House Canberra

June 20, 2003

Members, Senators, Ladies and Gentlemen, thank you for your interest in

these reflections on the results of the Middle Australia Project that I have

directed at the University of New South Wales for the past seven years. I should

acknowledge at the outset the generous support of the Australian Research

Council that has made this work possible. The central aim of the project has been

to understand how we experience the economy and more specifically here, to

learn something about middle Australia’s experience of economic reform.

Anyone who turned forty with the new millennium will have spent all their

adulthood living through what we so blithely call ‘economic reform’. Everyone

knows what it is. Deregulation, privatisation, labour market reform, micro

economic reform, user pays, tax reform, cutting government spending, more

competition, privatisation, tax reform (the GST), welfare reform, and—the latest

instalment— the creeping privatising of Medicare and of the universities.

Economic reform began in earnest in the early 1980s with the Campbell

Report recommendations for financial deregulation and then with the floating of

the exchange rate in December of the following year. It became a mantra some

four years later in May of 1986 with then Federal Treasurer, Paul Keating’s

warning that, without it, we would become a ‘banana republic’.

Some things are agreed on all sides. One of them is that economic reform

came as a take-no-prisoners top down re-engineering of a whole nation society.

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We were told that we had to shake off our history of ‘protection’ and

‘institutional inertia’ and make ourselves ready for competition in the new

ruthless global economy. Do it, or wither as a coconut monarchy!

No one was left in any doubt about the mighty challenge facing us. But

almost no one remembers that the economic reform bundle (or if you prefer

‘structural adjustment’, ‘laissez faire’, ‘freeing up the markets’, or ‘economic

rationalism’ - all these terms mean the same thing) came to us out of the cold

war as a ‘one best way’ of fighting our way out of a long post-war boom that

had given more peace and plenty to ordinary people than it should have done.

In the early 1970s international business organizations were forming to

bring the drifting free world capitalist nations to their senses. Something had to

be done first about the so-called ‘British disease’, about creeping stagflation, and

about the long term fall in the profit share of large corporations. In 1974 the

Brookings Institution declared that the after tax profit rate for United States

corporations had fallen since 1948 from just under eight percent to just under

five percent. The long post war boom was not working so well for big

corporations.

The 1975 Report to the Trilateral Commission1, one of the new global peak

business associations, turned free market economic theory into a political

program that would shift the burden of coordination from ‘overloaded’

governments paralysed with too many ‘irresponsible demands’, to the markets.

Thatcher and Reagan would crash through and make it happen. The markets

would reduce expectations and administer the needed disciplines to the people,

the unions, the professions, the media and the ‘value intellectuals’. This would

‘give capital a chance’, beat the socks off the old Soviet empire, get rid of big

government, and pull the European social democracies into line.

Malcolm Fraser prepared the way with the Campbell Report (that would

later recommend financial deregulation) and with some restructuring of the

federal bureaucracy — and the young dry economists were brought up into

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position. The hard men of Labor were waiting to show they could deliver better

economic management and better outcomes for business than the old guard in

the Liberal Party. In 1982 they won government and got their chance. From there

on the people would have nowhere to go with the two main parties competing

with each other to deliver always more economic reform.

After twenty years of reform?

The results have been dramatic. As the advocates for reform will hasten to

say we now have a strong economy, one that survived the Asian meltdown of

1997 unscathed. Employment is high, interests rates are low. And now it’s

powering on and indeed leading the developed world, with GDP increasing at

somewhere near 3.5% per annum. All that is true.

But if GDP is up how come Australia is down? The economy has indeed

been ‘restructured’. As with every other nation our national accounts keep tabs

on who gets what by dividing national income into three slices: the government

share; the wage and salary share; and ‘gross operating surplus’ or, in other

words, profit share. And sure enough economic reform has kept its promise.

Over the twenty years from 1980 to the turn of the millennium the total wages

share has fallen from 60% to 54% as the profit share has risen from 17% to just

on 24%. The government share has stayed at about the same low level2 — it may

come as a surprise to learn that by comparison with other OECD countries we

have for a long time had low levels of government spending, and a small public

sector. It never was ‘bloated’ as Peter Reith and John Howard used to tell us so

insistently throughout the late 1980s. And, yes, as GDP has soared we find that

the real unit cost of labour has fallen for twenty years and more. Indeed

Professor Bob Gregory’s figures tell us that in 1996 young men of between 25

and 34 years of age were already bringing home, in real terms, $75 less per week

than their fathers were twenty years earlier in 1976 (moreover they can now

expect to get pushed out of a deregulated labour market at age 55). The good

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news is that they are going to live twenty years longer than their grandparents;

the bad news is that their retirement incomes are in a black hole (in part because

they depend on the whims and ethics of the big end of town).

Look a little deeper and we see that economic reform has delivered a

redistribution of income, resources and capability from the bush to the city, from

the public sector to the private sector, from families to the market economy;

from consumers to producers— the GST takes 10% off the input costs of

corporations and charges it to you the consumer; from the bottom 70% of wage

and salary earners to the top 10%; and, the big one, from wage and salary

earners to corporations. Corporations are the only big winners from economic

reform as they were always meant to be.

Our experience of reform?

The Middle Australia Project, is a questionnaire, interview and focus group

study of 400 randomly selected Australians in five capital cities (‘middle’ means

chosen from census collectors districts with average household incomes above

the 20th percentile and below the 90th). Indexed to year 2000 prices this

represents an average household income cut off of just over $57,500 for the top

of the sample and just under $36,500 at the floor.

The central question … How do we experience the economy? And more

particularly how has middle Australia (defined in this way as just about

everyone who is neither rich nor poor) experienced economic reform?

‘Experience’ here is crucial precisely because conventional studies conducted by

political pollsters and market research organizations do not generally take it

seriously. They prefer to examine not experience but attitudes that are nearly

always measured from the top down and in terms of some external interest

position. For example political pollsters want to assess support for a leader or for

some bundle of policies on health, or defence or whatever. Similarly, the market

researchers are looking for a way to sell us some kind of product.

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No one doubts the technical sophistication of this work. Yet one problem

remains. The explanations generally treat the thoughts, feelings, intuitions, and

convictions of ordinary people as behavioural and attitudinal responses to

external signals and structural conditions. The external structure is given

primacy and the experience is read too narrowly merely as a derivation or,

worse, as an adaptive response. Needless to say this is big brother stuff. It’s also

bad social science. The psychology is wrong because it bleaches out social

meaning. And it’s bad sociology because cultures — especially moral cultures —

are discounted and treated as nothing more than inchoate ideas and private

sentiments to be read off from existing structural conditions. With this crude

functionalism we miss the all-important background assumptions that ordinary

people use to orient their lives and so we fail to take account of cultural

inheritance, of memory, of orientations to action and risk, of coping strategies

and of underlying commitments to others.

In examining the experience of economic reform we want to redress that

imbalance and thus understand how the experience of reform has been

interpreted and evaluated from within the lived experience of middle Australia.

Let’s look first, under four points, at some of the more directly accessible aspects

of the experience.

1. They know who the winners and losers are. And they seem to have a

fairly clear idea of what has happened to their incomes over long periods of

time. Economic reform assumes that people will not notice what is happening to

their incomes providing that you move resources away from them in small bites

spread broadly across large groups over a long period of time. Providing that

the floor rises huge relative losses can still be experienced as small gains. But

that is not the way it is experienced. The theory must be wrong. About 90% of

them know that ‘people on high incomes’, ‘rich people with lots of assets’,’ big

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business’, are the runaway winners from reform. Nothing surprising about that.

What is more heartening is that they have not been snowed by the ideology.

Huge majorities of them know that ‘people on low incomes’, ‘small business’,

and ‘ordinary people generally’ are more likely to be losers rather than winners

from economic reform. And they know that ‘people in the middle’ have missed

out. One more thing. Neo-liberal economic theory would have us believe that

the market is the best way of rewarding people for effort. It follows that changes

in the distribution of income reflect effort, worth, and due reward for the real

contributions of the respective stakeholders to the larger economy. Strange then

that in the last three years of the longest boom in living memory (one in which

ordinary people get nothing, or as little as possible) a majority of middle

Australians are saying that the distribution is not fair.

2. They worry about jobs, jobs, jobs. And they believe that the incomes and

job prospects of Australians are falling. In the last three years of the millennium

as the economy settled into boom conditions we find that the number of middle

Australians who say that wage and salary earners are the losers from economic

reform climbs some 13 percentage points to 70%. And again, rather

unsurprisingly, about 80% of them say they are more insecure now than before

reform began some 20 years ago. The dominant mood is one of anger and it is

most keenly felt by those who have faired worst, yet, significantly, it is still the

majority view. Again the economic theory is wrong. It assumes that work is a

‘disutility’ or in other words a negative thing that we are induced to do with

carrots and sticks (sticks are to be preferred because they cost less than carrots).

We are angry because labour market reform is an assault on the dignity of work.

People experience their own work as something more than a tradeable

commodity. For them it’s largely about identity, meaning, personal

independence and making a contribution— and hence something that satisfies

inner social needs. Intrinsic motivations matter as much or more than extrinsic

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rewards. The market recognises only the latter and so pays in the wrong

currency.

3. It’s hurting families. Over half of middle Australia believes that families

are changing ‘a lot’. And three quarters of those giving that answer say that for

them it is the negative rather than the positive aspects of those changes ‘that

stand out most’ — for reasons that are now excellently spelled out in Barbara

Pocock’s book Work’Life Collision3 (Federation Press). In the wake of twenty years

of economic reform they find themselves running out of coping strategies.

Sending two people out into the labour market instead of one, getting more

education, delaying fertility, moving in search of a better job, and then, when all

of that runs of out of steam, going into too much debt. It’s here as the family

faces the dull compulsion of the market without the capacity to smooth their

incomes over time that middle Australia most clearly experiences the truth

about economic reform — namely that it reduces quality of life. If GDP is up and

the economy is steaming ahead how come that for the first time in remembered

history parents see their own adult children facing a future in which they have

to settle for less — a world in which they are less likely to own their own home

and one in which education and quality health care may cost them more than

they can afford. At another level our respondents are saying that there is

something fundamentally wrong with a theory that says that the goodness of a

human family should be judged on its capacity to put the market before its own

social needs.

4. Between two thirds and three quarters of middle Australia thinks that

‘big business has too much power’, that it is exploiting the people, and that

corporations should be regulated more firmly. Middle Australians are not closet

‘socialists’. Indeed they carry within them their own very successful history of

market democracy. They like business to flourish and make good profits. Yet in

the situation in which economic reform has put them they are ‘revolutionaries’.

They want government to make business work for the people rather than the

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other way about. Most people have waited in bank queues and on the end of

telephone lines for long enough to understand what economic reform means.

They know that ‘increasing shareholder value’ means downsizing, trashing jobs,

unpaid overtime and poor service. They know that ‘streamlining government’

means slashing the public sector, cutting the entitlements of citizenship, and

forced reliance on the market for privately funded health, education, and

retirement. The Middle Australia survey suggests that the ideology of economic

‘reform’ may even have had a perverse effect. Indications are that a substantial

slice of middle Australia has taken the promises of reform at face value and so

expected economic restructuring to make things better for them. Now that they

see what reform has taken from them they blame government and, perhaps,

expect it to do more, rather than less, to put things right. They have certainly

not, as the reformers so hoped, given up on government and thrown in their lot

with the market. Huge majorities of them think that government can do ‘quite a

bit’ rather than ‘very little’ to fix a whole range of things including, reducing

unemployment, improving health and social services, reducing poverty, cutting

crime, creating more jobs, supporting families, reducing the gap between rich

and poor, making businesses pay fair wages, and supporting communities.

These are some of the more uncontroversial findings from the Middle

Australia Project. Let me now propose to you a few of the inferences that I have

drawn from the findings and presented in the book (The Experience of Middle

Australia. The Dark Side of Economic Reform, Cam bridge, 2003).

Inferences …

1 Economic reform is experienced as a disturbance to the moral fabric of society.

Our middle Australia focus groups participants constantly speak of too much

greed, too much dog eat dog, lost respect, too much aggression, of unreal

expectations, and about the burden of having to treat strangers as competitors.

In these and other related concerns about doing the right thing by others —

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workmates, children, partners and friends — our respondents constantly make

worried and uncertain appeals to notions of duty, responsibility, rights,

entitlements, and obligations to others. Their anger and resentment are a

window into what they experience as the troubled ‘ethical value that we place

on our own desires and on our relationship with others’4 We find economic

reform implicated and often directly accused of setting off what middle

Australia experiences as a heaving and splitting in the moral under structure of

our (plural) value system. I read this as a revolt against the economic rationalist

cum neo-classical economic push to force what our respondents call the

‘Almighty dollar’ ever more deeply into the fine grain of daily life as a solvent

of knowledge, a denominator of value, and an automated code for all

significant life choices. They accept that everyday consumption is about trading

off one possibility against another according to your means: but not that the

competing motivations of care for family members, for justice, for social

recognition, for health, and for security should all be set at neutral par for the

market to treat as exchangeable wants and preferences.

2. For middle Australia economic reform is a betrayal of nation-building economic

development. We are a secular, pragmatic, and often anti-intellectual people who

for the most part eschew heady metaphysical notions of national identity.

Instead we have preferred to define our collective aspirations for our future in a

rather more down to earth way as economic development from which all would

share. From the time of early exploration and settlement to the Ord River (a

failure) and the Snowy Mountains schemes we had great faith that development

would make things good or better. Two generations ago economic development

meant industrialisation then for a while, as we began to lose our nerve in the

Fraser years, we thought it might still mean the exportation of minerals and

natural resources on a heroic scale. Then from about the time of Keating’s 1986

‘banana republic’ warning we hoped that economic restructuring, ‘J’ curves,

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belt-tightening, and economic efficiency — in short economic rationalism and

wholesale top-down economic reform — might still serve to point the way

forward. Yet the promise of economic reform was always different. It was more

something that you had to do in order not to go backwards, and certainly not an

idée force that we could easily construe and share as real national building

progress. Economic reform, especially now in its new packaging as

globalisation, is going sour because it is more likely to be construed as a loss to

national solidarity and even as a betrayal of the older unifying history making

promise of national economic development.

3. Middle Australia feels powerless and worries about organised power.

Australians know that politics involves the aggregation of interests. They know

too that it is often a rough and uncertain business with results that are generally

less than ideal. The trust in representative government makes all this bearable. It

allows us to believe that we the people are the macro subject of political choice

and our elected representatives the objects, recipients, and executors of those

choices. Trust makes politics legitimate. Yet in the wake of twenty years of

economic reform, and in the last three years of one of the strongest economic

booms in memory, we find a hardening majority of three quarters of our middle

Australia respondents saying that governments of any party cannot be trusted

‘to put the needs of the nation above their own party interests’. These responses

may be construed as middle Australia’s growing awareness of a shift from one

model of politics to another. In their ‘hearts and minds’ the people believe, or

want to believe, in our historically inherited bottom up notion of representative

government. In their anxiety we read a threatening awareness that Canberra has

succumbed to an alien — and largely American— minimalist, top down, notion

of elite democracy which says that, if you can induce the people to vote for you ,

you then have the right to do anything you want to them. The numbers leave us

in no doubt that trust in governments is falling and, further, that this is

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associated with the belief that big business has too much power and ought to be

more firmly regulated.

4. Middle Australia is inclined to believe that economic reform reduces quality of

life. In the midst of one of the longest economic booms in living memory half of

our middle Australians thought that quality of life was falling. Despite saturating

propaganda from the marketeers and the advertising industry they also seem to

know what the best international evidence has been saying about happiness and

quality of life. Personal fulfilment and happiness is always a struggle and in the

end a personal accomplishment. Neither government nor business can give it to

us ready made. But they can certainly make it easier or harder to achieve. The

evidence tells us that happiness depends first of all on psychological traits and

personality characteristics that have little to do with social and economic

structures. But after that, family, friends, relationships and intimacy always

come top of the list — in every developed country. Good health is very

important together with purposeful tension-free leisure, personal autonomy and

interesting work. The variable that always comes right down near the bottom,

never accounting for much more than 10% of the variance, is material well-being

measured as wealth and dollar income. Middle Australia understands that

economic engineering turns the hierarchy upside down, puts dollars at the top

and makes that the common denominator of value for all the things that matter

more. If the economy is up how come Australia is down? The libertarian and

utilitarian economic assumptions that more money means more choice,

increased utility, improved amenity and therefore improved quality of life no

longer accords with lived experience.

Eating yourself …

For twenty years we have allowed ourselves, our society, to be re-defined

from the top down, as a stubbornly resisting sludge through which we must

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somehow drive the economy. In this warped view of the world society

reappears only as a generic externality of the economy, as a frustration to the

market that must somehow be overcome, as an idiot host, or just simply as a

dump for the unpriced human and social costs of operating corporations —

overwork, unemployment and underemployment, degradation of the public

domain, scrambled time-horizons, unsettled expectations, personal aggression,

disrespect, stress related illness, depression, and the list goes on — with all of

this ‘collateral damage’ amply confirmed by international comparative studies.

So we should not be too surprised to find that middle Australia has been

unnerved by economic reform.

People know, as Michael Leunig once said, that we are ‘joined together by

more than the weather’. Their conversations with each other are saturated with

moral anxiety about a lost sense of responsibility and about duties, obligations,

entitlements and rights. They have a pretty good understanding that ‘putting the

economy first’ means throwing real standards into the furnace as fuel for an

economy on steroids. A generation ago economic development still used to

mean nation building. Now it means eating yourself, your culture and your

social ties to intimates and strangers alike. Australians have always had a

healthy regard for self-reliance but that does not mean that they are willing to

redefine themselves as reducible input costs of production or as strategic actors

who face each other only as competitors for scare resources — so that the big

end of town can have from them always more!

Economic rationalism is a doctrine which says that ‘economies markets and

money offer the only reliable means of setting values on anything’ and which

sets out to destroy our public and social institutions to make it so. If you were to

tell our middle Australians that economic reform has ushered them into a bright

new world of ‘choice and opportunity’ they would laugh you out the door. They

would do the same if you told them that economic reform was something that

they had chosen. Most of them recognise that they were thrown into the Anglo-

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American libertarian economic path to please the big end of town. With

Malcolm Fraser they now fear an all too foreseeable situation in which ‘all the

good assets in Australia are owned by ten foreign corporations’5.

For middle Australia economic reform is going sour. It is as if we already

knew what the evidence has been telling us for quite a while. Societies that seek

to make the economy serve the people do better, even on conventional economic

indicators, than those that try to make the people serve the economy.

Against all the evidence the neo-liberal ‘hydraulic model’6 would have us

believe that we need weak governments to have strong markets. Middle

Australia knows that this is wrong. A well ordered society needs strong markets

and strong active governments and strong families all working together to put

the people first.

One day soon wisdom, judgement, and generosity may again prevail over

ideology and lead good government in this place with what the best among the

old Romans used to call amor mundi. — care for the world and friendliness

towards strangers. …………. Thank you.

A fuller working through of the evidence from the Middle Australia Project and the arguments presented in this address can be found in, The Experience of Middle Australia. The Dark Side of Economic Reform, Cambridge, 2003.

1 Michel Crozier, Samuel P. Huntington, Joli Watanuki, The Crisis of Democracy: Report on the Governability of Democracies to the Trilateral Commission, Task Force Report No 8, New York University Press, 1975

2 My economist colleagues tell me that, for technical reasons, this is not a good measure of real the government share. Yet there is no dispute about the relatively small size of our public sector. Other measures show that Commonwealth government revenues as a percentage of GDP to

have risen slightly from 23.3 in 1980 to 26.2 in Y2000 (see Treasury Budget 2001-02, Appendix D, ‘Historical and Net Debt Data, AGPS) 3 Barbara Pocock, Work / Life Collision, The Federation Press, 2003

4 Richard Sennett, The Corrosion of Character, Norton 1998, p.10 5 Former Prime Minister, Macolm Fraser, speaking on ABC Classic FM, Margaret Throsby’s Guest, August 29, 2000 6 I borrow this inspired phrase from Professor John Braithwaite. See J. Braithwaite

‘Institutionalising Trust: Enculturating Distrust’, in V Braithwaite and M Levi (eds), Trust and Governance, Russell Sage, New York, 1998.