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The liberals' legacy: evaluating the possibilities of politics in hard times.



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The liberals’ legacy: evaluating the possibilities of politics in hard times

GEOFF DOW

THE UNIVERSITY OF QUEENSLAND

Abstract One of the paradoxes of the past ten years of liber al reforms is that they appear to have been partly unsuccessful. Taxation, government spending, welfare state transfers and public provision have all increased not only since 1996 bu t since 1974 when the current enthusiasm for cutbacks and altered expectations took hold. If this suggests that the ‘possibilities of politics’ have not been extinguished by economic ra tionalism, the resilience of the democratic impulse nonetheless coincides with the unarguable d ismantlement of past institutional achievements associated with the ‘Australian settle ment’, particularly the system of compulsory arbitration and centralized wage-fixatio n.

This paper documents and explores both sides of the conundrum implied. It cautiously concludes that the longterm expansion of anti-liber al, extra-market modes of governance (which we share with all other rich societies) will not be sufficient to out-weigh the effects of the renunciation of specifically antipodean state e xperiments. There are implications here for theoretical understandings of politics every bit as controversial as the divisive politics that closed the 2005 parliamentary year.

Introduction

Liberals are, naturally, perturbed by the rise in s tate activity that has characterized all advanced capitalist countries for the past hundred years. Public spending as a proportion of GDP in the wealthy countries was about 10 percent a century ago; it’s

now over 40 percent (the OECD average) and does not appear to be in general decline. There are very few countries where the cur rent level of public spending is lower than in 1974 when the neo-liberal celebration of government cutbacks was re-activated. 1 That this phenomenon has persisted even where it h as been most fiercely resisted suggests that it’s a structural phenomenon . The most robust explanation for it was provided by the conservative German political e conomist Adolph Wagner in the

1880s. He argued that as societies become wealthier , more industrialized and urbanized, the range of problems requiring public r ather than private resolution expands more rapidly than total activity thus gener ating steadily rising public expenditures and taxation.

One consequence of long-term expansion of government is that it confounds the arguments of libertarians and anarchists and purvey ors of so-called public choice theory. That is, increasing demand for public activ ity in rich societies is being

matched by a steady increase in the capacity of pub lic authority to assume, define and discharge responsibilities assigned to it. This app lies, too, when the mandate is only cautiously transmitted, or with low popular expecta tions. There is even a propensity for political institutions to evolve in directions that allow them to take on and complete tasks that were no part of their original mandate (Hodgson 2000). While there have been plenty of political failures, and a ttempts to politically achieve

1 Only Ireland among OECD countries.

outcomes which probably shouldn’t be attempted and problems which are intractably resistant to collective resolution, the history of the twentieth century, and that includes experience in the globalization period since the mi d-1970s, is one of successful development, maintenance and embellishment of state capacity. The disappointments of politics do not define politics. Though rational choice writers have attributed to politics endemic weaknesses which warrant a generic concept (‘state failure’, embracing rent-seeking, ‘pork-barrelling’, unintend ed consequences and budget maximizing behaviour of public servants and bureaucracies) their cynicism has not been reflected in the range of functions political institutions have encompassed. Nor is it evident in the political will that is recurrentl y activated. Everywhere, the state does more, and more efficaciously, than it did during th e heyday of keynesianism, the mixed economy and postwar enthusiasm for state-building.

Evidence: the expanding possibilities of politics?

Since 1974 public spending has increased by more th an 30 percent in the OECD as a whole (from 31 percent of GDP to 41 percent), the f igure for Australia being only slightly less (from 27.6 percent of GDP to 35.5 per cent). These figures are mirrored in taxation collections; the increase is from 31 perce nt in the early 1970s to 37.7 percent now for the OECD and from 25 percent to 36.4 percent for Australia. Much was made during the 2004 federal election of the Howard gove rnment having become the highest-taxing government in Australia’s history, t hough this can also be said of every other government in Australia’s history (and it is not reflected in public expenditure - see Table 1). Though Australia is not distinctive w ith respect to the growth of government, which may also be interpreted as a growth in the capacities of the state and political possibilities, since the beginning of the twentieth century Australia shifted from having the biggest government in spend ing terms in the developed world to almost the smallest (see Figure 1 and Tables 2, 3 and 4).

Table 1 Growth of government in Australia

Total public spending as % GDP

Howard period 1996-2005 36.6 (10-year average)

Hawke/Keating period 1983-1995 38.5 (13-year average)

Fraser period 1976-1982 34.6 ( 7-year average)

Whitlam period 1973-1975 31.0 ( 3-year average)

1970-1973 23.5

1960 21.2

Taxation receipts as % GDP

Howard period 1996-2005 37.0 (10-year average)

Hawke/Keating period 1983-1995 34.8 (13-year average)

Fraser period 1976-1982 30.5 ( 7-year average)

Whitlam period 1973-1975 28.1 ( 3-year average)

1970-1973 25.0

1960 24.4

Sources: OECD Economic Outlook no.74, December 2003, pp.210-211; OECD Economic Outlook no.49, July 1991, pp.189-190; OECD Historical Statistics 1970-2000 Paris 2001, pp.67-68; OECD Historical Statistics 1960-1995 Paris 1997, p.72.

Table 2 Size of government and taxation 2006-2007

% GDP

GOVERNMENT OUTLAYS TAXATION REVENUES

S 56.7 N 63.4

F 53.3 S 57.8

Dk 52.6 DK 54.8

SF 50.6 SF 52.3

B 49.0 F 50.2

H(U) 48.9 B 48.4

I 48.8 Ö 46.6

Ö 48.4 NL 45.7

NL 47.4 I 44.3

Port 47.3 Is 43.7

H(E) 47.0 H(E) 43.6

N 46.4 NZ 43.2

D 45.4 H(U) 43.1

UK 45.6 L 43.1

L 45.1 Port 42.6

Is 43.4 UK 42.5

Cz 42.9 D 42.3

Pol 42.7 C 40.6

OECD av 40.8 Cz 39.4

C 39.8 Pol 39.2

Slov Rep 39.5 Sp 38.9

NZ 38.8 OECD av. 37.6

J 37.7 Aust 36.4

Sp 38.7 Slov Rep 35.6

USA 36.8 CH 35.3

CH 36.3 Ir 34.6

Aust 35.5 USA 32.7

Ir 35.2 J 31.7

Kor 31.0 Kor 31.1

Source: OECD Economic Outlook no.78, December 2005, pp.187-188.

Table 2 confirms Australia as a small government na tion, with both public spending and taxation receipts (all levels of government com bined) below the OECD average. Even the US and Japanese governments now spend a bigger share of GDP than Australia’s. Despite a slowing in the rate of incre ase in most countries, there is no evidence of a general retreat from the growth of go vernment even in the most liberal, small government nations. The steady increase in pr osperity in most nations,

furthermore, has not been impeded by the even stead ier increase in taxation revenues, not excluding direct taxes and corporate taxation ( Hobson 2003). Some grounds exist for the following conclusions: (a) that liberalism’ s efforts to roll back the state have been less effective than hoped (that is, the neo-li beral project has to some extent failed); (b) that the possibilities of politics hav e not been eroded in recent times (by liberal ‘reformers’ or by the exigencies of globali zation); (c) that that the imperatives of competition are less urgent than contemporary di scourse maintains; (d) that

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Sources: Vito Tanzi & Ludger Schuknecht. 2000. Public spending in the twentieth century: a global persective . Cambridge University Press, pp.6-7; and OECD Economic Outlook no.78, December 2005, Table 25, p.187.

Figure 1

Growth of government 1870-2005 (Public spending as % GDP in 7 countries with 17-country average)

the recent prosperity has depended on the ‘social c apital’ that governments are obliged (by electoral or demographic pressure) to p rovide; and (e) that political and democratic arrangements are more effective than cri tics on the right and left have tended to assert (or, to put this last point anothe r way, that social democratic

ambitions are being realized to a far greater exten t than either intellectuals or protagonists would have imagined).

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Figure 2

Public sector spending 1960-2006 OECD + 7 countries (% GDP)

Source: OECD Economic Outlook (various issues to no.78, December 2005, p.187.)

Figure 2 shows that the downturns in public activit y that seemed to emerge in the ’nineties has faltered, and has probably been rever sed, since. Taxation revenues have behaved similarly with collections increasing more slowly than in the ’sixties and ’seventies (exemplifying the difficulties of politi cization) but not declining (Figure 3).

Liberalism has been effective of course in keeping the realm of politics in Australia more constricted than elsewhere. Despite recurrent and increasingly infantile claims that we are over-taxed, it is surely obvious that t he much-noted shortfalls in

infrastructure provision (especially with respect t o water, energy, transport and health) in every state is caused by Australia’s unnecessari ly low taxation. A wage earner on average weekly earnings (that is $1000 per week) pa ys only 23 percent in income tax, while one earning $100 000 per year pays only 33 percent of it directly in income tax.

The repeated budget surpluses are also childish, wi th the senseless and contractionary

Figure 3

Taxation receipts 1960-2006 % GDP OECD + 9 countries

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Source: OECD Economic Outlook no.77 June 2005, p.174 (and earlier issues).

excess of revenue collections over spending during the Howard years amounting, according to the 2005-2006 Budget Papers, to over $ 50 billion, enough to have built, for example, fully-funded Very Fast Trains from Sydney to Melbourne and Sydney to Brisbane with enough left over to have boosted stat e health budgets in each state each year by 5 or 6 percent. Repayment of public debt, w hich the bond-holders did not want repaid, seems poor compensation for the wealth- and employment-generating potential of that infrastructure investment not und ertaken. In every state public amenities are in crisis; yet there exists profligat e private consumption (often funded by private indebtedness) alongside under-investment , public decay, lack of

maintenance and real need. So taxes have increased, but not sufficiently to avert tragic and needless deficiencies in the quality of facilit ies which can only be provided collectively.

Social security transfers, probably the most unlove d of all public outlays among liberals, have increased more rapidly than other (n on-social) expenditures, by more than 40 percent in the OECD countries, more than doubling in Australia since the 1970s. This shift may be counter-intuitive but it’s indicative of altered public priorities, even if unwanted among policy elites. M ore people get more of their income in the form of transfers based on citizenshi p entitlements than ever before. This trend is also a century old. And as much of it is payment to middle class and wealthy citizens in the form of family allowances a nd child care subsidies, demographic circumstances suggest it is likely to c ontinue. Most social transfers are income maintenance, indicating that an increasing p roportion of the population receives an increasing portion of its income in a f orm unrelated to its members’ productive contributions (see the comprehensive dis cussions in Castles 2004, ch.2; Swank 2003; Lindert 2004, chs 1 & 2).

Table 3 Social security transfers

% GDP

1970s 1980s 1990s 2000

Ö 15.4 17.9 18.8 18.8

D 13.1 16.5 17.8 18.8

S 12.0 18.3 20.7 18.3

Pol 18.3

F 14.9 17.0 18.1 18.0

DK 11.0 16.6 18.9 17.1

I 13.3 14.7 16.7 16.7

SF 7.5 13.1 20.0 16.6

H(E) 7.6 13.5 15.2 16.3

B 12.2 18.0 16.3 15.3

L 14.7 15.3 14.1

N 13.2 12.7 15.7 13.9

UK 9.0 13.3 14.3 13.2

OECD av. 9.3 12.9 13.2 13.2

CZ 11.4 12.9

Slov 13.6 12.5

USA 8.3 11.0 12.6 12.6

C 7.2 10.3 13.1 12.4

Sp 9.2 15.5 15.0 12.3

Port 3.8 10.8 12.2 12.1

NL 18.3 26.7 19.2 11.9

CH 8.7 13.4 10.9 11.9

J 4.9 11.0 8.5 10.0

Aust 4.1 7.1 8.5 9.1

IR 9.6 15.5 11.3 8.2

Kor 0.8 1.4 2.5 3.8

Mex 1.3 1.4

Source: OECD Historical Statistics 1970-2000 . Paris, 2001, Table 6.3, p.67. In Australia as elsewhere the welfare state is less and less a re-distributive state and more and more one which provides decommodified services to citizens according to the principle of universal entitlement.

There is reason to contend that this unheralded cha nge in modern societies is structural, beyond the scope of deliberation and ar ticulated political demands (see also Hay 2005). Adolph Wagner would not be surprised by the fact that there is higher transfer spending and non-market provision in rich countries. This perhaps dissipates the apparent paradox that most countries spend more on social transfers than everything else.2 Tax-funded spending does not pay for defence and i nfrastructure in the main, but for extra-market provision for people who do not really need it. This

creates a thrust towards equality. Once we add in s pending on urban amenity and other aspects of public provision which also contri bute to real incomes, we can appreciate that the ‘law of expanding state activit y’, as Wagner called it, points to a broader phenomenon: in wealthy and complex societies, not only is more done under political auspices but the limitations that are com monly posited concerning the capacities of politics are continually being transc ended.

The important intellectual point is that intense co ntroversy persists between the major academic traditions that have attempted to account for, interpret, extrapolate from and provide the rationale for government and politics. In this paper I draw attention to marxism and neo-weberianism, which comprise contrasting theoretical paradigms on the causal factors influencing the role of politics .

Politics or markets?

Marxism, as is well known, has long proclaimed the impotence of genuinely democratic or deliberative politics in capitalist s ocieties by virtue of the need for the state to accede to business, the market and the imp eratives capital accumulation which

is itself under undemocratic control. Consequently, it is argued, the polity will always succumb to liberal demands for retreat, except poss ibly during exceptional periods, like the postwar years, when ‘class compromises’, ‘ social settlements’ and similar

compacts were negotiated to secure compliance of sectors of the populace with uncharacteristic bargaining power which might other wise have been sufficiently mobilized to threaten the stability of the system q ua economy. An fordist era of

tolerance for social and political developments, ev en experiments, was understood to have prevailed from 1945 to 1975; but has now (sinc e the mid-1970s) been superseded (see Jessop 2002; Boyer & Saillard 1995) . By asserting that the logic of accumulation inevitably overrides the logic of demo cratic politics, marxism has allowed itself to become much more pessimistic with respect to the progressive possibilities of politics than its internal analysi s required (see Dow 1998). This fatalistic perspective on democracy was the analogu e of liberalism’s: where liberalism maintained that the polity should not be able to assume too many responsibilities ev en if demanded by the polity, marxism insisted it could not.

2 The federal Budget for 2005-2006 expected Health and Social Security spending together to account for 60% of the Commonwealth Government’s outlays.

(An alternative marxist position, that institutiona l and political and democratic criteria would increasingly be needed for sound economic performance as capitalist accumulation became more organized and less competitive, more productive and less in thrall to market modes of calculation, more mono polistic and less atomistic, more negotiated and less self-regulating, has been gener ally ignored by marxist orthodoxy. The transition from markets to politics - as compet ing auspices for control of

economic activity - has rarely been countenanced; a nd the implications of managed capitalism, either in the postwar years or now, hav e been scarcely examined from within mainstream marxism.)

In general, the more conservative (but defiantly an ti-liberal) theories of politics (especially neo-weberian writings, largely oriented to criticizing the conventional wisdom and political immobilism associated with globalization) have a better purchase on the understanding of contemporary polit ics (see Weiss 1997; Weiss 2003;

Saul 2005; Gray 1998). Arguably, though, they are t oo optimistic, too unwilling to anticipate the structural obstacles to politicizati on of the economy.

Optimism in political theory really stems from the aristotelian tradition, which then continued through Machiavelli, Hegel, civic republi canism, Weber and modern statists. The tradition holds that politics is our fate, that humans cannot live in the absence of collective decisions, that resolving the innumerable difficulties of political society is what makes politics a noble venture. For Machiavelli, political competences (virtù) can be deployed, and have been, to overcome the r isks, uncertainties and capriciousness ( fortuna) that would otherwise engulf us. Hence we build wall s and armies to repel invaders, viaducts to irrigate and render habitable under-endowed areas, and arts, culture, architecture, science and learning to create skills and an ambience that might tip the balance of human fate w ithin a potentially harsh environment in the direction of civility. Hegel con ceived of a state compelled to recreate stability in the face of the Enlightenment ’s unleashing of private and amoral egoism. American civic republicans wanted a republic able to protect vulnerable citizens and living standards from the ravishments and losses of unrestrained commerce. And Weber (1918), while acknowledging that politics would always be a ‘slow boring of hard boards’, hoped for the passion that would allow politically active people to ‘reach out for the impossible’, even if s ober evaluation predicted little success. He was also a member (with Friedrich List, Adolph Wagner and Joseph Schumpeter) of the German ‘Historical School’ of economists who held that economic outcomes (living standards for the populace, longevity for business, stability for the nation) would not be maximized by abstract principles such as subservience to market forces.

So contemporary conservatives are distressed by tho se policy-makers and institutions (especially international institutions) and doctrin es who proclaim the inevitability and unstoppability of de-politicization, de-regulation and de-democratization. They have a long record of philosophizing about how humans can control their destiny. Aware of the difficulties of creating political institutions well-fitted to particular political tasks, and the mentality required for effective politics, they are reluctant to relinquish them to precocious but adolescent ideas. Conservatives i n the National Party and in the churches seem especially sensitive to this wholly r espectable tradition, at least a millennium old, of hostility to ‘progress at any pr ice’.

Modern notions of state capacity, the ability of th e polity to secure outcomes, according to political principles, which would not otherwise have been possible, have evolved from within this generally conservative tra dition of analysis. Rejecting marxism’s refusal to embrace activist political pro grammes, as well as liberalism’s confidence in liberalization, neo-weberians have re -engaged the discourse that was central to Machiavelli. Political will and morality and cleverness and national autonomy are central and should be seen as inviolab le. We, members of a polity, are not only entitled, but able, to develop political p rinciples and criteria for the initiation of public activity, despite the discursive hegemony of liberalism and the pressures of globalization. The resulting public policy necessit ates the construction of dedicated institutions, including extra-parliamentary institu tions with a permanent charter to develop pre-emptive policy competences, whereby outcome-oriented (not process-driven) policy achievements and citizen entitlement s can be ‘embedded’ and external pressures resisted. Such state capacity need not be particularly ‘statist’ in the sense that power or authority is wantonly ceded to the st ate; 3 indeed the contemporary enthusiasm for ‘governance’ studies is a register o f the extent to which government and public authorities do not always govern alone.

Michael Mann was among the first of the neo-weberians to articulate a modern conception of state capacity (1984; 1993, pp.54-63) . Distinguishing between the ‘despotic’ and infrastructural’ power of the state, his analysis suggests that the important capacities of a polity today are not the coercive features which concern liberals but the infrastructures and institutions w hich allow effective law-making, taxation and administration (including the capacity to coordinate non-state actors whose legitimate activity may cause problems which the polity is called upon to resolve).

Infrastructural power has evolved throughout the pa st hundred years from developmental capacities (state provision of physic al infrastructure) characteristic of the late nineteenth and early twentieth centuries, to the economic management capabilities associated with keynesianism and the c ounter-cyclical policy interventions of the postwar period, to the more so cial democratic capacities (including cross-subsidization, decommodification, democratization of decision-making, and politicization of the economy that has sporadically emerged over the last fifty or sixty years). It is an unavoidable feature of the post-Enlightenment firmament that these grand themes (the struggle for and again st political competence, resistance to or endorsement of market modes of governance, domestic autonomy vs undeliberated relegation to whatever status is decr eed by a global division of labour) are forever played out. The divergence between European and Anglo-American political preferences (in contemporary parlance bet ween liberal-market economies and social market economies) is an instructive cont emporary instance (see Judt 2005, ch.11; Pontusson 2005, ch.2). The encounter with li beralism has become steadily

more strident as this progression has unfolded. And it is a process that has been more

3 There is a difficulty of nomenclature: many of tho se labelled here weberians or neo-weberians might resist the appellation. Some might not see themselves as conservatives (which is not here used derogatorily); some definitely resist the label statis t. Other terms such as corporatist, institutionalist, communitarian, protectionist, even neo-mercantilist h ave been used to categorize writers who celebrate the ‘embeddedness’ of economic activity and who therefore do not celebrate flexibility or competitiveness or efficiency or rationality when somet hing more substantively precious is lost.

effectively consummated in some countries than in Australia (see Boreham et al 1999, ch.5).

Liberalism and anti-liberalism in Australia

The question, then, is whether what I have called t he ‘possibilities of politics’ are as robust in Australia as evidence of growth of govern ment and the state capacity writers suggest or if they have been extinguished by the ‘e conomic reforms’ of the past decade (or earlier at the hands of the liberals in the Labor Party). Should, on balance, liberals be disappointed by the persistence of a gr owing public realm, accepting that this is not an impediment to strong economic perfor mance? Or should they be pleased with their record ‐ especially their successful shi fting of some taxation from direct to indirect with the GST in 2000 and, more so, the una rguable dismantlement of

institutional accomplishments associated with the ‘ Australian settlement’, the system of compulsory industrial arbitration and centralize d wage-fixation?

The answer to this conundrum obviously depends on how we evaluate arbitration. Popular discourse in 2005 presented the ‘Work Choices’ legislation as the overdue supersession of redundant, anachronistic institutio nal features bequeathed from the past and suited, if at all, only to an era when int ernational competitiveness was

unimportant, labour was comparatively strong and well-protected, and the state was deeply-implicated in the imperatives of national de velopment. A hundred years after 1907, the situation had changed, so the argument we nt, and the polity could no longer afford to defy market rationality by giving organiz ed labour a platform and a leverage that was never legitimate, nor to permit the inflex ibilities in the labour market borne of protectionist sentiment and uninnovative satisfa ction with a cosseted national economy.

In my view the most desirable aspect of centralized wage-fixing is its ability to allow the transmission of productivity increases from the sectors where they occurred to everyone else (that is, through National Wage Cases and ‘flow-ons’ using the criterion of comparative wage justice). Any other b asis for wage adjustments becomes cumulatively more inegalitarian and unjust. Every n ation has an obligation to develop

institutions which permit this (anti-liberal) capac ity and the Australian solution was close to brilliant ‐ producing one of the world’s m ost equal income distributions, without any detrimental impact on national performa nce or living standards and arguably more efficacious than similar arrangements in other countries with centralized systems like Sweden. We developed a mechanism where labour, the element in production which can never be treated on the basis of contractual parity, was able to demand that employers justify their dec isions (most importantly with respect to wages but also, and imaginably, with res pect to decisions concerning investment, re-investment and dis-investment) befor e a tribunal specifically mandated for the purpose.

Although a liberal purist would insist that the con stitutional provision granting Commonwealth responsibility for the prevention and settlement of industrial disputes did not warrant arbitral powers in the form that ev entuated, it was an institutional arrangement with considerable, even formidable, eff ectiveness. No doubt the baroque

award structure was an inconvenience to employers, but awards were not integral to the system and, in any case, flexibility in employm ent is not regarded as desirable

anywhere outside the blinkered purview of liberalis m. I must repeat, too, that the rigidities cannot be held responsible for economic weakness, as the heyday of arbitration coincided with Australian prosperity, a ffirming the keynesian correlation between high (and equally-distributed) wage incomes and high levels of economic activity. And when unusual difficulties arose in th e form of simultaneous unemployment and inflation, from the mid-1970s, it was the capacity of the system to oversee a defacto incomes policy that ultimately de alt with the distributive conflicts without significant industrial or social disruption (from the mid-1980s).

I have mentioned hysterical campaigns for tax reduc tions above. I am not alone in claiming that low taxes in the current conjuncture are hugely irresponsible; and we would all be more affluent and more secure if some of the abundant private purchasing power were siphoned off to the public re alm (see Stretton 2005, pp.249-255).

Liberals also claim that economic performance is th e great achievement of the past ten years, presumably based on high incomes and lower unemployment. High incomes of course somewhat fortuitously pushed Australia into the class of affluent nations, out-weighing for the moment the cascading shortfalls in public infrastructure. However not all bodies of critical analytical opini on share the liberals’ insouciance towards longer working hours and insecure (and low-quality) work and increasing inequality. At 1824 hours worked per year on averag e, we work harder than Americans, Japanese and Canadians and 100 hours a year (about 7 percent) more than the British, and over 600 hours per year (about 60 percent) more than the Swedes (OECD 2003, p.322). We have become in this decade one of the most inegalitarian countries in the OECD after scoring relatively well until the late 1970s (World Bank 2002, p.194). 4 These are not minor blemishes on an otherwise favo urable social condition; they seem to be signs of unsustainable p rosperity which excessive debt or interest rate rises or the end of the current miner als boom or regional decline could seriously disrupt.

The most worrying feature of the current hubris con cerns unemployment. To champion the ‘best unemployment figures for thirty years’ is only to admit that Australia has experienced above-OECD-average unemployment for thirty years, once again without incurring liberals’ discomfort (see T able 4). Over 5 percent unemployment is still mass unemployment, particularly as it’s measured more invidiously than in the 1930s.

Table 4 Australia’s unemployment by periods

1974-2004 1973-1975 1976-1982 1983-1996 1997-2004 7.2 3.2 6.5 8.6 6.8

Australia OECD 6.9 3.5 5.9 7.7 6.7

Sources: OECD Economic Outlook no.74, December, 2004, pp.198-199; OECD Historical Statistics 1960-1995 Paris 1997, p.45; OECD Historical Statistics 1970-2000 Paris 2002, p.42; OECD Economic Outlook no.49, July 1991, pp.192-193.

4 Despite the share for the bottom 60 percent of income earners improving during all through 1980s and 1990s ‐ from 30.4% in the 1970s to 33.0% in the 1980s to 35.1% in the 1990s.

This poor record is largely attributable to global restructuring and a crisis in manufacturing; Australia has experienced faster ind ustrial decline from a lower base than any other nation (OECD 2001, pp.40-41). Furthermore this is a period of above-OECD-average economic growth, so either growth in general does not lower

unemployment or it does not do so in Australia. The refusal to engineer appropriate policy responses, or the lack of state capacity in this area, is the proximate cause of the miserable record on unemployment. 5 It is disingenuous to celebrate recent falls in unemployment when for three decades the liberal policy elite has elected to not even address the problem. It is hardly alarmist to suppo se that second and third generation unemployment creates problems that will resonate and fester for generations. Sustained unemployment, too, is an indication that incomes, p roduction and living standards in this period were lower than they could have been. On the gap between actual and potential quality of life, Australia has performed badly. And the available survey evidence suggests real community discontent (Pusey & Turnbull 2005).

I cannot accept, therefore, that economic reform le d to prosperity any more than I can accept that the gleeful assault on noble institutio ns was honourable or necessary or desirable. Once again, we have a ‘lucky economy’, b ut it’s not an ‘international template’, nor an economic miracle, nor the foundat ion for real wealth creation. Some

intractable problems remain unaddressed and we’ve lost certain capacities for transmitting wealth that we once had.

Conclusion

Renunciation of distinctively antipodean state expe riments in recent times seems more damaging to national solidarity and future prospect s than the steadily rising scope for political intervention can be a prophylactic agains t it. I have argued that political

science and political economy traditions attribute growth of taxation-financed public activity and state capacity to demands that merge s pontaneously from conditions in affluent societies, even when they are denounced by forces hostile to the democratic impulse.

A ‘structural maturity’ thesis seems to proffer rea sons for unexpected political challenges, accomplishments and potentials. First, if we examine the advanced economies, we see that growth transforms the relati on between markets and politics, creating more tasks for the polity rendering privat e provision more trivial; growth is never purely quantitative. Growth is less essential than to wealth-creation than is commonly supposed; very rich societies do not have high growth rates. Instead efforts to maintain affluence need deliberate institutional capacities (for example, those able to counter inequality). In the process resolving th e problems of affluence, we find that industrial capacities and social institutions co-ev olve, a phenomenon well appreciated

5 Liberals err, too, on the range of policies they a re prepared to accept. Reserve Bank independence presumes that interest rate policy determines many other important macroeconomic aggregates. This has been serious disputed for many decades by keynesians who have argued that monetary policy is worse than useless at controlling production and employment; i t can only do damage, never produce an expansion in economic activity, nor be used in a counter-cyclica l way. John Kenneth Galbraith once concluded that sound economic management capacities depend on reducing ‘for all time’, the use of monetary policy (1974, p.308). He affirmed the evaluation thirty ye ars later, denouncing the ‘sophisticated ignorance’ of modern monetary mangers (2004, p.54).

by the classical anti-liberals. There has also emer ged global excess capacity in most manufacturing and service provision, greatly compli cating the political responsibility of ensuring sufficient employment. It suggests an a lmost inevitable change in balance between productive and unproductive activity (the l atter including health care, hospitality and other currently unimagined forms of democratic engagement). The real problem for liberalism, then, that accumul ation depends increasingly on regulation and the provision of social capital. (Th e marxists were not wrong about this though it was a point made more energetically by co nservatives.)

I consider that there are reasons for pessimism abo ut the future of Australia, among them the continuing divergence between our efforts and those in countries where harmful aspects of the liberal tradition are more m uted. More important is a democratic deficit: elites continue to defy the pop ulace with the result that political development lags the structural requirements of aff luence. Of course, as we now see, all political achievement is precarious (even when structurally driven). If sedulously enough resented, the politicizing project can be th rown off course. The liberals’ legacy over the past ten or twenty or thirty years has been to retard political development and to retard Australia’s economic competences too. Political will and appropriate political institutions are ultimately r equired to embed the capacities that are structurally ‘mandated’.

The divisive politics that closed the 2005 parliame ntary year provides some pause to reflect on whether we want to lock in our long-stan ding vulnerability and inability to really influence our destiny. The conflicts lie not only within domestic responses to liberalism but with the nature of contemporary affl uence itself.

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