BALANCING ACT

Correspondence

Verity Firth

On 22 June 1944 President Franklin D. Roosevelt signed the Servicemen’s Readjustment Act into law. The G.I. Bill, as it became known, was the greatest infrastructure investment in America’s history. It provided returning veterans with tuition and living expenses to attend university, secondary school or vocational education. It also provided them with low-income mortgages and low-interest loans to start a business. As Stewart Brand concludes in The Clock of the Long Now, “The GI Bill’s cost of $14.5 billion was paid back eightfold in taxes in the next twenty years, it jump-started the boom years of the 1950s, it built the world’s largest middle class, and it set the nation decades ahead as the world moved into a knowledge economy.”

The horrors of World War II created a sense of generational responsibility in governments and citizens alike that not only led to an economic boom, helped along by public investment in education and infrastructure, but also caused the only recorded period in human history where economic inequality was noticeably reduced. 

We live in very different times. The victory of neoliberalism has allowed for an all-consuming belief that economies are best left to run by themselves. We have witnessed a hollowing out of public investment and a subsequent and related decline in public trust in government and institutions. 

George Megalogenis makes a good case for intervention – he writes about Sydney, and more recently Melbourne, choking from the lack of public transport infrastructure; he offers a powerful comparison of percentages of GDP spent on public infrastructure compared with private investment in the residential property market; and he denounces the increasingly self-interested role of business in Australia in urging short-term goals against the longer-term good of the nation.

Megalogenis outlines the impact of the Rudd–Gillard government’s stimulus package, delivered during the global financial crisis, and in particular the success of the Building the Education Revolution (BER) program. Despite the BER’s obviously positive effect on the economy, Megalogenis notes with dismay that “Labor could not make that case to the electorate.” Megalogenis links this failure to “sell” the BER to the decline in confidence among the political class that they should be interfering in the economy at all. Even with the obvious successes of the GFC stimulus package, he says, the Rudd–Gillard government couldn’t wait to get out of there. Today’s politicians have convinced themselves that a nation’s budget is “out of their hands,” that only two years’ intervention was needed before the budget could revert to “neutral gear, neither slowing nor speeding up the economy” and the market could be allowed to return to doing what it does so well: running the economy. Megalogenis writes: “Governments forgot that markets and central banks can fail just as spectacularly as interventionist politicians.”

While I agree with Megalogenis about the existence of a general ideological reticence to intervene, it is important to remember the circumstances surrounding the stimulus package and the reasons the Labor government had trouble “selling” it. The essence of any stimulus package is speed. You need to deliver the stimulus quickly and to the right sectors of the economy so as to maintain confidence and activity over time. As the economist Joseph Stiglitz noted, in many other countries the stimulus was too small and arrived too late, after jobs and confidence had already been lost. Premiums are to be expected in programs that are rolled out rapidly. In the BER program in New South Wales, managing contractors had hard deadlines for commencement of building works and for the completion of those works; the NSW Auditor-General later costed this premium at around 5 per cent on top of business as usual. However, media responses were rarely balanced enough to compare the costs of the package with its objects or outcomes, which included the maintenance of the building and trades sector and the safeguarding of 200,000 jobs Australia-wide. One newspaper mounted a daily crusade against the very concept of a stimulus package, and the BER in particular. This, combined with an extremely partisan (and effective) Opposition, created a hostile environment for a government pursuing a bold economic intervention.

Despite being the envy of the rest of the world, the Labor government suffered political fallout in the pursuit of economic stimulus. Opponents were well resourced and well coordinated. The “debt and deficit” narrative, however misplaced in the context of the GFC, haunts Labor to this day.

The lack of an evidence-based approach to the role of government investment in the economy is profoundly depressing, as is the fact that the Australian media are so willing to become political players and arbitrators of the public good while adopting the short game of analysis rather than the long view.

However, there is no time for recriminations. Megalogenis highlights research by Professor Bob Gregory that shows that migrants account for virtually all the full-time jobs created in Australia since 2007. “They didn’t displace the local-born; they just took the cream of what was on offer, most notably in the professions.” To avoid the political upheavals occurring in Trump’s America or the UKIP’s Britain, Australian governments must invest to ensure local-born young people have the skills needed to succeed in today’s knowledge economy and obtain the high-end jobs the new economy provides. In Sydney and Melbourne, where housing prices and government policies are pushing working-class residents from the inner city out to cheaper housing on the urban fringe, we see access to these new-economy jobs becoming increasingly remote for the local-born.

Investing in education at this time makes sense. For the individual, the benefits are substantial in terms of employability and income; for the government, early investment in education reduces the longer-term costs of social services and welfare; and for the nation, such investment will allow us to adapt as the minerals boom subsides and ensure that Australians are equally equipped to seize the opportunities of the new global economy. And yet, at the time of writing, the federal government still won’t commit to the additional years of the Gonski funding, and it still plans to proceed with significant cuts to the higher education budget. Hoisted on its own petard regarding “debt and deficit,” it is striving to be seen to be reining in the budget and making promised cuts.

So how do you break this impasse? How do you give governments the courage to pursue bold initiatives? How do you re-create Megalogenis’s “strong bonds of trust [that] existed between politics, bureaucracy and the press, and between the representatives of labour, capital and welfare” on the other occasions when Australia reinvented itself – in the 1940s and 1980s? Surely economic crisis and major war are not the only mechanisms to precipitate such policy intervention? If that is the case, we will be on course to fulfil the second of Megalogenis’s predictions: “We will either catch the next wave of prosperity, or finally succumb to the great recession.”

Verity Firth

Verity Firth is the Executive Director, Social Justice at the University of Technology, Sydney. Before this she was chief executive of the Public Education Foundation and NSW Minister for Education and Training.