QUARTERLY ESSAY 25 Bipolar Nation

 

Correspondence

Andrew Charlton

Peter Hartcher tells us in his essay Bipolar Nation that Howard is playing the 2007 election like a shrewd game of bridge. Labor can put down as many policy aces as it likes between now and polling day, but if Howard wins in the end it will be because he holds all the trump cards.

Hartcher believes that economics and national security are the only issues that matter and that Howard’s commanding lead in these two areas makes him odds-on for victory. Certainly these issues are important, but I suspect that Howard is more vulnerable, especially on economics, than many people believe. Understanding this vulnerability is the key to a Labor win.

Well before the declaration that “It’s the economy, stupid,” politicians knew the electoral potency of economics. Margaret Thatcher used to snooker her left-wing opponents by pointing out that progressive social policies are useless if they can’t be financed, once famously using a biblical analogy: “No one would remember the Good Samaritan if he’d only had good intentions; he had money, too.” Thatcher’s message was that Labour might have good intentions, but unless a government focused on economics first, nothing could be achieved.

Howard admits that he has been influenced by Thatcher: “In my view, Margaret Thatcher is one of the significant political figures of Western history in the post–World War II period. It is undeniably the case that had it not been for the courage of Margaret Thatcher, the British economy would not now be one of the strongest in Europe.” But for all his fawning, Howard is no Thatcher. Whether you loved or hated the Iron Lady, you have to admit that she was a politician of “courage” – the kind of leader who crashes through with bold policies in the face of strong opposition and who, as Winston Churchill said in another context, can “make the weather.” 

Howard is the other kind of politician, the kind who responds to the weather, constantly holding his finger in the air hoping to be the first to notice the change and to capitalise on it. The contrast in style is reflected in difference in record of achievement. Whereas Thatcher was a big reformer, Howard – despite the public perception – is not.

Hartcher explains why Howard’s focus on “prosperity and security” has been such a winning formula for the Coalition. The obvious reason is that these are undoubtedly two of the most important issues facing any nation – they are naturally in the front of voters’ minds when they fill out the ballot. In addition, Hartcher argues that these issues are intrinsically weighted in favour of conservatives. At the deepest level, voters identify the Liberal Party with strength and discipline and the Labor Party with softness and caring. 

Hartcher believes that when it comes to security and prosperity, voters have a fundamental preference for hard noses over warm hearts. Finally, Hartcher credits Howard with being a master politician who has repeatedly turned emerging political issues to his advantage by recasting them in terms of his trump issues. In 2001 he was able to make the electorate conceive of immigration and refugees in terms of national security, and in 2007 he has already begun to convince us that climate change is a threat to economic prosperity, challenging us to recognise that action would “cost Australia jobs.” For these reasons Hartcher thinks Howard will ride these issues to electoral victory.

Yet Hartcher also acknowledges that Howard’s success in economics is built on luck and politics rather than achievement and policy. If Labor wishes to win the next election, it should take this message to the electorate and challenge Howard’s economic dominance in three ways.

First, Labor needs to challenge Howard on where the current prosperity came from. Howard’s statement that Thatcher’s “achievements” are responsible for Britain’s current economic strength is telling. His admiration hides an implicit admission that Australia’s prosperity is due to our own contemporaneous structural transformation in the 1980s. Indeed, for several decades the Australian and British economies have followed remarkably similar trajectories. In the 1970s both countries seemed to be in terminal economic decline. Australia was afraid of becoming the “poor white trash of Asia” and Britain was derided as the “sick man of Europe.” 

Suddenly, along came the weather makers. Thatcher and Keating embarked on bold reform programs which wholly restructured their economies. Australia’s economy was transformed from a closed “industrial museum” into a system that was “open and supple.” The list of reforms in both countries (macro-economic and micro-economic) was long and deep: in Australia the currency was floated, the banking system deregulated and opened to foreigners, tariffs slashed, and the broom of competition policy brushed over every corner of the economy from airlines to supermarkets.

In both countries these monumental reforms were the bedrock for later success. But, as is often the case in politics, the party that undertook the difficult decisions was not in power when the long-term benefits were realised. John Howard and Tony Blair both inherited restructured economies with low inflation, low interest rates, declining unemployment and strong economic growth lasting more than four years. They were both, in Keating’s words “hit in the arse by a rainbow.”

In the last few years, Labor has made an overdue effort to reclaim the economic successes of the Hawke and Keating governments and to point out that Howard’s record looks feeble by comparison. For this message to chip away at Howard’s veneer of credibility, Labor needs to make it a major theme of its campaign and to enlist a wide variety of pro-reform community voices to echo the point. It also needs to demonstrate the practical effect of Howard’s reform complacency: as the pace of reform has slowed, so has the pace of productivity growth – the most important economic indicator of all. Productivity growth has slowed from 2.4 per cent over the course of the 1990s to a disappointing annual rate of just over 1 per cent since 2000. In the long run, every nation’s standard of living depends on its productivity. While the housing and commodity booms have made us feel richer in the short term, we are now facing a serious productivity problem.

Second, Labor needs to challenge Howard’s approach to policy. Since 2005 Labor has focused its attacks on Howard around the concept of “extremism.” ALP media releases are full of references to Howard’s “extreme industrial relations” legislation. The word plays well in Labor’s focus groups, and it has tried to tie it to Howard’s economic policies, painting him as a crazed ideologue.

This strategy hasn’t paid off for Labor for the simple reason that Howard is not extreme. Quite the opposite, in fact: he is extremely timid, always willing to change his mind and sacrifice his ideology at the altar of political expediency. He is much more tactically conservative than he is ideologically Conservative.

Voters know this. The electorate discovered that, despite Labor’s Henny Penny protestations, the GST was a relatively minor change to the tax system which, although it made some people a little worse off, didn’t lead to the Brutopia the population had been led to expect. By overstating the effect of the GST, Labor gave Howard a free kick. A negative side effect of this attempt to depict Howard as extreme is that it has reinforced Howard’s claim to be a big reformer. Howard has skilfully translated extreme into bold, and painted himself as a conviction politician willing to take on the big reforms.

The ALP needs to derive a different lesson from its focus groups. It needs to point out that Howard always prioritises politics over policies, and rhetoric over reform. Howard’s industrial-relations changes are an unpleasant, unfair and unnecessary step in the wrong direction. Labor needs to emphasise that these aren’t a bold reform to improve the labour market, nor are they an extreme piece of ideological fervour: they are a simple attempt to crush the ALP union base and win over the small-business constituency. Labor should stop calling Howard extreme and start calling him conniving. The image of Howard as a conniving politician, willing to promote his own political expediency over any principles and the long-term future of the country, is both penetrating and accurate.

Third, Labor needs to propose a plan for the future. As citizens we want our economic cake to be increasing in size (growth), we want it to be fairly evenly distributed (equality) and we want it to be secure (risk). The economic debate between political parties is traditionally framed in terms of the first two of these issues: the Liberals are generally favoured as the party of growth, and the ALP is seen as the party of equality. If Labor is to win, it needs to broaden its image. Rudd and Swann have made good headway by outlining pro-growth policies, including programs to promote skills, innovation and infrastructure. This is a sensible agenda, but since growth has been so strong for so long, Labor has not been able to generate much interest in its alternative policies.

The third economic issue, economic security, receives a lot less attention but is of growing importance in Australia. While we have become richer in the last decade, our wealth has also become more precarious. Many families have large mortgages and credit-card bills, low savings and little job security. At the same time Howard has been pulling all the safeguards out of the system, making the labour market less secure, cutting safety nets, fuelling the house price boom and skewering organised labour.

Howard is vulnerable on economic security because he has made Australia a significantly more risky place. Jobs for life are a thing of the past, and the casualisation of the workforce and elimination of dismissal regulations have increased the potential volatility of incomes. At the same time, savings have fallen and debt levels have risen astronomically, making households vulnerable to economic disturbances. And, as the financial side of the economy grows and more households are exposed to it (more than 50 per cent of Australian adults now own shares directly, and many more are affected by the markets through their superannuation funds), the risk of disturbances grows larger.

The effect of economic risk is already being felt in the political sphere. At the last election, highly geared voters were effectively spooked by Howard’s interest-rate campaign. In the electorate with the highest proportion of mortgagees in the country, the Melbourne seat of Holt, the swing against Labor was 6 per cent, nearly three times the national average. Labor needs to capitalise on the sense of economic insecurity and make voters realise that Howard’s policies are making life riskier.

A strategy with the three components outlined above will not be easy for Labor in 2007. But if it is to be competitive on economics, it must reclaim its own economic history, find a way of effectively criticising Howard’s complacency in the last ten years, and articulate a vision for the new economic issues which will affect us in the next ten. If Labor does not do this, 2007 polling day will feel a bit like Groundhog Day. Howard will try to do the same this year as he did in 2004 and 2001. He will relentlessly focus on prosperity and national security, knowing that these issues are the electoral high ground and that if he can control them he can dominate the whole political landscape.

 

Andrew Charlton is a research economist at the London School of Economics and the co-author, with Joseph Stiglitz, of Fair Trade for All (2005). His book Ozonomics: Inside the Myth of Australia’s Economic Superheroes will be published later this year.

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This correspondence discusses Quarterly Essay 25, Bipolar Nation. To read the full essay, subscribe or buy the book.

This correspondence featured in Quarterly Essay 26, His Master's Voice.


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