QUARTERLY ESSAY 82 Exit Strategy



Richard Denniss



Richard Denniss

Like most people, I do judge books by their covers, and so I was excited to read George Megalogenis’s Exit Strategy: Politics after the Pandemic. Like many, I have been thinking a lot about “Where to from here?” when it comes to policy, politics and democracy itself.

In the introduction, I was excited to read that the essay’s “aim is to identify those parts of the old model that are irredeemably broken and to provide a new answer to the question of what government should be responsible for in the twenty-first century.”

Alas, while I learned a lot about the ideological shifts of recent decades and a lot about the machinations of the National Cabinet, Treasury and the Treasurer, I feel I missed out on what was promised on the cover. I wanted a lot more on possible exit strategies and the political forces that will determine which options are placed on the democratic menu and, ultimately, which dish is selected.

But now that I’m hungry for such answers, let me try to fill the void I created for myself. Let’s start with the big picture. The Australian economy didn’t “snap back” from the devastation of Covid-19, it was dragged back to safety by an enormous injection of welfare spending, resuscitated with a huge dose of public-sector infrastructure spending, industry assistance and cheap credit from the Reserve Bank. It remains on life support today, thanks to forecast budget deficits of over $50 billion per year for all of the out-years in the federal budget. Remember when Tony Abbott thought a budget deficit of $18 billion constituted a “budget emergency”? And remember when the media and business took him seriously?

The parts of the old model that are “irredeemably broken” are the ideas that the Liberals have an aversion to budget deficits and, more significantly, that the size of the budget deficit is a meaningful indicator of economic management. The “policy elite” in Australia has fetishised budget surpluses for decades, but this fetish is almost exclusively Australian. The last US president to deliver a budget surplus was Bill Clinton and the last UK prime minister to do so was Tony Blair. I hope this crisis will kill off an idea that thirty years of data from nearly 200 countries has been unable to euthanise.

Relatedly, it’s important to note that Australia’s economic recovery wasn’t gas-led, investment-led or private sector–led – it was entirely led by government spending. And it worked. For decades, Australians have been told not only that budget deficits are bad, but also that government spending is both inherently inefficient and a poor way to boost an economy heading into recession. George quotes former Treasury secretary Ken Henry saying this hostility to government spending “was not something that the Australian Treasury had dreamt up … The academic consensus around fiscal policy was basically: ‘It’s too hard to use’ … the best thing to do is sit on your hands and let the private sector work it out.”

What utter crap. No such academic consensus ever existed, and it’s not at all clear from the essay whether George believes it did. But what is clear – if we are considering the irredeemably broken aspects of the old model – is the tendency in Australia for powerful people to source advice, economic or otherwise, from those they agree with. It is simply absurd to suggest that Ken Henry or his successor Martin Parkinson, who was also interviewed for the essay, could not find academic economists who thought that activist fiscal policy was a good idea. They simply didn’t think those economists were worth talking to. Luckily for millions of Australians who benefited from JobKeeper and the JobSeeker supplement, the current secretary of Treasury, Steven Kennedy, who wasn’t interviewed for the essay, has clearly paid a lot more attention to the diversity of opinion among the world’s economists. But despite the radical, and desirable, shift in Treasury’s views about fiscal policy, few, if any, of our “policy elite” have owned up to the enormity of their errors over the past thirty years. It’s a pity the essay treats them all so gently.

Also broken irredeemably by Covid-19 was the idea that the success of the private sector is separable from the effectiveness of the public sector. While Treasury, the Coalition and neoliberal policy elite talk about public spending “crowding out” private-sector activity, the opposite has just been shown to be the case. Without the (second-rate) publicly owned NBN to help businesses pivot rapidly to online services, and without the publicly owned Australia Post to deliver more than 2 million parcels a day, the “free market” could not have received or dispatched most of its orders. Does anyone think that a privatised Australia Post would have doubled its parcel capacity during the crisis? Or would the private owners have simply trebled their prices?

But imagine if our NBN weren’t crap. And imagine if Australia Post hadn’t been scaling back its services in regional areas for years. A bigger, better public sector would have helped both Australian businesses and Australian communities get through the Covid crisis in even better shape. Ironically, while there’s no evidence that income tax cuts to those earning $200,000 “trickle down” to help small business and regional Australia, there’s overwhelming evidence that high-quality public services do. Evidence that Treasury and the academics they preferred to talk to systematically ignored.

But let’s take it further. Imagine if more kids in low-income households had laptops to use for their home schooling because Kevin Rudd’s free laptop program had been maintained. And imagine if our run-down and privatised aged-care system wasn’t (under)staffed by hard working casuals who are often under-trained, under-supported and have to work across multiple sites to earn a living wage? We could have got through the Covid crisis more productively and more safely if our public sector had been bigger and better. Public spending is not inherently inefficient and wasteful – when it is well targeted, it has huge positives, but when it is used to reward friends and buy votes, it delivers inequality.

The fact that far more people died in privatised aged care than in publicly run centres should irredeemably break the idea that outsourced and privatised services are more efficient than publicly run ones, but it probably won’t. I wish George had spent more time considering why that is the case. Even before Covid-19 hit, the royal commissions into aged care, disability care and the banks had made a mockery of Treasury’s delusional view that privatisation and deregulation would drive efficiency and productivity growth while providing higher-quality care to vulnerable Australians.

Let me now turn to the second part of George’s question: what lessons from the past can guide us in the future?

The lengthy restatement of the failings of the Rudd government’s pink batts scheme is a useful reminder that when a government “outsources” the delivery of a service it can and should be held responsible for the results. But why, ten years after the abolition of the scheme that tragically cost four lives, does it remain the media’s go-to example of government failure?

The Coalition is currently spending $10,000 per day per asylum seeker detained by private contractors on Nauru, and Australia is estimated to have spent more than $7 billion on offshore detention since 2012. If the very fact of the Royal Commission into Violence, Abuse, Neglect and Exploitation of People with Disability isn’t shocking enough, the evidence it heard should be enough to shame someone into resignation for “overseeing” the creation of our “deregulated” system. But it hasn’t, and nor has the harrowing evidence the commission heard, including the tragic case of Ms Ann-Marie Smith, who “lived with cerebral palsy and at the time of her death was found to be suffering, among other things, septic shock, multiple organ failure, severe pressure sores and malnutrition.”

Just read that again and ask yourself how “efficient” the market is in providing care to vulnerable Australians.

Sure, the pink batts scheme was poorly designed and implemented, but unlike our outsourced and privatised “care” of asylum seekers, the disabled and the elderly, with all of its expensive horrors, the pink batts scheme was scrapped. No one is talking about scrapping the private provision of care for the vulnerable in Australia. The same bureaucracy that oversaw the “disaster” of the pink batts scheme had no qualms about pretending quality would be high and rorting would be low when it designed the outsourced and privatised National Disability Insurance Scheme.

In the section of his essay entitled “Slow Learners,” George applauds Treasury for eventually learning that Keynesian economics both exists and is effective, but he is silent on the fact that it is yet to admit that its preference for privatised service delivery has killed a lot of people, ruined a lot of lives and wasted a mountain of money. Even the chair of the ACCC is now calling for a halt to privatisations if governments can’t figure out how to regulate the private monopolies they keep selling off.

While George doesn’t answer the question of what government should do in the remaining three-quarters of the twenty-first century, I think stopping publicly funded but privately owned companies from ripping off the most vulnerable Australians should be at the top of the list. But what other problems should our national state turn its mind to, now that Treasury and the rest of us know that budget deficits aren’t scary, that public-sector infrastructure allows private-sector innovation to occur, and that outsourcing is more likely to increase fraud than efficiency?

Here’s a start:

How can governments protect our privacy in the age of big data?

How can governments protect freedom of speech and diversity of opinion as social media and traditional media merge into a form of power that was unimaginable just twenty years ago?

As the UK renationalises its rail system after its failed privatisation, what assets might the Australian government renationalise?

If we can spend $10 billion each year subsidising fossil fuels, why can’t we spend $10 billion each year on renewable energy?

If Telstra can make all calls from pay phones free, what other services might Australian governments provide for free in Australia? Wi-fi? Drinking water? Air-conditioned workspaces to help people study and work from home? Public housing?

While George’s essay has a considered analysis of climate change, it doesn’t discuss which bits of the old model climate change has broken (including the pretence that Liberals prefer market-based solutions) or how it will reshape the role of the public sector. Who will insure houses in disaster-prone regions? Where will poor people go to escape extreme heat?

We now know that the benefits of low wages, low taxes and low job security don’t trickle down to the poor – instead they literally get blasted off into space. So what will we in “the land of the fair go” do about wealth and income inequality, now that even the IMF and World Bank admit that income inequality is a brake on economic growth?

While neoliberalism led the Australian policy elite to make lots of mistakes in the way they handled recessions, the way they worried about government spending and the way they privatised so many services and business, the biggest mistake that flows from neoliberalism isn’t how small it makes our government, but how small it makes our imaginations.

When our self-anointed policy elite believe that “market forces” will fix all of our problems, they absolve themselves of the hard task of fixing anything. Indeed, they spend their time fighting people like me, who think that government might be able to make some people’s lives bigger and better. And while they obsess over the cost of being a bit nicer to the unemployed, they turn a blind eye to spending $7 billion to be a lot nastier to asylum seekers.

The saddest, most embarrassing part of the Australian policy debate over the past thirty years isn’t that it took so long to realise that no one else in the world cared about our budget surplus, or that so many of Australia’s policy elite still hark back to the “golden years” of the 1980s and 1990s when looking for a “reform agenda”; it’s that, even now, Australia – the fourteenth-biggest economy in the world, a member of the OECD, the G20 and the Five Eyes intelligence alliance – is waiting to hear from overseas thinkers and politicians what its post-Covid future might look like. How pathetic.

Australia was once at the forefront of so many important reforms. No, I don’t mean Paul Keating selling the Commonwealth Bank, or John Howard’s big shift from sales tax to the GST – I mean women’s suffrage, electing the world’s first labour government and the creation of a system of centralised wage-fixing.

When Australia was much smaller, much poorer and much more tied to Mother England, our leaders showed far more independence, creativity and resolve than they do today. But perhaps that was neoliberalism’s best trick: convincing Australians that “the world” and “the market” would shape our destiny, not our own ideas, courage and determination.

My favourite sentence in George’s essay is: “The power of neoliberalism was never in its observance by conservatives but its effect on the other party.” In my Quarterly Essay, Dead Right, I tried to argue the other side of the same coin: that those on the right never really took neoliberalism seriously, but rather used it as a rhetorical excuse to cut spending on their enemies and cut taxes on their friends.

George quotes the magical words that John Howard allegedly shared with Josh Frydenberg at the beginning of the Covid-19 crisis: “In times of crisis there are no ideological constraints.” But unfortunately, like nearly everyone, he misses the joke. There never are, and never have been, “ideological constraints” on the ability of the Liberal Party to spend other people’s money on their friends. The IMF said that Peter Costello was the most profligate treasurer in Australian history, and Tony Abbott’s hysteria about a “budget emergency” didn’t stop him introducing income tax cuts.

I think there is a way out of neoliberalism’s disaster zones. I know there must be, as most countries don’t have them. I think the Covid crisis provides a unique opportunity to begin that search, but unfortunately, while I learned a lot reading George’s essay, I didn’t find the exit strategy I was looking for.

Richard Denniss


This correspondence discusses Quarterly Essay 82, Exit Strategy. To read the full essay, subscribe or buy the book.

This correspondence featured in Quarterly Essay 83, Top Blokes.


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