October 16, 2008
Kevin Rudd, free markets and the greed culture
The Labor Prime Minister, Kevin Rudd is often accused of being similar to Tony Blair and his mealy-mouthed 'Third Way'. But the economic crisis is revealing that Rudd is quite different from Blair. Rudd's recent attack on 'free market ideologues' was a speech that neither Tony Blair nor Gordon Brown - or certainly not Paul Keating -- would have made.
His unashamed attack on free market ideology came in a remarkable speech to the Federal Labor Business Forum in Sydney in October. After explaining Labor's response to the crisis, he then went on to discuss 'the fundamental failure of values' revealed by the crisis.
Referring to the 1987 stock market crash, the movie 'Wall Street' and its leading character, the unscrupulous Gordon Gekko - Mr. Rudd said: 'The fact is that Gordon Gekko wasn't tamed in 1987 - he was simply ignored. The fact is that much of the root cause of the sub prime crisis came down to our financial markets rewarding people for taking extravagant risks.
'Executives earned massive bonuses. Their rewards were skewed to short term â€œsuccessâ€ rather than long term creation of asset value. They literally laughed all the way to the bank.'
A little later the Prime Minister accused 'predatory financiers' of exploiting working class Australians 'with hidden fees, ratchet interest rates, and confusing repayment terms.
'These were the most obvious manifestations of the culture of greed and short-termism which pervaded large parts of the American financial sector. This culture was never challenged by a political and economic ideology of extreme capitalism.
His particular target was 'extreme free market ideologues who influence much of the neo-liberal economic elite.'
'Free market ideologues who have a naÃ¯ve belief that unrestrained markets are always self-correcting and that markets left to themselves will always achieve optimum outcomes.
'Ideologues who believe that any regulation of private business is fundamentally wrong. Ideologues who have resisted the regulation of financial markets and the supervision of a wide range of financial institutions.
'Ideologues who lectured the developing countries caught up in the Asian Financial Crisis a decade ago about the need for transparency and disclosure, but did little to reform their own financial systems. Ideologues who believe that government is always the problem, never the solution.
'Except of course when there is a crash - then, the self-same ideologues argue, having privatised their profits, [say] we should socialize their losses. And by the way, having demanded lower and lower taxes all the way through.
The most important part of Mr. Rudd's speech came with his words on the future. 'When we are through the current crisis it will be time therefore to take stock. Not to overreact - but rather, for the world to calmly take stock of what went wrong, as we pursue the reforms necessary to restore long-term confidence and stability to global financial markets.'
Rudd's attack drew a predictable reaction. Piers Akerman denounced him. Janet Albrechtsen in 'The Australian' said that the banks were not to blame at all. No, she said. It was â€œdo-gooders peddling universal home ownershipâ€. According to Albrechtsen, the big bad socialist government of the USA forced the poor old banks to lend to people who had no hope of re-paying.
But these justifications don't cut much ice with anyone. The reason for this is plain for all to see. Today, it is only government which can save the banking sector from its poor lending practices. It was always going to be that way - but for a long time a kind of religion prevailed that worshipped markets. The was the ideology of economic rationalism.
This economic ideology of the free market has been most deeply applied in the banking and finance sector - that is, the institutions which take deposits and lend to business and to homeowners. For a long time it was argued that in banking and finance the government should â€œget out of the wayâ€. Banking and finance was â€œderegulatedâ€. And for quite a while, it seemed justified.
In the old days, it is true, home loans were given only to the best possible borrowers. You had to go to the banks on bended knees to get a home loan. Deregulation seemed to make sense.
But deregulation has not done so much good, True, there is more money available but the level of home ownership has not changed very much over the decades. In fact deregulation has meant high interest rates at times - and it has contributed to ballooning home prices in Australia over the last 25 years.
I mention this because changes in government policy such as deregulation are meant to make things better. In the case of home ownership you would hope that deregulation would have allowed more people to buy homes - but this has not occurred.
Something else occurred. The availability of easy credit has meant the creation of a huge debt bubble for many people. That is why the coming recession will hit many people very hard. Those who lose their jobs or businesses will probably have large personal debts that they still have to pay off, and these debts will be larger than in previous recessions, because Australians have been encouraged to borrow like mad for many years. We've all had experience of being offered credit cards through the mail, with a credit limit of thousands of dollars.
To understand what all this means, you have to look at the bigger picture.
I want to begin by arguing a proposition: that the really big changes in societies only comes after the dominant old ideas have been overthrown. The really big changes made by Labor government in history - in World War Two and after - and then by Whitlam in the 70s - and then by Hawke and Keating - these changes happened because, in different ways, the thinking of public at large changed .
My point is that, in the long term, ideas matter. Ideas matter to political change. Let me explain.
For the past 25 years we have lived in the Age of the Free Market. That age is now over. But before we bury it, we need to look at the Age of the Free Market. The age of the Free Market was NOT about whether a country like Australia has a market system. We have had that for 100 years.
The Age of the Free Market was about something different. It was about the domination of a belief system or ideology that says bluntly markets are right, governments are wrong. That says governments should get out of the way - that governments should shrink.
This ideology talks about the ability of market to 'self correct' and suggests we should leave a whole lot of policy outcomes to the market'. It's linked to the mantra of 'private good, public bad. ' It was a kind of fundamentalism, just like a religion. The way you tell fundamentalists is that, whatever question you ask, the answer is always the same. A religious fundamentalist always answers every question by saying that his or her extreme definition of religion is the one true faith. Free market fundamentalists always answer that whatever the social or economic problems - markets are always the answer.
You'd be familiar with this kind of talk. It has been used to justify extreme salaries to top business executives, supposedly because of 'market demands' - so we have Sol Trujillo of Telstra getting an obscene $13 million last year. Because, the argument ran, this was an internationally competitive rate. It was a market rate. Funnily enough, international competition in salaries - unlike other things -- never cuts the price, it always raises it.
In all sorts of ways -- This sort of thinking has dominated government and all political parties for more than 20 years.
But markets have a number of downsides. Here's just three:
* They reward bigger players, cashed up players. They magnify social disadvantage. They increase inequalities.
* In an economy they can be destabilising force - and we have a living example now.
* They encourage a culture and values of selfishness and greed. They encourage individualism.
I am not saying let's get rid of them altogether - they have positives, but for a long while we have only heard the positives and not the negatives. The high priests have held sway.
But now circumstances have changed - and it is important, even vital, to press home to Australians that we need a new way of seeing the world and we need new answers.
So in terms of the future of Labor we are passing through a historic change. We have a Prime Minster whom, I believe, is genuinely committed to changing the deeper values and policies away from the market.
I think we need to build on that. To take him at his word.
There are lots of areas where the rule of the dollar needs to be challenged - issues big and small. Let me give some examples.
* We have a lot of children who are obese - these children are targets for advertising by those who make junk food. Let's end the free market in advertising and ban junk food ads in children's TV viewing time.
* We have a society in which alcohol licensing laws are now so liberal they are becoming a real social problem. The free market says alcohol should be sold around the clock - let's support restrictions on this madness. Let's do it in name of progress and to oppose free trade in alcohol.
* We have universities which the market says should be run like a business and make profits and not rely on government support. That should be changed - it has all kinds of bad effects on academic standards.
The free marketeers says we should have a small government sector and low tax. But many problems can only be addressed by a strong well-funded government. That means Labor not giving in to the calls for tax bribes at election time.
But the two big places to fight for new kind of values which are not slaves to the market are -- first, in the workplace, and second, on the issue of climate and the environment.
The free market dictates that workers and employees are just commodities, just factors of production, At bottom this was what Howard's industrial relations laws were about. We need therefore to push further back on these issues and get federal Labor to find the ways to make such a roll back of WorkChoices acceptable to voters. More than that we need to make sure maternity leave and support for mothers and families is forthcoming, both from government and from workplaces.
Second, on the climate. The warming of the planet is a very special kind of problem. It is a problem that affects everybody - no matter what country, no matter what class. It is a universal problem. This means that there are no individual solutions. Ultimately, rich people cannot buy their way out of the problem, though no doubt they will try. Climate is a problem that emphasises the connectedness of all humans on the planet, our common interest.
But the Age of the Market has encouraged people to see solutions to problems in terms of personal choice, and individualism. For the climate and other environmental problems - this is no personal solution. So part of the change in values in the New Age must be a new collectivism, a preparedness to recognise that we are all in the same boat and we have to help each other.
So finally, we need a new set of values beyond the market, and the Prime Minister is right, let's try and turn away from the Age of the Free Markets. Let's create a New Age of collective values and of caring. And let's make it stick.
Posted by David at 10:30 AM