The last of the Thatcherites

by John Q on September 27, 2004

The Australian election campaign has produced some interesting shifts in political positions, with the Labor opposition attacking the Liberal (= free-market conservative) government for being “the highest taxing government in Australia’s history”[1], and the government responding with yet more public spending. This is largely a matter of political pragmatism. But the election has produced one statement that’s worth paying attention to, from Prime Minister John Howard in the Australian Financial Review (no link – this is a subscription-only site)

There is a desire on the part of the community for an investment in infrastructure and human resources and I think there has been a shift in attitude in the community on this, even among the most ardent economic rationalists[2]

Howard is, arguably, the last of the Thatcherites. He entered the Australian Parliament in 1974, just as the Keynesian social-democratic consensus of the postwar period was coming to an end. He was Treasurer in the Fraser government (which held office from 1975 to 1983) and, subsequently one of Fraser’s bitterest critics, arguing that the government had missed the opportunity to undertake radical market-oriented reform[3]. In Opposition through the 1980s, he was the leading advocate of free-market reforms, continually pushing the Hawke-Keating Labor government (by inclination a precursor of Blair’s Third Way) to the right. On gaining office in 1996 after a very muted campaign, he introduced drastic expenditure cuts and established a Commission of Audit to find more. He’s been gradually moving away from this radical position ever since, in the face of increasing public opposition. Until now, however, he has never openly repudiated the ideological goal of rolling back the public sector.

.I think it’s reasonable to treat this statement as representing the end of the neoliberal push to overturn the social-democratic settlement, at least in the English-speaking countries

In Britain,the Blair-Brown government, which started out offering little more than Thatcherism with a human face has gradually shifted towards a modified social democracy, raising both taxes and public spending. New Zealand has turned its back on the radical reforms of the 80s and 90s (though Don Brash, one of the architects of those reforms, now leads the opposition National Party, having morphed into a law-and-order race-card conservative). I can’t really follow Canadian politics but the story there seems to be much the same.

Finally, there’s the US under Bush which has managed to follow the tax-cutting part of neoliberalism, but not the expenditue-cutting part. I honestly don’t know how this will play out when the bills finally come due. But it’s fair to say that, in rhetorical terms at least, Bush’s “compassionate conservatism” represents a repudiation of neoliberalism.

The failure of the neoliberal counter-revolution doesn’t mean that old-style social democracy is going to be restored any time soon. Rather, the current period of confusion will eventually generate a new synthesis, something I plan to post more about soon.

fn1. Because of changes in the tax system, and the complexities of a federal system, debate over this claim gets tangled in definitional issues. For the purposes of this post, it’s sufficient to note that the ratios of government revenue and public expenditure to GDP have been broadly stable for the past twenty years or so, after rising steadily for many decades before that.

fn2. The term ‘economic rationalist’ is broadly equivalent to ‘neoliberal’ or ‘Thatcherite’, though with more emphasis on bureacratic rationality as the basis of policy processes

fn3. Fraser, originally seen as a disciple of Ayn Rand has given credibility to this critique, moving steadily to the left ever since he left office to the point where he is now in general agreement with his former adversary, Gough Whitlam.

{ 20 comments }

1

schwa 09.27.04 at 7:20 am

I think calling Brash an architect of the Rogernomics/Ruthanasia reforms is stretching a point a bit far — he was Governor of the Reserve Bank, so he’s certainly associated with them in the public mind, but he wasn’t in Parliament during the ’80s, and he was much less outspoken in his macroeconomic office than, say, Greenspan is/was.

I also think you underrate the extent that neoliberalism pulled the centre of gravity rightwards. Just as the English-speaking Labo(u)r parties turned from socialists into social democrats in the fifties and sixties, once they’d had their great welfare state-building moments and then lost office, so the neoliberals are becoming whatever they’re becoming not because they failed but because they succeeded — no more revolutionarily than the socialists did, it’s true, but succeeded nevertheless.

2

John Quiggin 09.27.04 at 7:46 am

I broadly agree with you about Brash – I couldn’t find the right description of his role.

Comparing the socialists/social democrats with the neoliberals, I think the most objective metric of success is the ratio of public expenditure to national income, and the picture here is pretty clear – the social democrats succeeded in greatly expanding the state, and the neoliberals could only manage to halt this process, not reverse it.

3

gavin 09.27.04 at 9:40 am

I think it’s reasonable to treat this statement as representing the end of the neoliberal push to overturn the social-democratic settlement, at least in the English-speaking countries.

Whatever the other merits of the post, it’s a little hard to accept that a small change in Australian economic policy can really represent such a sea-change across the world. Reminds me of an editorial I saw in a Belgian newspaper:

“We need a stronger EU so that Belgium’s unique voice can be heard on the world stage”.

4

Kimmitt 09.27.04 at 9:43 am

I honestly don’t know how this will play out when the bills finally come due.

Depends on if he gets a second term — if so, the adjustments necessary to service our debt will be enormous enough that they may well undermine faith in the government’s ability to meet debt obligations, much less anything more lofty than that.

5

Matthew2 09.27.04 at 10:43 am

“[…]at least in the English-speaking countries”

It’s a shame that thirld world countries are still forced to adopt policies that we now view as desastrous and counter-productive.

6

JO'N 09.27.04 at 1:11 pm

He entered the Australian Parliament in 1974, just as the Keynesian social-democratic consensus of the postwar period.

The Keynesian social-democratic consensus entered the Australian Parliament in 1974?

7

John Quiggin 09.27.04 at 1:43 pm

Fixed now, thanks jo’n

8

Robin Green 09.27.04 at 3:14 pm

Finally, there’s the US under Bush which has managed to follow the tax-cutting part of neoliberalism, but not the expenditue-cutting part. I honestly don’t know how this will play out when the bills finally come due.

How the Repubs hope it will play out, I think, is that it will give them an excuse to accelerate their programme of slashing social programmes. Or to force the Democrats to take on that program.

It’s annoying how whenever anyone makes an income-tax cut, all proposed rises thereafter are judged relative to the current level of income tax, not the absolute level. What before would have been a 1% rise, becomes a 2 or 3% rise and therefore unspeakably radical. And the same goes for spending. I think the Bush administration is trying to maximise the scale of the problem, within reason, in order to force the debate about how to fix it, rightwards, if you see what I mean.

9

Scott McArthur 09.27.04 at 4:25 pm

There is a consensus here. However, Bush and his party are outside of the consensus. So when the biggest kid on the team is going the other way it is harder proclaim an Anglosphere trend.

What the UK, NZ, AUS, CAN all have in common is that under Keynsian deficit/inflationary programs all four countries hit a debt wall. A point at which increases in the marginal indebtedness of the nation destroyed more wealth then was created through spending multipliers. Neo-liberal thinking was turned to as an alternative, but eventually reached marginally declining gains in wealth creation through tax cuts and government service cuts. The new synthesis blends the two approaches: balanced budgets with continuing infrastructure reinvestment and ongoing fat trimming in the public service.

The US is off the reservation in that one group, the Republican leaders, want to continue the neo liberal project. There is a Lennenist quality to their current policies in that they all seem aimed to “highten the contradictions”. The hope being that when the crisis is unwound there will be a once in a lifetime opportunity to permanently reduce the size of Governemnt in the economy: a reverse Great Depression if you will.

Needless to say, it is a very dicy proposition, especially while there is a War on. Will the American electorate go along?

10

Giles 09.27.04 at 7:24 pm

I doubt that Howard is the last “rationalist” in the liberal party- how else would you describe Abbot or Costello?

It’s also worth questioning two assumptions – first that Howard was radically to the right of his party from the start – my view is that, economically he has been much more centrist than his more “shrill” detractors give him credit for.

Secondly circumstance plays a role – the economy is delivering an unplanned surplus because of the senate logjam.

If the debt is repaid in the next couple of years the government is going to have to start buying private assets. There is a view, which I subscribe to that this is a lot more dangerous/irrational than the government building things or providing support for people.

Faced with the choice between letting the surplus continue and increasing expenditure, I think Howard is choosing expenditure – for this and political reasons. But in other circumstances faced with a straight more expenditure less expenditure choice I’m not so sure.

11

John Quiggin 09.27.04 at 8:23 pm

Abbott and Costello are career politicians, tough but with no particular ideology. In particular, Abbott as Health Minister has been associated with lots of new spending and a reversal of the government’s previously negative attitude to Medicare.

12

dsquared 09.27.04 at 8:41 pm

13

Giles 09.27.04 at 8:47 pm

Well Thatcher was associated with lots of new spending and spent here entire career as a politician but that didn’t stop her being a thatcherite. Anyway go to http://www.tonyabbott.com.au/speech/04feb24_AFRconferences.pdf
where abbot makes the point that Australia’s health care is good because of the large private component. The one direction he clearly isn’t advocating is a mainly public health service like the NHS.

I seriously doubt you’ll find any speech where he argue that the proportion of GDP going to the government should be increased.

Sure he’s provided over spending increases but if you argue that anyone who provides over absolute spending rises isn’t a thatcherite then virtually no one ever is.

14

Jason Soon 09.28.04 at 12:49 am

Howard is a Poujadist. Don’t insult us true neo-liberals by calling him one. Revealing fact – Bob Carr and Mark Latham, both Labor politicians – have had much more publicly to do with the free market Centre for Independent Studies think-tank than Howard. (Latham’s falling out was personal rather than political)

15

John Quiggin 09.28.04 at 1:33 am

Giles, I made the point about Thatcher’s spending in the version of this post theogon 09.28.04 at 2:51 am

Ah, but suppose a sadistic angel asks you if you think that neoliberalism is on the decline? If you’re right, this adorable kitten gets a government-subsidized backscratch. If not, the free market subjects the next twenty trillion humans to subpoverty wages and no social services…

Sorry. Couldn’t help myself.

17

Giles 09.28.04 at 4:10 pm

gouvernment outlays as a % of GDp have fallen from 38.2% of GDP in 96 to 36.2% today. Not a hugely significant amount but still a cut.

Still I’d go with Jason’s description that he’s esssentially a Poujadist

18

John Quiggin 09.29.04 at 5:42 am

Giles can you give a source – the Budget papers agree with your 36.2 for today, but not the 38.2 for 1996 (for some reason, the Table in the 2004-5 budget doesn’t give consolidated figures, but the graphs suggest around 35 and that’s consistent with what I recall from the time).

19

Giles 09.29.04 at 7:02 pm

figures are for General government outlays from
http://www.oecd.org/dataoecd/5/51/2483816.xls

20

John Quiggin 09.29.04 at 8:52 pm

Thanks for this, giles. Note that the revenue/GDP ratio goes the other way. Still, there must be some definitional difference affecting the earlier data, probably to do with the treatment of government business enterprises.

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