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Adrift Down Under: The Labor Party Abandons Economic Reform

John Winston Howard wasn’t just voted out of office after a remarkably steady eleven-and-a-half-year stretch atop Australian politics in November 2007. He lost the prime minister’s job to Kevin Rudd, a cheerless career bureaucrat with a skimpy parliamentary record, and lost his local seat to a toothy blond broadcaster with no political experience at all. Yet today the young and the old mob Howard when he wanders out in Sydney, wanting an autograph and a snap with the seventy-two-year-old. They realize that Australia’s current leaders have veered the country away from the steady, prosperous path it was on for the past three decades, and in addition to feeling nostalgia for better days they want someone to steer their country back on track.

Why should the rest of the world pay heed to these parochial concerns? Australia was inwardly focused for much of its history, although the US and Australia always had friendly relations and mutual economic interests. (Young Herbert Hoover made a fortune at a gold mine in the “red dust, black flies, and white heat” of West Australia.) The country spent much of its first decades building great coastal cities, mining vast stores of mineral wealth (Victoria’s state parliament still sparkles with real gold), integrating waves of immigrants, and coming to terms with its aboriginal peoples. Australian diggers fought beside American GIs in every war in the twentieth century. Yet there was something of an inferiority complex in the middle of all this success. In 1964, Donald Horne wrote The Lucky Country, a popular polemic that argued Australia was perennially second-rate and enjoyed its prosperity by chance.

Horne’s conceit eventually seeped into Australians’ sense of selfhood, although in fact the country’s trajectory has had little to do with luck at all, but with “how Australians through sweat and enterprise transformed a hard, inhospitable dump into a prosperous liberal democracy,” as former New South Wales legislator Peter Coleman put it. Today Australia ranks as one of the few developed-country democracies with a growing—if presently sluggish—economy. As important, it also has a flexible military and a strategic position at a time when China’s growing dominance of the region is worrying Washington and Asia’s regional capitals as well. In November, President Obama flew to Darwin to announce a permanent US troop presence Down Under on the sixtieth anniversary of the countries’ bilateral military treaty known by its acronym, ANZUS.

But the fortunes of Australia have taken a turn for the worse under its current government, and that’s a concern. The country isn’t just a curiosity anymore—a place famous for its wacky animals, beaches, and Crocodile Dundee (“that’s a knife”). Australia is America’s most stable democratic ally in a region that’s filled with unstable nuclear regimes like Pakistan, China, and North Korea. A weakened Australia—today’s threat—isn’t in America’s national interests, much less Australia’s.

 

Australia has tried to drive itself off an economic cliff once before in recent memory. In the 1970s, after years of conservative rule, Aussie voters plumped for Gough Whitlam, a charismatic Melburnian and Laborite well to the left of his contemporary, Jimmy Carter. He nationalized the nation’s health-care service and higher education, hired reams of civil servants and drove Australia into heavy debt. The situation was so dire that the Queen’s representative himself kicked Whitlam out of office. (The circumstances surrounding his ouster still rankle and are probably why he’s still revered by young Laborites. One of the brightest left-wing stars of the current Parliament, Andrew Leigh, often recounts how his mother, in her ninth month of pregnancy, pinned an “It’s Time” pin onto the part of her shirt covering her belly—a reference to Whitlam’s famous slogan justifying his attempted transformation of the country.) The conservative Fraser government that followed trimmed the public sector’s sails, but not much else.

The next Labor leader who occupied Kirribilli House, Bob Hawke, sent Australia down a radically different path because he had little other choice—and unwittingly kicked off the most remarkable economic reform record in history. In office from 1983 to 1991, he liberalized trade, trimmed regulations, welcomed foreign investment, started paying down the country’s debts, and opened the immigration floodgates. Australia started to grow, and then China opened up to the world, and Australia boomed on the back of its raw material exports. Hawke’s success paved the way for the Paul Keating government, which kept deregulating but was defeated in 1996 in the midst of an economic recession. The Liberal-led coalition government under John Howard, for which there is such nostalgia today, was born.

Howard’s political charm was akin to Ronald Reagan’s. He appealed to blue-collar workers, known as “Howard battlers,” who had never before voted for the Liberals. Given an overwhelming popular mandate, he doubled down on the Hawke-Keating agenda. Under Howard, Canberra implemented welfare reform, privatized state industries, freed the central bank from government control, made it easier to hire and fire workers, and inked free-trade deals. (Some of Howard’s “reforms,” such as the implementation of a national value-added tax, were more dubious.) By the time he left office, Australia had enjoyed a sixteen-year economic expansion and thirty-three-year low in unemployment rates; more than half of the population owned stock, and homeownership was on the rise. Young Australians didn’t even know what a recession was.

The complacency his good times created helped lead to Howard’s humiliation in the November 2007 election. But the new Labor-led government, with the bureaucrat Kevin Rudd at its helm, wasn’t like the Hawke-Keating reform governments of the 1980s and ’90s. The only experience Rudd had of business was through his wife, Thérèse Rein, who made a fortune in headhunting. Rudd touted himself as a smart “fiscal conservative” and a youthful, fresh-faced centrist. The “Kevin ’07” campaign energized college students and won back the Howard battlers by promising a “fairer” workplace. That was the first clue that Rudd wasn’t the reformer he promised to be.

As soon as he took office, Rudd—who didn’t spend his career in the labor movement, like most leftist prime ministers do Down Under—revoked Howard’s labor market reforms, made it harder for companies to fire workers, gave unions more bargaining power, and re-empowered a central wage-setting body. Those moves placated the union members in the Labor Party who didn’t trust Rudd but needed him to get the party back in power. Soon the new prime minister, who enjoyed record approval ratings and fancied himself an academic, started touting something called “social capitalism,” in which the state would play a more active role in private affairs, and promised grand schemes to have Australia lead the world in areas such as climate change.

 

Then the 2008 financial crisis hit, and Rudd had the perfect cover to implement his vision. In a single year, the Rudd government spent Australia from a $19.7 billion surplus (in Australian dollars; $20.3 billion in US dollars at today’s exchange rates) to a $32.1 billion deficit, all in the name of economic “stimulus.” Never mind that the country was well insulated from the global financial crisis, thanks to the Hawke, Keating, and Howard reforms, and that not even a single bank failed. Rudd, along with Treasurer Wayne Swan—a longtime union boss—pressed the conceit that politicians were smarter than the market. Economic growth slowed but Australia didn’t go into recession—the only OECD member country to escape it. Prime Minister Rudd concluded he was on the right track, and the opposition Liberals, headed by a left-leaning Malcolm Turnbull, didn’t put up much of a fight, because Turnbull mostly agreed with Rudd’s ideas.

Soon Labor was churning out all sorts of big-government programs in addition to its focus on climate change, from a national broadband network to a punitive cap-and-trade scheme to a mining “super-profits” tax that would squeeze money out of the country’s most successful industry. In December 2009, the Liberals dumped Turnbull in favor of Tony Abbott, a career politician and former Rhodes scholar who immediately labeled Rudd’s carbon initiative “a great big tax to create a great big slush fund to provide politicized handouts, run by giant bureaucracy.” He started to pound the prime minister at question time and the Liberals’ polls started to rise as Rudd’s plummeted.

Labor panicked. For the first time ever, the party elites ejected a sitting prime minister—Rudd—in favor of his deputy, Julia Gillard. Another Melburnian, Gillard was a hard-left union lawyer who had affiliations with the far-left labor movement in her youth but had softened her rhetoric (as well as her physical look) to appeal to Labor’s centrists. Most importantly, she was trusted by Labor’s behind-the-scenes, union power brokers, known Down Under as “faceless men.” She called an election in August 2010 to consolidate her power. Thanks to an alliance with the far-left Green Party and a few “country independents”—maverick politicians from rural districts—who swung their votes to Labor, against their own voters’ wishes, she retained a shaky grip on Canberra with a single-vote majority in the lower house of Parliament.

Australians were suddenly confronted with a governing coalition that included the likes of Green MP Adam Bandt, who wrote his Ph.D. thesis on Karl Marx, and Bob Katter, a conservative, populist cowboy from Queensland who liked to rail against free trade—neither presenting a very savory recipe for clear and consistent governing principles. Gillard tried to appease the Greens by reneging on a pledge not to impose a cap-and-trade scheme and implementing a watered-down version of the mining tax proposed by Rudd. She did little when union strikes erupted at the nation’s flagship airline, Qantas, preferring to let the airline’s CEO shut the business down for a few days before caving to the workers’ demands. (The Spectator Australia labeled the incident “back to the bad old days.”) She headed a Labor Party conference that recognized the right to gay marriage, but didn’t introduce legislation for fear it wouldn’t pass. And she presided over an inquiry into the media that has worried free-speech proponents.

Meanwhile the economy didn’t get much boost from its Keynesian spending spree. The World Bank projects Australia’s 2011 GDP growth rate will be about three percent, about its historical average. Inflation is rising. Many parts of the country have been saddled with white elephant projects, such as Gillard’s “Building the Education Revolution,” which gave taxpayer monies to school districts to spend as they liked. Businesses are grappling with higher taxes, labor costs, and litigation risk. Rumors are circulating that the union bosses are plotting to oust Gillard and perhaps install Defense Minister Stephen Smith in her place. Whatever happens, the Labor-led coalition muddle will likely last until the next election has to be called by law, in 2013.

With all this uncertainty, it is no wonder that many Australians want a return to the conservative, reformist policies that worked in the past. The BBC’s former Sydney correspondent, Nick Bryant, has coined the term “Ruddbullism,” a reference to the détente that developed under former Prime Minister Rudd and his opposition ally, the Liberal Party’s Malcolm Turnbull, to indicate today’s governing mentality. But most polls show that voters don’t want that—they just want Labor out. According to the latest Newspoll, fifty-six percent of voters are “dissatisfied” with how Julia Gillard is doing her job. The Liberals’ Tony Abbott doesn’t poll much better, with a fifty-seven percent disapproval rating, but if a vote were held today, the Liberal-led coalition (which includes the National Party) would win fifty-four percent to forty-six. It would be a blowout, with the country clearly choosing to go back to the future.

Australia’s economic woes may pale in comparison to what the European Union and the United States are grappling with, but the trend is the same. Australia has a bigger government, more federal debt, higher taxes, and a heavier regulatory burden on business than it’s had since the 1970s, and the Labor-led government has another year ahead of it. It’s in Australian and American interests for the country to start moving back to the recipe that made it prosperous. If it doesn’t, the lucky country’s luck may very well run out.

Mary Kissel is an editorial board member of the Wall Street Journal.

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