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The Australian settlement

October 7th, 2004

Don Arthur, a great but infrequent blogger, has joined the crew at Troppo Armadillo, which will be a great location for him, I think. His first post is a response to my argument that the era of neoliberalism/economic rationalism is over. Don makes a lot of points, and I’m going to start with a relatively easy one. Don says “it’s hard to see a return to the high tariffs of the old Australian settlement”. I agree, but I think the whole notion of the Australian settlement isn’t very useful in relation to the rise and fall of neoliberalism.

What matters is the Keynesian-social democratic settlement adopted after World War II. Australia was one of the leaders in this with the 1945 White Paper Full Employment in Australia, claimed here as

the first time any government apart from totalitarian regimes had unequivocally committed itself to providing work for any person who was willing and able to work

Nevertheless, there was little that was specifically Australian about this settlement.

While Kelly’s name has been widely used, the things he is talking about are more accurately described by Gerard Henderson’s earlier term ‘Federation Trifecta’, consisting of Protection, Arbitration and White Australia[1]. These policies added up to a uniquely Australian policy package in the period before World War II, but their subsequent histories have been very different.

After World War II, and the encouragement of mass migration from poor European countries, the White Australia policy ceased to have any link to economic policy. The end of the policy came in 1966 when both the Liberal–Country Party government and the Labor opposition committed themselves to a non-discriminatory policy. By the early 1970s, when economic interventionism reached its peak, the last vestiges of the White Australia policy were swept away. Since then we’ve seen periodic attempts at revival, but there has been no correlation with attitudes towards protection. Howard’s flirtation with racial quotas in the 1980s came at a time when his advocacy of free-market reform was at is strongest. And Pauline Hanson managed to straddle both camps, starting out as an endorsed Liberal candidate, and ending up advocating a complete reversal of reform.

The second element of the trifecta, tariff protection, was the first target of the free-market reformers and the abolition of tariffs has been their most complete victory. The basic problem was that the employment protection function of the tariff had ceased to be relevant. From 1945 onwards, the maintenance of full employment was seen as a task for macroeconomic policy, not trade policy. Even when macro policy ceased to work well, after 1975, few saw tariffs as more than a delaying tactic.

Tariff protection was obsolete in another sense. In the Brigden Commission’s 1928 report tariffs were seen as taxing the profitable rural sector to assist the employment-intensive manufacturing sector. But by the 1970s, the employment-intensive sectors of the economy were in services, not tariff-protected industry.

Finally, there’s Arbitration. The reformers have had big successes in reducing the power of unions and arbitration tribunals, and the proportion of workers covered by unions. Unlike with White Australia and tariff protection this success is fair from complete, Still it’s hard to see this process being rewound to produce a resurrection of the old system of comprehensive awards. On the other hand, workers in general aren’t too happy with the wonderful world of individual contracts, and I expect to see a significant shift back towards more pro-worker intervention in the labour market (the notion of ‘deregulation’ is a myth – we’ve seen repeated government intervention on the side of employers both through legislation and through direct action as in the case of the waterfront).

To summarise, most of the Federation trifecta is gone for good. But White Australia and tariff protection were scrapped or rendered marginal by the rise of social democracy, and the gap left by the decline of the Arbitration system will be filled one way or another.

fn1. Kelly adds “state paternalism” which is too vague to be useful and “Imperial Benevolence” which, apart from a change of imperial masters during World War II, has never been seriously challenged.

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  1. October 7th, 2004 at 14:45 | #1

    Pr Q is quite right that most of the Federation Australian Settlement was killed off by the post WW II Old Left Liberal-Nationalist (L-N)/Social-Democratic (S-D), not the post-Vietnam War New Right Liberal-Individualists (L-I). The biggest blow against Tarriff protection was inflicted by Gough Whitlam, nothing if not an L-N/S-D Old Leftist, who slashed textile tarriffs in 1973.
    The Old Left L-N/S-D consensus was theorised by Keynes/Beveridge and practised by Curtin/Menzies. (Three out of four were Lords or Knights of the Realm. That ought to tell the Repubicans somethig!) Nationalist wealthfare, and welfare, state economic management and development policies were critical to the L-N/S-D settlement. But the L-N/S-D policy consensus was part of an international system of institutional arrangements and ideological agreements.
    The New Right has failed to roll back the state in most key L-N/S-D areas. It has not succeeded in getting community consent to abolish state provision/protection of community services, public infrastructure and natural resources. It has also failed to make the case against state action to compensate for externalities in space (“large scale spill-overs”) and eternalities in time (“long-run feed-back”).
    Pr Q’s biggest oversight is missing the victory of the New Right in financialising the mode of factor allocation. The regulation, & insulation, of factor markets was one of the biggest achievements of the L-N/S-D settlement.
    The New Right led the ideological and organisational charge to break up the old labour and capital cartels represented by the ACTU and the Melbourne Club. This was accomplished through deregulation, financialisation and digitilisation of factor markets in natural (real property), cultural (intellectual property) and industrial (equity) capital.
    This swept away many of the Old Left & Old Right cartelised industrial structures. Interestingly, AUS still has relatively high concentration of innstitutional concentration in key industries such as banking, insurance, telecommunications. But individual capital holdings are now quite fluid and mobile.
    Financialisation and digitalisation has had a profound effect on community culture. Every useful thing is now “in play” to property exchange relations and is now alienable in abstract commodity (ie financial security) form. This puts all use-values into the calculus of economic rationalist exchange-value, just as Marx predicted.

    All that is solid melts into air, all that is holy is profaned,

    The New Lefts one valid political legacy is the Environment-Green movement. All the rest of special interest identity politics has been rightly consigned to the Dustbin of History.
    PS Howard, contrary to Pr Q’s implication, has been one of the staunchest enablers of non-Caucasian immigration. In these areas, as always, one should regard Howards Old Left policy substance and disregard his Old Right political style.

  2. paul2
    October 7th, 2004 at 16:12 | #2

    A couple of marginal comments. Some of the events and policy positions referred to were more complex than is generally acknowledged today.

    The 1945 Full Employment White Paper was a highly political product carefully crafted to satisfy the potentially militant expectations of returning soldiers and unionists. The Labor Government was convinced that the full employment promise would not be fulfilled. Fulfilment of the promise was seen to depend on a US commitment to policies of domestic full employment. This was regarded as a prerequisite for the US maintaining high consumption of overseas primary products (including our wool and wheat). The Labor Government knew the US would not commit to these policies, but did not attempt to force the issue because it wanted US investment dollars. Tim Rowse has written extensively about this.

    Secondly, before queueing up to spit on the grave of protectionism, it’s worth remembering that it encompasses a broad spectrum of attitudes. Its most sophisticated exponents were strategists and political realists, not lazy back-scratching lobbyists.

    By the 1940s Giblin and Brigden had cut back their support of protection to (a) those industries which were high employers and showed increasing returns; and (b) a second best response to serious balance of payments problems (the preferred response being devaluation).And without wanting to return the world to the trade wars and autarkic isolation of the 1930s, they remained aware of the potential for economic ideals to be subordinated to domestic politics. Giblin was careful to record on file his colleague Lord Keynes’ 1943 observation that the USA’s ostensible enthusiasm for free trade seemed little in evidence outside the State Department (so by all means move towards free trade, but keep your powder dry). Sixty-one years later, how much has changed?

  3. Katz
    October 7th, 2004 at 16:18 | #3

    There are some new things under the sun. This isn’t one of them.

    During the 1880s the first period of British liberalism sputtered towards the new politics of envy.

    In 1885 Joseph Chamberlain sniffed the breeze. He rose in the House of Commons to ask: “What ransom will property pay for the security which it enjoys? … I think in future we shall hear a great deal more about the obligations of property, and we shall not hear quite so much about its rights.”

    For a while in the latter decades of the 20th century it looked like there were plenty of places for capital to fly to in avoidance of the costs of expensive state capitalism and/or national socialism.

    But not to the same extent any more — 20th-century neo-liberalism ran into the same problems as 19th-century British liberalism: rising expectations of the poor and a more realistic assessment of opportunities to make profits on the periphery.

    The issue for corporations is not whether or not to pay a ransom. The trick is to pay as small a ransom as possible.

  4. Andrew Norton
    October 7th, 2004 at 17:37 | #4

    “On the other hand, workers in general aren’t too happy with the wonderful world of individual contracts,”

    Opinion poll evidence doesn’t really support this claim. The most recent poll I know of on this, a Saulwick survey in July 2004, found that people generally preferred whichever form of wage setting they had themselves. The figures, with the first being the percentage of people who think that is how their wages are set, and the second the percentage who support that form of wage setting, were as follows:

    Individual contract: 29/32
    Workplace agreement: 23/22
    Award: 39/36

    This was a forced choice question. If respondents are not forced to choose, all 3 options do well. For example the International Social Science Survey in 2001 found 54% for national wage setting, 45% for enterprise wage setting, and 54% for individual contracts.

    I’d say that there is some confusion here, but reading the polls collectively I think there is also the pragmatism found in Australian public opinion.

    There is recognition that many workers need neither governments nor unions to assist them with their terms of employment. They can bargain successfully for themselves. Other workers have market power when acting collectively. And some workers, often low skill workers, need award protection.

    If they win, Labor will attempt some rollback – but this has more to do with ideology and their links with the union movement than it does with public opinion.

  5. John Quiggin
    October 7th, 2004 at 18:26 | #5

    I was also thinking of poll evidence, Andrew, particularly surveys showing the proportion of people who would like to be union members is substantially greater than the proportion who actually are. The only example I could find quickly, was commissioned by a union, but I’ve seen the same result from independent surveys.

  6. Tony Healy
    October 7th, 2004 at 18:56 | #6

    Andrew, the Saulwick survey (25 July 2004) found that 54 percent of people in casual jobs wanted full or part-time work, and that almost no full or part-time workers want to be casual.

    ACTU research by Barbara Pocock of Adelaide University found that up to 60 per cent of Australia’s 2 million casual workers detest the irregularity of income, the unpredictability of working hours and the hardships placed on family life. They often felt humiliated at a lack of respect for their work. ( ACTU web site )

    Since Howard came to office in 1996, 35 percent of all net new jobs have been casual.

    Reported happiness with workplace agreements in surveys is generally attributed to the predominance of such agreements among senior workers and managers. Those workers will naturally be given better conditions, as reflected in their agreements, and are not representative of the general value of such agreements in the Australian workplace.

  7. Don
    October 8th, 2004 at 08:01 | #7

    John,

    I think that responses to the collapse of the post-war settlement are a good illustration of the ‘hot’ ‘cool’ divide.

    In 1945 the government made a committment: “The maintenance of conditions which will make full employment possible is an obligation owed to the people of Australia by Commonwealth an State Governments.”

    When it became clear (after Whitlam) that government wasn’t going try to meet this obligation there were two responses. The ‘hot’ response was to treat it as a moral issue – to claim that while the wicked neoliberals understood that full employment was still possible they chose not to pursue it.

    The ‘cool’ response was to treat the full employment argument as an empirical issue – to claim that governments stopped promising full employment because they believed that it was beyond their power to achieve.

    I’ve always suspected that you’re cool to luke-warm, that you’d rather argue the economics of the case rather than express moral outrage.

  8. John Quiggin
    October 8th, 2004 at 08:13 | #8

    I’m a bit hotter than that, Don, though I agree that this is not an issue where moral outrage alone will get us far. My view is that, although full employment is a lot harder to achieve than it seemed to be during the postwar boom, governments have used this as an excuse to do nothing.

    This piece on our worst policy failure puts the case. Conclusion

    More important than any specific failures is simple lack of interest. At no time since the election of the current government has unemployment been an issue of real concern. Second-order trivia like the GST and waterfront reform have had far more attention. And, sadly, the Australian public has become inured to chronic mass unemployment. In the absence of a severe economic downturn, the government will pay no real political price for its worst policy failure.

  9. Andrew Norton
    October 8th, 2004 at 09:14 | #9

    Tony – I presume that was 54% of casual workers wanting permanent jobs (as casuals can be full or part-time). But this just highlights the problem – even on that survey a huge minority of casual workers would rather have the flexibility and the extra cash. Especially for student casuals, what’s the use of sick leave when you are very rarely sick, or holiday leave when you already get nearly 6 months off each year? The money is far more important (as an undergrad I was a casual at Myer for 6 years, spending some of them dodging the HR people who were trying to make some casuals part-time to save the company money). Policies that force employers to make casuals permanent disadvantage some employees.

    The HILDA survey failed to find any significant difference in dissatisfaction by worker type. On 0-10 scale casuals rated overall satisfaction at 7.5 and permanents at 7.6 – casuals being more satisfied with pay and flexibility and less satisfied with security and the ‘work itself’ (probably reflecting the concentration of casuals in low skill jobs more than the fact of being casual).

    John – It is pretty outrageous to say that governments have been doing nothing about unemployment. There has been strong policy emphasis on economic growth, and while the links between this and increased employment are weaker than in the past this is still the most effective way of creating jobs. The Howard government has also tried, with less success, to remove some labour market obstacles to job creation. There is a real tension here between the insistence on high pay, high security jobs (Tony’s point) and what is needed for employers to take on low skill workers. More could be done with education and skills, but this would not make much short-term difference to overall employment levels.

  10. Tony Healy
    October 8th, 2004 at 09:39 | #10

    Students and other young people are a special case, as recognised in all studies. For them, casual work is generally a temporary state of affairs before a transition to secure formal careers. Indeed, if we excluded that category of workers from the surveys, the reported levels of dissatisfaction would be much higher.

    The issue is non-student and mid-career people who are still forced to scrounge around with casual employment. That is the problem. They suffer that way essentially to benefit employers and the labour hire itself, which is an industry plagued by greed and corruption, like the real estate and car sales industries before regulation.

    Andrew, we can move away from what surveys say. Explain to me how it benefits a worker to get no pay during Christmas holidays or if they have the flu for two weeks, or who faces the regular prospect of receiving no earnings, at the arbitrary decision of his or her employer.

    The argument about job creation is contentious. Andrew Leigh’s recent study alleging that minimum pay rates interfere with job creation has been discredited by Ian Watson of Sydney University.

    In the IT sector, which I know well, recruitment firms are universally detested by contractors and also, to an extent, by employers. This is interesting in that the so-called contractors in that sector are generally reasonably paid professional people.

    Labour hire lobby groups and the Howard government rant about freedom, but in fact the operation of the labour hire industry, and its ability to lock up access to jobs, DEPRIVES workers and employers of freedom. Labour hire firms create no jobs; they essentially compete against workers for access to those jobs.

  11. Mark Bahnisch
    October 8th, 2004 at 22:23 | #11

    John, the survey research on unions you are thinking about is probably the research done by the Australian Centre for Industrial Relations Research and Training at Sydney Uni. I said something about this research and quoted the stats in my guest post at Troppo on Labor’s IR Policy. From memory, the research was commissioned by the Labor Council of NSW – ran from 97-01 and the polls themselves (sample of 1000) were by Newspoll.

  12. derrida derider
    October 10th, 2004 at 19:54 | #12

    Tony –
    Explain to me how it benefits a worker to get no pay during Christmas holidays or if they have the flu for two weeks, or who faces the regular prospect of receiving no earnings, at the arbitrary decision of his or her employer.

    Easy – by getting a 25% casual loading in their pay to compensate.

    And once again, it avoids the issue – which is not whether in many (far from all) cases the preferred outcome is a permanent job but whether the actual counterfactual is no job (that is, will preventing employers taking on casuals result in some of them not taking on people at all?). Which brings us back to questions of aggregate demand for labour.

    Most people think it deeply unpersuasive to firstly cite survey evidence, to have that ‘evidence’ demolished in counterargument (BTW Andrew could have added the detail of what the Saulwick survey you cited actually found – the ACTU’s press release on it that you are drawing on was outrageously selective), and then to say ‘can we move away from what the surveys say’. The surveys are our evidence.

    I’ve seen Ian W’s attempt at ‘demolishing’ Andrew L’s work – you are greatly overstating its effectiveness. At best it shows that the WA changes in awards were not a true natural experiment – ie results might be biased, but in either direction. It certainly does not demonstrate, or even attempt to demonstrate, that Australian minimum wages do not affect employment.

  13. John Quiggin
    October 11th, 2004 at 07:32 | #13

    dd, I don’t think anyone here is advocating the abolition of casual jobs or denying that they suit some people. But you’ve given no reason to suppose that the big expansion in casual employment over the 1990s, from an already high base by international standards, represents anything but a deterioration in conditions for workers.

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