Bouncing back

My response to an interesting piece by David McKnight on the future of Labor, originally published in the SMH. David’s piece broadly “Third Way” in tone, and relies heavily on the resilience and dynamism of ‘capitalism’ (I plan to explore this ambiguous term in later postings. The big problem is that sometimes capitalism is used in a way that includes ‘mixed economies’ where the goverment may control 50 or 60 per cent of GDP and at other times used to exclude them. The piece is in the form of a Word document Here’s my reply.

It seems to me that it is social democracy, rather than capitalism, that has displayed remarkable resilience over the past two decades. The obituaries have been read by Thatcher, Keating, Roger Douglas and many others, but they are gone and the welfare state remains largely intact. In quantitative terms, the ratio of public expenditure to GDP is at or near its all-time high in most OECD countries.
Moreover, in the countries where free-market liberalism had its biggest successes, the UK and New Zealand, it is now in retreat. The conservative parties, and their records in office, are discredited and Labour governments are raising taxes and increasing public spending. This is much against the inclination of people like Tony Blair, but it is happening nonetheless. Observers on all sides in the UK agree that the Third Way is dead and that New Labour has reverted to old-style social democracy.
Privatisation is the one policy where Thatcherism had a lasting impact. But the tide has already turned against privatisation. Renationalisation, which was unthinkable five years ago, is now on the agenda in many countries. Similarly, deregulation is being replaced by reregulation.
The big exception to all this has been the US, which apparently prospered by pursuing free-market policies including big cuts in welfare. But it is now clear that much of this prosperity was illusory. As the boom unravels, the real weaknesses of the US economy will emerge, much as they have done in Japan over the last decade. At the same time, the massive growth in inequality there reinforces the relevance of the old-style Left-Right division.