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.

What I'm reading this week

Nice Work by David Lodge. As usual with Lodge, its a comedy of juxtaposition, a la Changing Places. A radical feminist/postmodernist English lecturer, specialising in ’19th century industrial novels’ becomes the ‘shadow’ of the managing director of an engineering firm.


The Cato Institute ‘Project on Social Security Choice’ reports that most Americans still want to entrust their retirement to the stock market. They say:

‘When posed with the statement, “There are some in government who advocate changing the Social Security system to give younger workers the choice to invest a portion of their Social Security taxes through individual accounts similar to IRAs or 401(K) plans,” 68 percent of voters indicated support, 29 percent opposed and 3 percent weren’t sure.’

This sounds like the kind of ‘free lunch’ those terrible liberals like to offer. If the Cato Institute really wanted to gauge public opinion, why didn’t they add ‘in return for a reduction in guaranteed benefits’ at the end of their question ?

But the really interesting thing is that The Cato Institute Project on Social Security Choice was, until quite recently, The Cato Institute Project on Social Security Privatization. Apparently, even in the US, ‘Privatization’, is a dirty word (Meg Lees, take note). It’s also interesting that the supposedly independent Cato Institute is dancing to the tune of Republican spin-doctors who have decreed a ban on the term.

Bloggers versus portals

Douglas Rushkoff
in The Guardian says AOL was doomed from the start “AOL was a training ground: an introduction to the internet for people who didn’t know how to deal with FTP. None of us thought it could last, because once the technological barriers to entry for the internet had been lowered, no one would need AOL’s simplistic interface or it’s child-safe, digital content wading pools. People would want to get on the “real” internet, using real browsers and email programs. ”
Looking at the prospects for electronic commerce a few years ago, I agreed, citing “a bleak outlook for the owners of portals and search engines. Portal services are of most benefit to ‘newbies’ (new users). They rely on the fact that because of inertia, people are slow to change their start page. Eventually, though most people stop surfing the Web and go directly to the sites that interest them. The whole idea of a portal as a ‘one-stop shop’ is the antithesis of the limitless variety that makes the Internet so appealing.”
But it’s really taken the rise of blogging to spell the final doom of portals. Who wants their internet experience selected by some sort of one-size-fits-all CMS software when like-minded (or opposite-minded) people are daily trawling the Web for interesting titbits. The imminent closure of Yahoo Internet Life is, I think, a sign of the times.

Dave Winer notes that Hollywood

Dave Winer notes that Hollywood wants the right to hack your computer in order to protect its (asserted but not proven) intellectual property rights.
On the Australian scene, Kim Weatherall discusses how a sovereign nation should respond to criminal attacks from foreign countries where the rule of law is only for the rich.
The obvious question is: why haven’t fire-breathing defenders of national sovereignty like Janet Albrechtsen woken up to this threat ?

Greed isn't good

The NYT notes that people (starting with the government of California) have suddenly noticed that it’s not a good idea to do business with a corporation that would relocate in Bermuda to dodge taxes. “A company that would deliberately do a sham relocation offshore to escape taxes,” Mr. Angelides said, “would also look to bend environmental rules, shortchange workers or even stick it to their shareholders” (emphasis added).

Jason Soon picks me up

Jason Soon picks me up on my excessively broad conclusions regarding the end of free-market reforms, noting that there’s a big distinction between financial markets and real world economies.
I’ll begin by conceding that when I said “it will be a great many years before anybody can use a phrase like “market discipline” with a straight face.”, I should really have said “financial market discipline”. (BTW, what’s the blogging etiquette on making ex post corrections in cases like this?). As Jason says, the bubble and bust of the last five years or so have discredited financial markets, not markets in general. There are no direct implications for issues like education vouchers.
That said, there are still plenty of implications. Among the policies discredited by the exposure of endemic crony capitalism on Wall Street are:
Financial deregulation (obviously)
Privatisation (particularly in the case of firms that remain as regulated monopolies, the case for privatisation rests primarily on the idea that financial markets exert beneficial discipline)
Support for income inequality, based on the idea that market outcomes reflect inherent merit, or, alternatively are necessary to the achievement of efficient outcomes.
Social security/superannuation reform
More generally, there is what might be called ‘free market triumphalism’. This is evident, for example, in the editorial pages of the Oz. No serious argument is ever made in favour of particular free-market policies. Instead, the assumption is that, if it’s the free-market policy, it must be right.
As a supporter of a mixed economy, I believe that some things are best dealt with by markets and others are not. I’m happy to argue about, say, educational vouchers, on the merits.
What I was reacting to is what I call the “argument from fashion”, which suggests that government intervention was all very well thirty or forty years ago, but is now out of step with the times. (The opposite argument was made in favour of government intervention for much of the 20th century, and was equally invalid).