The story of how Australia embraced the free market
On April 7th the new Secretary of the Australian Council of Trade Unions (ACTU), Sally McManus, declared that Neoliberalism ‘had run its course’ in Australia. McManus argued that Australia’s embrace of the free market in the 1970s and 1980s had lead to greater inequality amongst its population with ‘ordinary Australians’ becoming the victims of the economic reforms implemented by Labor Prime Ministers Bob Hawke and Paul Keating. Interestingly, Keating himself agreed with McManus declaring that the policies that he championed in the 1980s had now led the economy into a ‘dead end’. To understand the story of neoliberalism in Australia and McManus’ claims requires understanding how a self-identifying democratic socialist political party took a Keynesian economy and turned it into one of the world’s largest mixed market economies as a means of dismantling inequality and redistributing wealth.
Critiques of neoliberalism in Australia from the left are complicated by the fact that Australia currently holds the distinction of being one of the few Western economies that has not undergone a recession in the past decade. There are a number of factors contributing to the Australian economy withstanding the effects of the global financial crisis(GFC)such as stimulus measures, economic growth in China (Australia’s largest trading partner) and large interest rate cuts by the Reserve Bank of Australia. The Labor Government of the time was praised both by the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) for its handling of the crisis in 2009 with a $42 billion stimulus package which minimised job losses. While these short-term measures contributed to the strength of the Australian economy against the GFC, one of the most influential factors was the long-term reform and management of the Australian economy which led to the country facing a global economic downturn with virtually no government debt and consistent budget surpluses. As such, the neoliberal reforms of the last four decades are seen to have shielded Australia from the GFC.
The story of Australia’s embrace of neoliberalism begins in the late 1960s when its post-war economic boom, fuelled partly by the mass emigration of European migrants, started to come to a halt. The economy remained dependent on primary exports, and despite this Australia remained one of the most protective economies in the world. Scholars have previously described the Australian economy during this period as resembling a ‘third world’ export economy, and as the world economy descended into crisis in the 1970s, Australia underwent a sustained period of economic ‘stagflation’ which saw its share of world trade halving between 1973 and 1983.
The first significant economic policy shift came under the premiership of Labour Prime Minister Gough Whitlam. Whitlam began the process of introducing reforms such as a flat 25% tariff reduction and the 1974 Trade Practices Act which was designed to break up a number of restrictive and anti-competitive agreements through Australian industry. The Australian labour Party’s (ALP) justification for its move from democratic socialist policies towards free market policies was that the shift was necessary to combat inequity stemming from anti-competitive and oligopolistic behavior within the banking and business sectors.
Whitlam was disposed during the infamous 1975 Constitutional Crisis, and was succeeded by the right-wing Liberal Party leader Malcolm Fraser. Fraser pushed back against the increasingly influential Anglo-American model of Neoliberalism espoused by his counter-parts Ronald Reagan and Margaret Thatcher in the early 1980s. Those within his party would later blame him for the ‘missed opportunity’ of following Reagan and Thatcher in their neoliberal economic revolution; a policy agenda taken up by his successors from the ALP. Whitlam’s reforms paved the way for a major reform that would greatly liberalise the Australian economy under Hawke and Keating. Hawke became Prime Minister in 1983 with Keating as his Treasurer and the two embarked on a programme of massive economic liberalisation which saw the deregulation of the financial sector, the further reduction of tariffs, the privatisation of state assets and the floating of the Australian dollar in 1983.
It has since been argued that Hawke and Keating were not simply ‘merchants of neoliberalism’ but implemented these reforms as part of a broader program to fight social inequity in Australia. Put simply, this would mean that Hawke and Keating were following in Whitlam’s footsteps to try and challenge what appeared to be oligopolistic financial and business sectors. These reforms were implemented alongside other measures such as the introduction of a fringe benefits and capital gains tax, and the reinstatement of Medicare (Australia’s equivalent of the National Health Service). Hawke and Keating argued that the liberalisation of the Australian economy was necessary to ensure the economic prosperity of working class Australians and adopted the theory of trickle-down economics.
When the Liberal Party returned to power in 1996, Prime Minister John Howard and Treasurer Peter Costello believed that the Australian economy required five necessary reforms: the continued deregulation of its financial sector, fundamental change to the taxation system, reducing excessively high tariffs and continuing with a programme of privatising state owned assets and enterprises. The deregulation of the financial sector is now believed to have insulated the Australian banking sector during the GFC. Costello also cut the top rate of tax and increased the threshold for the top bracket by 300%, introduced a ‘50% discount’ on capital gains tax and cut the company tax rate, however, their most controversial taxation reform was the introduction of the Goods and Services Tax (GST) which was designed to ease the federal government’s dependence on income tax through increasing the tax on consumption. The GST was a policy originally proposed by Keating in 1985 but was dropped at the request of Prime Minister Hawke following backlash by a number of trade unions, welfare groups and businesses. It was revived by Howard in 1997 despite a pledge during the 1996 election campaign that it would ‘never ever’ happen.
Howard would later describe these reforms as being an essential Australian contribution to the ‘great Neoliberal experiment of the past 30 years‘. So is Australia one of the success stories of this great experiment? The reforms of both Labor and Liberal Governments may have aligned in certain ways with the theoretical doctrine of neoliberalism which advocates for privatisation and the reduction of taxation, however, both sides of the political spectrum stopped short of a complete deregulation of the labour market and reforms were supposedly undertaken in order to improve the economic prosperity of ‘average’ Australians. On the surface, it would appear that these reforms both created Australia’s economic boom and shielded it from the GFC.
However, McManus’ and Keating’s recent claims that neoliberalism was a dead end for Australia are not unfounded. An alternative view of the reforms made is that they focused too much on the generosity of tax cuts and concentrated too much on consumption rather than on the supply-side of the economy, leading to a slowdown in productivity growth. It became apparent that a number of areas of Australia’s infrastructure are in need of reform such as transport, broadband speed, water and energy. While Australia’s average economic growth between 1990 and 2010 surpassed that of the seven largest economies in the world, it actually reduced from 3.3% to 2.6% during the same period. In terms of social equity; in 2014, the Australia Institute estimated that the wealth of the seven richest Australians is greater than its poorest 1.73 million citizens. Unemployment benefits were greatly reduced under Howard and Costello from providing an income 3% above the poverty line to 13% below.
While there may not have been a total deregulation of the labour market, McManus cited examples of corporate avoidance of the Fair Work Act, designed to prevent the exploitation of workers through underpayment and sham contracting. McManus argued that neoliberal reforms of the Australian labour market have allowed this to happen and that the reality of neoliberalism in Australia was that it was creating victims out of the very individuals it was designed to help.
Like most of the supposed great neoliberal projects in the Western world, Australia has benefitted greatly from its embrace of the free market but the execution of the project has both helped and hindered the process of greater prosperity and equity amongst Australians. The ALP may be reluctant to label the reforms of Hawke and Keating as being part of the Neoliberal project, but it is undeniable that through the leaderships of Whitlam, Hawke and Keating in the 1970s and 80s that Australia’s move towards greater economic liberalisation was even made possible.
Despite Keating’s assessment that neoliberalism has reached a dead end; the ALP still remains adamant that his and Hawke’s reforms are one of the parties’ greatest legacies. Former Treasurer Wayne Swan recently penned a piece defending the policies of Hawke and Keating as being ‘Laborism’ not ‘Neoliberalism’; meaning that these reforms were a ‘guiding light’ in demonstrating how neoliberal reforms could supposedly lead the country towards greater egalitarianism, and more recent interventions such as the ALP’s push back against the reduction of penalty rates suggests that the ALP still seeks a middle ground between neoliberalism and its democratic socialist origins.