Knockout punch for national treasure

Remember that awful, conspiratorial-sounding polemic by the man in charge of Australia’s economy the other week? Well it’s been responded to by… the Opposition’s communications spokesperson. Will somebody please get rid of Hockey?

Meanwhile, there is no commentary needed really. Turnbull absolutely destroys Swan. Just take a look.

Swan:

The 0.01 Per Cent: The Rising Influence of Vested Interests in Australia | Wayne Swan | The Monthly.

Today, surveying the wreckage of the worst global downturn since the Great Depression, many leading thinkers argue the ideal of the middle-class society is under mortal threat in the West, even as a growing middle class is lifting hundreds of millions out of poverty in the East. One of the most compelling contributions to the debate comes from Francis Fukuyama, who wrote in Foreign Affairs about the dangers of the erosion of the middle-class social base in the developed world. “From the days of Aristotle,” writes Fukuyama, “thinkers have believed that stable democracy rests on a broad middle class and that societies with extremes of wealth and poverty are susceptible either to oligarchic domination or populist revolution.” These are the extremes, but, as he goes on to argue, we are already witnessing “some very troubling economic and social trends … which threaten the stability of contemporary liberal democracies and dethrone democratic ideology as it is now understood.”

These trends are all too evident in a recently released and widely discussed report by the OECD, ‘Divided We Stand: Why Inequality Keeps Rising’. It found that starting in the 1970s and through the 1980s, coinciding with the Reagan–Thatcher revolutions, inequality in the West has widened considerably. Across the developed world, the top is accelerating away from the middle much faster than the middle is moving away from the bottom.

The catchcry of Wall Street’s Zuccotti Park and the Occupy movement, ‘We are the 99%’, has shone a spotlight on the top 1%. Between 1979 and 2007 in the US, the top 1% saw their after-tax incomes rise 275%, while the middle two thirds saw their after-tax incomes increase by less than 40%.

And Turnbull:

Not classy, Wayne.

Defending workplace re-regulation, he claims “Australia’s egalitarian social contract is also underpinned by a fair and flexible industrial relations system”. But evidence for this is dubious –most studies say increased labour market regulation is, on balance, detrimental to equality, because any boost to earnings, conditions or job security for insiders are offset by diminished opportunities and social exclusion for more marginal outsiders, including young people seeking to enter the workforce.

The Treasurer also cites “a quiet revolution under way in recent years in our tax and transfer system”, presumably referring to changes since 2007. Targeting of transfers indeed matters, as we will see. But OECD comparisons of household income inequality which show Australia in a fairly favourable light are only available to 2008 – so if any “quiet revolution” had an impact, it wasn’t his. The jury is out on whether Labor has increased or decreased inequality.

In reality Australia has above-average inequality in individual earnings by advanced economy standards, though not as unequal as the US. But inequality in household incomes has increased only slightly over the past decade, because our below-average spend on transfers as a share of gross domestic product is closely targeted, and we barely tax poor households at all.

… Swan pays lip service at least to the education part of this agenda. But in the end he completely fails to link his many words about inequality (the bulk of which refer to other countries, not to Australia) to the allegedly baleful influence of “vested interests”.

Swan:

There are many Australians of great wealth who make important and considered contributions to the national debate. I always welcome that involvement in the discussion of public policy whether I agree with them or not. What characterises the vested interests that I’m concerned about is how they misrepresent their self-interest as the national interest. There has been a perceptible shift in this country in recent years, and it is sadly very much in the American direction of stronger and stronger influence being wielded by a smaller and smaller minority of vested interests. Crucially, much of our media seems more and more inclined to accept that growing influence.

… The latest example of this is the foray by Australia’s richest person, Gina Rinehart, into Fairfax Media, reportedly in an attempt to wield greater influence on public opinion and further her commercial interests at a time when the overwhelming economic consensus is that it’s critical to use the economic weight of the resources boom to strengthen the entire economy. Without a blush, her friend and fellow media owner John Singleton let the cat out of the bag when he told the Sydney Morning Herald that he and Rinehart had been “able to overtly and covertly attack governments … because we have people employed by us like Andrew Bolt and Alan Jones and Ray Hadley who agree with [our] thinking”.

I fear Australia’s extraordinary success has never been in more jeopardy than right now because of the rising power of vested interests. This poison has infected our politics and is seeping into our economy. Though these vested interests have not yet prevailed, every day their demands get louder.

Turnbull:

What exactly is Swan’s charge against the billionaires? Apparently they use their wealth to pursue their own economic interests. Well, surprise, surprise. And how does this make them different from the trade unions, which arranged for their political arm, the Labor Party, to re-regulate workplaces and turn back the clock on 20 years of labour market reforms?

Or the car industry, which regularly threatens to pack up and leave unless it gets a new round of handouts (the preferred euphemism is “co-investment”). Then there are firms which want more drugs on the pharmaceutical benefits scheme, television proprietors who want a break on licence fees, clubs and pubs opposed to stricter regulation of pokies, steelmakers demanding protection against the high dollar, tobacco companies suing over plain packaging – and the list goes on.

As the NSW Labor premier, Jack Lang, used to say, in the great race of life always back self interest because you know it’s trying.

It is Swan’s job (and the job of all of us in Canberra) to stand up to “vested interests”. To weigh their claims and respond in the national interest.

… There are several mechanisms which have redistributed gains to the broader economy. The most obvious is the employment and activity generated by the resources sector. While we hear a lot about modest employment in mining, in November the Treasury’s top macro-economist, David Gruen, presented analysis showing 22 per cent of Australia’s GDP this year will be directly or indirectly related to mining.

This, in turn, generates activity and tax collections elsewhere in the economy as those earning income from mining spend it.

And record commodity prices and falling prices for many manufactures mean Australia’s terms of trade (the price of our exports relative to our imports) are at their highest sustained level in history. This is reflected in the strength of our dollar and the resulting increase in purchasing power for all Australians.

The downside is pressure on other traded sectors such as agriculture, manufacturing, tourism and education.

Overall, while the bulk of Australia’s resources sector is foreign-owned, the Reserve Bank estimates about half the economic benefit of the boom is being captured by Australians, with the terms of trade (rather than taxation) the key transmission route.

This is a less politically convenient story than a contest between greedy individuals and a noble government. But it is a lot more accurate.

Turnbull eloquently and convincingly summarises all of the relevant economic issues and gives an excellent analysis of what our policy should be, as well as Swan’s motivations. His essay is in a different league from Swan’s — he reads like someone with economic expertise, Swan sounds like a third-year arts student giving a “Marxist reading” of Australia’s flaws.

The most depressing part is that I honestly believe that none of Julia Gillard, Tony Abbott or Joe Hockey could match Turnbull either. I am really struck by how far the level of discourse has fallen in this country — it is sounding a lot like America in some ways. I am truly in despair at this point.

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