In defence of ‘soft-edged neo-liberalism’

Fred Argy

Clive Hamilton Growth Fetish, Sydney, Allen and Unwin, 2003 (280 pp). ISBN 1-74114-078-1 (paperback) RRP $22.68.

Philosophically, the Left has never been more divided. It is currently in the throes of an intense debate about social priorities, the scope of government, and appropriate policy intervention in economic and social affairs.

The ‘old’ or traditional Left still gives highest priority to distributional equity, hankering for large scale government intervention in the market to achieve its ends. As times have changed and the political fortunes of the left have waned, modern social democrats have been forced to rethink this agenda. The market-oriented ‘Third Way’ (politically identified with the Blair Government) also wants to temper the effects of markets, but attaches relatively more weight to efficiency and to freedom of choice, seeking to use market friendly devices to pursue its distribution goals. Even within the Third Way, there are wide policy differences, for example, on public borrowing. In between the old Left and the Third Way, there are several Left-leaning models ranging from the Dutch consensus-oriented model, the Swedish active welfare model, and the French/German statist models. And in recent years a new distinctive ‘communitarian’ view has emerged, giving less priority to ‘the economy’ and turning to new arenas for social change: the environment, leisure and social capital. According to the communitarians, society must be transformed by enhancing civil relationships: increasing trust and co-operation, undertaking community projects, and transforming civic participation. The communitarians have joined the struggle to redefine the Left, only adding to the climate of ideological division.

Clive Hamilton falls into the communitarian camp, which he calls the Fourth Way. He is a harsh critic of the Left’s preoccupation with ‘deprivation’ and an even harsher critic of the Third Way’s economic and distribution agenda—contemptuously labelling it ‘soft-edged neo-liberalism’. His new book, Growth Fetish, develops these themes further.

One of Hamilton’s concerns is that economists and society generally give too much weight to economic growth, typically measured by GDP per capita, as the benchmark for success. He is right to criticise. A classic example is the practice (found even in Treasury Budget papers) of using growth in real GDP per head as a measure of international performance without allowing for differences in working hours per employee. This can seriously distort comparisons between countries. For example, in the 1990s, Europeans generally benefited from lower working hours whereas English speaking countries (including Australia), chose to work the same or longer hours per head. That is, Europeans opted for greater leisure. In these circumstances, the relative trend in output per head says little about relative well-being.

Hamilton develops his critique of economic growth by arguing that income and wealth do not buy happiness. He points to a growing demand for a better work/family balance and for ‘downshifting’; that is, opting for more leisure and a slower pace of life. Hamilton makes this argument credibly. In this book, as in his earlier writings and his pioneering development of a new ‘genuine progress’ indicator for Australia, Hamilton has made a significant contribution to our understanding of economics and happiness.

Hamilton has always been a powerful advocate for the environment and he speaks with authority about the conflict between growth and ecological sustainability. He is right to say that many Third Way economists have ‘marginalised’ environmental problems. He also argues persuasively that economists are too sensitive to the immediate distribution effects of environmental levies such as carbon taxes—Hamilton points out that environmental degradation affects the poor more than the rich and that revenue from such taxes can be used for egalitarian objectives.

Hamilton also questions economic orthodoxy on consumer preferences (Chapter 3). He thinks that consumer preferences are not ‘given’ things that markets respond to—they are too greatly influenced by markets in the first place. Consumer preferences, he says, ‘are the subject of manipulation’ and ‘consumer society has redefined our understanding of happiness’. Much advertising is indeed wasteful and deceptive and there is a case for tougher legislation on truth in advertising.

Hamilton has always been a powerful advocate for the environment.

With such important messages as these, Hamilton’s book deserves to be widely read and the fact that it is in its fourth print is not surprising.

However I think Hamilton’s attack on market-oriented Third Way social democrats—his ‘soft-edged neo liberals’—is too sweeping and often poorly targeted. He criticizes (a) their zealous commitment to neo-liberalism, (b) their preoccupation with income distribution and (c) their failure to acknowledge the increasing role of corporate power in shaping policy. In all these areas, one gets the impression that he is beating up a straw man and trying too hard to differentiate himself from other social democrats. Let me explain why.


Hamilton says the Third Way shares with neo-liberalism the belief that ‘markets must prevail’. To reinforce this message, he asserts boldly that ‘the Third Way has had difficulty finding a rationale that differentiates it in any substantive way from neo-liberalism’. Further, he argues that neo-liberal reforms reinforce a crude materialism—an obsession with material wealth that also prejudices their view of government. According to Hamilton, reformists see economic growth as the ‘central objective of government’ and ‘more growth as a solution to all problems.’

Hamilton assumes that any market liberalisation reform program (such as that launched by Third Way social democrats in Australia and elsewhere in the 1980s and 1990s) is essentially about assigning a greater role to markets in determining distributional and environmental outcomes and about prioritising economic growth to the exclusion of other values.

In my view, this is a completely mistaken interpretation. Hamilton fails to distinguish between economic liberal reform—which is about better ways of doing things and is efficiency driven—and hard liberal reform—which is about scaling down social and environmental goals and is driven by ‘small government’ ideology. The real target of his attack is hard liberalism. But when we consider the views of Third Way economists about markets, we can see they are not really hard liberals at all. They are economic liberals. Their reforms do not seek to give markets a bigger role in determining underlying societal goals. On the contrary, by capturing the benefits of well informed, competitive markets and improving the nation’s resource capability, the reforms seek to make distribution and environmental policies more viable, opening up the opportunity for an increased and more effective platform for government intervention. Of course, if social democratic governments are foolish enough to commit themselves to rigid fiscal targets—such as lower taxes and no net public borrowing in the medium term—they limit their ability to respond effectively to social and environmental challenges. But such fiscal conservatism is neither intrinsic to a liberal economy nor to Third Way thinking.

Hamilton fails to distinguish between economic liberal reform and hard liberal reform.

Similarly, there is no reason why economic liberal reform should favour materialist values. Improvements in national efficiency that reforms bring release resources which can be used for whatever purposes the community wants—to increase leisure, to improve the working and urban living environment, to enhance the quality of health care and education, to repair our ecology, or assist the disadvantaged. They do not have to be channelled back into increasing material wealth. The community makes these choices either through individual decision-making or through its political representatives. For example in the 1990s the French deliberately chose to take their productivity improvements in the form of increased leisure and reduced working hours. In Australia we have chosen to increase working hours and intensity, allowing us to consume our higher incomes by purchasing more goods and services. These choices may simply reflect different national community preference or, more likely, the different priorities of governments. Either way, these decisions are quite separate from those we take about economic reform.

It is true that individual freedom of choice is given pride of place in liberal economies and Hamilton is right to question the extent of real consumer choice. But he is going much too far when he claims that ‘giving consumers power of choice in the marketplace is to give them no power at all’ and that it is ‘a counterfeit form of self-determination’. While increasing freedom of choice through new, heavily advertised, ‘trivially differentiated’ products in the marketplace, can make a few people less happy, it stretches credulity to imply, as Hamilton does, that it actually reduces social welfare. For most consumers, freedom contributes significantly to individual happiness and to a more egalitarian society.

Hamilton also asserts that ‘empowering the consumer means entrenching inequality’. This is superficially true but misleading. Any given level of consumer freedom is consistent with a wide range of possible inequality outcomes. Again, we can empower consumers by offering great market choice without necessarily increasing inequality.

In short, economic liberalism of the kind embraced by Third Way thinkers does not per se entail a shift in Australian values either towards materialism or away from egalitarianism as Hamilton claims. In view of this misunderstanding, it is not surprising that Hamilton over-reacts to Fukuyama’s famous claim that there is now no alternative to a liberal market-oriented democracy. He reads this to mean that we must all converge towards the radical ‘US model’. In my view, however, Fukuyama’s thesis is consistent with many other models such as the Dutch consensual model of welfare capitalism.


Hamilton criticises the Left for being too ‘preoccupied with distribution’. He thinks the Left has a ‘predisposition to believe that the mass of people (in the developed countries) are still suffering from material deprivation’, whereas, he says, ‘the dominant characteristic of society is not deprivation but abundance’. Again, this is just another straw man. The proposition that there is ‘mass deprivation’ in countries like Australia is self-evidently absurd. But social democrats are deeply concerned about residual pockets of poverty here in Australia. And so is Hamilton. When he presents his agenda for reform late in the book, he recognizes that for a minority, ‘poverty remains entrenched’ and that it requires government attention.

Hamilton criticises the Left for being too ‘preoccupied with distribution’.

Hamilton also argues that Third Way exponents focus too much on distribution of material wealth. This is frankly a red herring. Few social democrats are concerned wholly or principally with the distribution of material well-being. Like Hamilton, they are concerned with distribution of quality of life, work/family balance, leisure, and adequacy of public services, as well as income.

Corporate Power

What of Hamilton’s claim that ‘advocates of the Third Way shy away from discussion of the sources of structural inequality’ and in particular that they ignore the distribution of power—‘the motive force of political and social change’ (chapter 5)?

Hamilton is of course right to highlight ‘the ideological power of the forces of globalization’, their strong anti-egalitarian and anti-environment views, and their preference for small government and fiscal restraint. There is no doubt that a significant part of the reform program of the 80s and 90s was driven more by a changing global power structure than by neutral considerations of efficiency. But Hamilton’s contention that these issues have been ‘little discussed’ is surprising: even a cursory read of the sociological and economic literature on globalisation suggests otherwise.

Hamilton’s reform program

Hamilton says ‘we need a politics that encourages people to pursue a rich life instead of a life of riches’. It is a brave vision. He admits it is still in its early development stages, so his reform program (outlined in the final chapter) treads cautiously. He advocates slower rather than zero growth and a reduction in corporate power rather than a wholesale restructuring of capitalism. Nonetheless he sets himself an ambitious goal and it leads the reader to expect some fairly revolutionary policy ideas.

When Hamilton eventually presents his ‘alternative political program’ for a ‘stationary state’ (which is not the same as a stagnant economy), there is unavoidably a sense of anti-climax. The final chapter contains some useful proposals but, as already noted, many of them are really mainstream redistribution ideas. He wants to use the tax/transfer system to relieve poverty and fund equal opportunity programs (education, health, and so on), as do other social democrats. Even in his search for a better work/family balance, he is not really radical. Many agree that there is a ‘democratic deficit’ when it comes to regulating working hours and the Opposition is said to be developing policies in this area. True, Hamilton goes a little further than the politicians are likely to with his proposals for capping of hours and work sharing. But his proposals are hardly revolutionary.

When Hamilton eventually presents his ‘alternative political program’ there is unavoidably a sense of anti-climax.

Hamilton’s more radical ideas are to ban certain advertising and sponsorship from public spaces and to give the environment much more priority over economic growth. But these raise more political questions than they answer. Are there really enough Australians who would want to move in that direction to make it politically viable? And if Australia were to go it alone and enter a ‘stationary state’, is there not a danger that its citizens could soon become disillusioned because they would see their material well-being slipping relative to the Americans, Canadians, and others?

Hamilton’s desire to reduce the global concentration of political and policy power is shared by many. He sensibly calls for a more democratic and accountable set of international institutions. And his proposal to curb short-term international capital flows through a Tobin transactions tax or the like is well trodden in the literature and in theory has wide support. But it needs a coordinated international agreement for such a move to be viable, and at present that looks like a pipe dream.

Hamilton is one of Australia’s most imaginative and innovative thinkers and his book is a provocative and stimulating contribution to debate about what makes for a good society. He covers ground that most democrats are shy to enter into. Ross Gittins suggests that the anti-growth push could become ‘the major ideological battleground of the coming years’. I am more sceptical about the extent of grass roots support it actually commands, but there is no doubt that Hamilton has caught a wave and timed his book perfectly.

However I believe his broadside against market-oriented Third Way ideas is ill-targeted and unhelpful to the egalitarian and environmental causes he himself espouses. In fairness, Hamilton may have intended to direct his attack at how politicians are implementing Third Way ideas rather than at the ideas themselves. I agree that social democratic politicians deserve criticism—but for different reasons to Hamilton. It is not their market-oriented policies that are wrong but their reluctance to face up to fiscal realities. Third Way politicians cannot deliver a distinctive social and environmental agenda unless they are prepared to reorder social priorities and/or raise taxes and increase public borrowings. Yet in Australia the Labor Party seems timid about abandoning existing government programs and is committed to a policy of not increasing (and even reducing) the overall tax burden and of zero net public borrowings over the economic cycle. It is a pity Hamilton did not focus more of his critique on these unimaginative fiscal goals that constrain policy options in Australia.

That said, Growth Fetish has a capacity to ‘stir the pot’ in a way that few of us can emulate. Whether one agrees with its key themes or not, it is an infuriatingly exhilarating read.

Fred Argy is a former senior Federal public policy adviser. Since his retirement in 1991, he has published widely on public policy issues. He is currently a Visiting Fellow at the Australian National University. His latest book is Where to from Here? Australian Egalitarianism Under Threat (Allen and Unwin, Sydney 2003)

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