26 June 2006

Economic policy in the fifteen year decade

Zach Alexopoulos, The University of Sydney

George Megalogenis The Longest Decade, Carlton North, Scribe Publications, 2006 (346 pp). ISBN 1-92076-979-X (paperback) RRP $32.95.

Are you a Howard hugger or a Howard hater? Conventional political wisdom holds that one must either love John Howard and loathe Paul Keating, or vice versa. Well, George Megalogenis thinks those categories are meaningless: the two prime ministers are more alike than one might think, and one can understand the economics and politics of the ‘longest decade’ much better with that in mind. That decade spans almost fifteen years, the combined length to date of the prime ministerships of Howard and Keating.

The centerpiece of Megalogenis’s new book, The Longest Decade, is extensive interviews with Howard, Keating and former Victorian premier Jeff Kennett, whom Megalogenis sees as a political ‘adjudicator’ (p. 46) between the two. His mission is to understand both prime ministers—and Australia—more fully by examining them side by side. They receive special attention because they, more than anyone else, are the leaders who opened up the economy and laid the groundwork for the current boom.

The Longest Decade is an ambitious book. Although it deals mostly with economic policy, it also considers native title in the aftermath of the Mabo and Wik cases, the political advance and disintegration of Pauline Hanson, East Timor and the Tampa. The narrative is largely chronological, beginning with Keating’s last year as treasurer, continuing through his prime ministership and then Howard’s, and ending with the Cronulla race riots of December 2005.

One can tell immediately that this book was written by a journalist. Megalogenis is a features writer at The Australian and former member of the Canberra press gallery, and he has an exceptionally vivid style. Pithy aphorisms punctuate the text: ‘This was the white shoe brigade. There was as much chance of it turning to Keating’s Labor for comfort as a sea turtle would swim toward a shark’ (p. 74). This does start to grate after 300 pages, but livens up the writing in small doses.

Are you a Howard hugger or a Howard hater?

A distinctive feature of the book’s structure is the so-called ‘snapshots’—interludes of a few pages between chapters that use statistics, anecdotes and pop culture to make a wider point about some feature of Australia. An episode of the Simpsons illustrates American attitudes towards Australia; Muriel’s Wedding the changing role of women. Economist Robert Solow’s oft-quoted but rarely cited warning about analysis dissipating ‘in a blaze of amateur sociology’ occasionally comes to mind here, but the snapshots do often make worthwhile points.

Megalogenis’s essential thesis is not really surprising. It is true, but not especially groundbreaking. It will amaze no one that Howard and Keating have drawn from the same economic script, opening up the economy and removing government controls, but that Howard is going further and faster than Keating was prepared to. Their approaches to privatisation are a good example (p. 205): while Keating divested the government of assets that it was doubtful it should hold anyway, such as airline and banking interests, Howard enthusiastically promotes private schools and hospitals, activities closer to the core functions of government. Similar arguments can be made about industrial relations and taxation. The story is not particularly original, but there is not much to argue with either. It is more colourfully expressed than most of the conventional wisdom, however.

The interviews with Howard, Keating and Kennett are interesting for their own sake, but again the content is mostly unsurprising. Perhaps the most memorable moment comes when Keating describes Howard’s recent industrial relations reforms as ‘pieces of ideological bitchiness’ (p. 152). Interestingly, both men answer the same way when asked what was wrong with the pre-1980s economy (p. 303): it was cosseted up in trade barriers, ignoring the fact the world had changed and it simply coasted. Both Howard and Keating indeed take broadly similar economic perspectives, emphasising the value of an open economy.

One can tell immediately that this book was written by a journalist.

More noteworthy is the revelation that the two men actually worked together in the 1980s in passing economic reform legislation. Out of the spotlight, Howard encouraged Keating, playing the role of a ‘mentor’ of sorts, and Keating could rely on Howard as an ‘ally across the chamber’ (p. 301). This relationship fell apart soon after Howard first became opposition leader, but it did exist in the early years of the Hawke government. It is well known that both leaders believe in the cause of an open economy. It is altogether more surprising that they quietly worked together rather than separately to bring it about, especially with the more recent enmity between the two. It underlines the vacuity of the huggers/haters divide, on economics at least.

However, the most absorbing parts of the book are not the broader argument itself, but details within it. The most high profile of these, which led to a brief flash of publicity on the book’s publication at the beginning of May, is Keating’s claim that, in its last three election campaigns, the Labor Party had failed to attract ‘Economan’ (p. 41). This term is shorthand for blue collar men who, after they lost their jobs in the 1991 recession, bought an Econovan and started earning a living as self-employed handymen. The point of this witticism, Keating states, is that to its detriment, federal Labor has not pursued the votes of small businesses owners and the self-employed, instead backing into the arms of the union movement.

Yet it is unclear what precisely the party should do to attract that category of voter. Mark Latham argues in his Diaries (2005, p. 380) that during his leadership, he stressed the need to appeal to ‘the new class of free agents and entrepreneurs’. He surely devoted more attention to this problem than Labor’s other recent leaders, yet that strategy got nowhere. And few clues on how to proceed are forthcoming here. In any case, this debate could fill entire volumes of essays and will surely continue without resolution until the next Labor prime minister enters the Lodge.

Megalogenis is thoroughly in favour of free trade.

One of the book’s strongest moments is its discussion of rising house prices and associated household debt. Megalogenis reaches back to 1985 when, as treasurer, Keating scrapped negative gearing and introduced a capital gains tax, initially shaking up the housing market. But an outcry from property interests forced him to reverse course, on negative gearing at least. Keating’s backdown set in motion one of the causes of his eventual defeat, as the reintroduction of negative gearing ignited a boom-bust cycle in the housing market. As a result of the initial boom, voters expected ever higher house prices and when those capital gains later failed to eventuate at a sufficient magnitude, they became impatient enough to throw out the government.

Something similar happened with Howard’s 1999 cut in capital gains tax, which set off a boom in house prices as well as the current household debt binge. For the first time, household debt is now more than 10 per cent of national income. The next recession is likely to resemble the last one, Megalogenis argues, because of the role of flatlining house prices and growing debt in weighing down household budgets. It is a clear, persuasive, sobering analysis.

But in one major component of the overall argument, it is difficult to understand what Megalogenis means. He attributes significant power to ‘deregulation,’ a mighty force which can make jobs redundant, displace men in particular from the labour market, and create a class of outsiders amenable to the overtures of Pauline Hanson. Never mind the fact that technological progress appears to be the largest source of changes in low-skilled employment, not government policy or openness to trade (De Laine, Laplagne & Stone 2000). More frustratingly, Megalogenis never properly defines the term ‘deregulation’ and uses it consistently without explanation. The closest we get is that the index entry for deregulation says ‘see also economic rationalism’.

Yet Megalogenis is thoroughly in favour of free trade. ‘Protection is cultural arrogance by another name’, he informs us (p. 18). But surely dropping trade barriers is a form of deregulation. Megalogenis never fully answers why, when both imply short term displacement in return for possible longer term gains, openness to trade is good, but ‘deregulation’ is more ambiguous. Many people on both sides of the argument would like to know the answer.

The real value of the book lies not so much in the argument, but the historical material. If one has forgotten the events of the early 1990s, or is too young to remember them in the first place, this book fills in many gaps. It includes such gems as, in its detailed coverage of John Hewson’s slow self-destruction, the full text of his infamous stumbling answer to Mike Willesee about how a birthday cake would be affected by his proposed goods and services tax (p. 85). There are comprehensive details of the Mabo and Wik decisions and how the government attempted to respond, and thorough descriptions of the recession and recovery of the early 1990s.

The real value of the book lies in the historical material.

Interestingly, given recent events inside the Queensland coalition, there is also an extract from an August 1993 Sunday Telegraph column by Howard, in which he supports a merger between the Liberal and National parties (p. 175). The book was published before the recent and aborted amalgamation attempt in Queensland, so we can only speculate on the causes of Howard’s apparent change of heart. Has the experience of being the head of a Coalition government changed his outlook in some way? Could the One Nation scare have perhaps led to a belief that a separate, rural-based partner might be necessary to fight off the far right? Or did he just not want the distraction? There is a fascinating feature piece in this for some enterprising writer.

While it would be worthwhile keeping The Longest Decade on one’s bookshelf solely as a source of such historical material, paradoxically the history-based structure is what hinders the book. Megalogenis always has to rush off to another topic, another event, another election campaign. He ends up covering so many issues that he can explore none of them in much depth. There is so much going on in the book that occasionally can feel like looking at the longest decade through a kaleidoscope rather than a microscope. Many smaller components of the argument are absorbing and original, but the book would have been more effective if the argument as a whole flowed better, or if the material were arranged by topic, rather than by time.

The Longest Decade does make useful points about the falseness of dividing the population into Howard huggers and haters, and the sometimes surprising closeness of the two leaders. And the book is still a worthwhile and often enjoyable read, particularly as a history. But it attempts to cover too much ground too quickly for it to be a definitive analysis of the age of Howard and Keating.

REFERENCES

De Laine, C., Laplagne, P. & Stone, S. 2000, The Increasing Demand for Skilled Workers in Australia: The Role of Technical Change, Productivity Commission Staff Research Paper, AusInfo, Canberra, September.

Latham, M. 2005, The Latham Diaries, Melbourne University Press, Carlton.

Zach Alexopoulos is a tutor in political economy at The University of Sydney, and writes on economics for Vibewire.net.

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