Jim Chalmers
Wednesday, 20 November 2013

Labor and the Tools of Success

This post is an edited extract from ‘Not Dead Yet: What Future for Labor’.

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It wasn’t Labor’s core principles that saw us defeated in 2013, but fragmented constituencies and an internal culture tainted by the politics of polls and personality. The fact we were thrashed by a Liberal Party bereft of positive plans and unable to cost or properly explain its policies necessitates serious soul-searching.

The key to rebuilding the Labor Party after defeat is finding a new program to reunite our constituencies, without the luxury of the institutional advantages of a bygone era. The fragmentation of the old structures of working-class life, such as unions and the Catholic Church, upon which our organisational and electoral hopes once rested, has thrown up the representational challenges Mark Latham identifies in his original Quarterly Essay. There is hardly a challenge to Labor’s future which isn’t related in some way to his dichotomies – between aspirationalists and the underclass, and between inner-city progressive elites and outer-suburban cultural conservatives. Solving this constituent dilemma is the ALP’s philosophical and electoral Rubik’s cube. Getting all the colours to match up is our most daunting task.

Labor’s focus in the coming term of opposition and beyond should be on creating the essential preconditions for genuine social and economic mobility, across suburbs and across generations. Having built and made sustainable the modern welfare state, and having deployed the tools of Keynesian demand-management to save Australia from recession, this is now the role for Labor in the modern economy. Having established better ways to redistribute wealth, we must now turn to better ways to redistribute opportunity. This means giving people the tools to be more successful participants in the market economy. It means promoting digital inclusion and a dramatic re-ordering of our budget priorities to create deeper, broader, more sophisticated pools of human capital and technological advance. Getting the policy right can deliver a virtuous cycle of political success, by creating a more inclusive base beyond public sector workers and declining blue-collar industries, reaching deep into knowledge industries, entrepreneurs and small business.

The idea of economic empowerment is not a new one. Taking from the work of the brilliant development economist Amartya Sen, Latham argues that, “We need to think of inequality differently, as a threshold test” based on “the skills and capacity to benefit from economic growth, to be active in the community, to enjoy good health and wellbeing.” And we need to “ensure all citizens reach an acceptable threshold, lifting up the disadvantaged so that, in acts of self-reliance, they can do more things for themselves.” Sen’s often-quoted dictum summarises the idea best: “poverty is the deprivation of opportunity.”

A scan of the global centre-left and the ideas being generated by Labor’s fraternal parties throws up some interesting ideas on how to colour in Sen’s big picture. Take, for example, the concept of “predistribution” being developed by Ed Miliband in the United Kingdom. The term itself – described by the Guardian’s Martin O’Neill as “an unsnappy name for an inspiring idea” – comes from Yale’s Jacob Hacker. To “make markets work for the middle class,” Hacker advocates a “focus on market reforms that encourage a more equal distribution of economic power and rewards even before government collects taxes or pays out benefits.” This means that, “instead of equalising unfair market outcomes through tax-and-spend or tax-and-transfer, we instead engineer markets to create fairer outcomes from the beginning.” It “is the idea that the state should try to prevent inequalities occurring in the first place rather than ameliorating inequalities through the tax and benefits system once they have occurred.”

Much of the writing about predistribution centres on three kinds of policies. The first relies heavily on government regulation and direct intervention (for example, Miliband’s proposed rail price caps). The second draws on a history of thought stretching back to the days of the mid-century political philosopher James Meade and, more recently, John Rawls, both of whom have advocated a form of “property-owning democracy.” A third kind of predistributive policy has been described by Kitty Ussher as “the empowerment interpretation, which focuses on what is needed to ensure that an individual can respond to the uncertainties of a global economy in a positive and confident way.”

The regulatory strain that sees national governments interfering substantially in the pricing of basic services may find superficial favour in a community burdened by cost-of-living pressures, but it is no way to foster a competitive economy. It is unacceptable for those of us on the centre-left wary of over-regulation and not yet ready to give up on the possibilities of markets. That’s why the empowerment interpretation attracts us most. It is the best way to achieve our goal of broad, sustainable growth – by harnessing the capacity for people to get ahead, to be a confident and self-sustaining part of a dynamic and innovative economy.

According to Ussher, empowerment predistribution “is about striving to endow everyone – regardless of circumstances of birth – with sufficient weapons in their own personal armoury that they can achieve their ambitions and hopes even in the face of strong economic forces that seem daunting.” It leads policy-makers down the path of heavy investment in human capital and the empowerment of workers so that, combined, they have the best chance of creating a high-wage, high-skill economy.

In this term of opposition, Labor’s focus should be on policy development at the intersection of human capital and technology, recognising, as the Economist has, that “Many of the underlying causes of the growing gap between rich and poor – fast technological change and the rapid globalisation of the economy – are deep-seated and likely to persist.” The magazine cites the view of Tyler Cowen of George Mason University that “the population will soon be divided into two groups: those who are good at working with intelligent machines, and those who can be replaced by them.” The Economist’s recipe to address this is a “two-part agenda drawing on ideas from both left and right, aimed at reducing boondoggles for the affluent and increasing investment in the young.”

An agenda based on heavy investment in young people is one that everybody interested in building intergenerational mobility should sign up to. It is the key to unlocking a more successful economy. That a traditionally right-wing, pro-market, pro-business magazine could point this way forward gives us a hint of the possibility of uniting business, workers and the community behind a dramatic reordering of budget priorities in Australia. In tight fiscal circumstances, investing more in human capital and technological capacity will require difficult choices. Given the future benefits to business, our first port of call should be business-tax concessions. We can strike a blow for economic mobility and tax simplicity at the same time by hypothecating money raised from closing tax concessions directly to investment in our economic capacity.

In time, Prime Minister Gillard’s legacy will be regarded as a key part of the story of intergenerational mobility, especially when it comes to schools and disability services. By combining protections for workers with dramatic increases in investment in education and reforms to attack entrenched disadvantage, she has already followed the predistribution playbook. We can go further down this path, breaking new ground by reordering national spending to mirror the investment in human capital being undertaken by our competitors. We can do more to encourage students from disadvantaged backgrounds to enter our universities, with a combination of scholarships and mentoring. We can be more creative when it comes to digital inclusion. In this way, empowering workers need not be an alternative to market economics, but a way of allowing more people to succeed in a competitive, dynamic, growing economy.

About Jim Chalmers:

Jim Chalmers MP is Shadow Treasurer, and the federal Labor Member for Rankin. Prior to his election he was the Executive Director of the Chifley Research Centre and, before that, Chief of Staff to the Deputy Prime Minister and Treasurer. He has a PhD in political science and international relations and a first class honours degree in public policy. His book Glory Daze was published in July 2013 and he tweets as @JEChalmers .