Chifley Research Centre inclusive prosperity commission
The international debate about growing economic inequality has entered a fascinating new phase in 2015. A serious policy and political assault on growing wealth concentration has long been limited to self-consciously progressive or left politicians and thinkers. This year is different – this is proving to be the moment that the political centre firmly attaches itself to the new egalitarianism.
Nothing and no one better symbolises this change than the political and policy trajectory of American economist Larry Summers. Summers was President Bill Clinton’s last Treasury Secretary; there’s some reason to think he may be President Hilary Rodham Clinton’s first. If so, it’ll be a very different Summers for a very different time.
Summers was in office in the late 1990s at the peak of the transatlantic moderate consensus lead by Clinton and Blair – New Democrat and New Labour, committed to a ‘third way’. He was a controversial, driving centrist figure of the period. Back then a leading economic ‘dry’ who could almost have been considered an Australian equivalent of the late Peter Walsh, Summers has had a remarkable renaissance in the post-crisis era.
He is articulating what the New York Times last month called an ‘establishment populism’ (http://www.nytimes.com/2015/03/04/opinion/establishment-populism-rising.html). This is because what’s increasingly clear is that the powerful forces leading to concentration of wealth and inequality of income in advanced industrial economies can’t be countered simply through market competition, incentives for workforce participation and education and training.
Rather, a much more muscular mix of healthy labour market institutions, prudential design of financial markets and corporate governance, and job-biased growth across all the sectors of the economy is required. This demands very new government policies, but also very different capital and financial market incentives for the leaders of public and private firms.
Consider restoring employment growth. Summers points out that simply focussing on education and training or minor changes to tax and transfer payments won’t lift demand and in turn won’t lifting job creation. In his words, these moderate centrist prescriptions of the 1990s are now ‘fundamentally an evasion’ – even ‘whistling past the graveyard’.
Consider financial market regulation. The political centre’s repudiation of key elements of the deregulation agenda of the 1990s is gathering apace. Perhaps the ultimate American symbol of the ‘third way’ period was the US Congress’ 1999 repeal of the Glass-Steagal Act. These US banking regulations were passed in the teeth of the Depression; their repeal at the height of a boom was supported by many Democrats – and ten years’ later that repeal was held partly responsible for the financial crisis, by leading progressive figures from Joseph Stiglitz to President Obama. And as recently as 2013 it was Summer’s perceived support for this repeal back then, and the wider agenda it represented, that largely cost him the chance to be appointed to Chair the US Federal Reserve, in the face of a rebellion from left-wing Democrats.
Two years down the track, those same people are welcoming Summers as a new force and voice for egalitarian economic policy and politics – and hoping he will influence the Clinton campaign to make a similar transition away from the candidate’s own policy past.
The Australian debate is at a similar tipping point. Former Treasurer Wayne Swan worked closely with Summers and other leading figures on the Inclusive Prosperity Commission of the Center for American Progress to flesh out the global implications of the debate. It found much to recommend in elements of Australia’s social and economic model. In particular, it’s clear competitiveness and productivity must be seen as means to an end, and subject to important caveats and trade-offs including economic equality and financial stability, not as policy goals in themselves.
As parliamentary Labor gathers its ideas for an election due in sixteen months’ time, nothing is more urgent than an updating of economic policy from the fading certainties of the 1980s ‘reform model’ and the rent-seeking peak of the mining boom.
This is clearly understood by Labor’s leaders, and explains what we are seeing in Canberra now. A newly pro-growth, pro-equality policy approach which puts lifting living standards at the centre of policy debate – and which tests regulation against the evidence and merits, not against conservative policy prejudice – is clearly emerging.
Labor’s strong stand for fairness in international tax and in tax on superannuation is only the beginning for the new egalitarianism in the centre of Australian progressive politics. The formation of the Chifley Research Centre’s Inclusive Prosperity Commission is another major effort in this new direction. Watch this space.
– Sydney, 21 April 2015