Alfred Deakin Lecture 2010
Posted on Thursday, 28 October 2010
In commemorating the life and work of Alfred Deakin we celebrate one of the principal architects of federation, the first Liberal prime minister and a convinced political reformer. In key respects, his reforms suited those times, not these. They reflected attitudes from a century ago, not now. Still, his effectiveness in turning vision into policy and policy into meaningful differences in the way our country worked is instructive for these times too. It’s worth noting that all his important Commonwealth legislative successes were achieved in hung parliaments suggesting that it’s not the lack of a parliamentary majority but uncertain principles and incompetence that’s responsible for the paralysis of the current Australian government.
There is every chance that the Gillard government will talk incessantly of reform but never be serious about delivering it, using the hung parliament as its excuse. For this prime minister, reform seems always a political weapon rather than a means to a stronger economy and a better society. If the government does propose real reform the Coalition won’t get in its way. It’s the government’s job, though, to carry the case for the reforms that it thinks are necessary. It’s the opposition’s job to highlight the government’s mistakes and to sharpen the contrast between good and bad policy.
A hung parliament does not mean that the opposition is likely soon to become the government but it does mean that the opposition should, with fewer seats needed to win, have a better-than-usual chance of winning the next election. A hung parliament doesn’t alter our responsibility to be an effective opposition but it does, perhaps, increase the public’s expectation that we will also be a credible alternative government. The public needs to know what we’re for as well as what we’re against in the way that they did at the recent election and with Deakin in an earlier time.
Deakin was the dominant political figure in our country’s first decade and the first unifier of the non-Labor side of Australian politics in the original version of the Australian Liberal Party. The federation era is now remembered for White Australia, industrial arbitration and tariff protection so he suffers from guilt by association.
He was wrong on some issues but not about the task of politics which is to change our country for the better according to our best principles. Deakin saw public life as a vocation seeking, in his own words: “judgment and foresight which will enable me to serve my country…. to the elevation of national life and…. (the) permanence of well-earned prosperity”. He was wrong to think that industrial arbitration and tariff protection would lead to a stronger economy but right to appreciate that there could be no society without bonds of trust and solidarity between all its members. As even the leftist historian Stuart Macintyre said in 2003, “he was a man of his times in his prejudices but he was a man who transcended his times in his breadth, his gravity, his sense of duty and nobility of purpose. In his vices as well as in his virtues he was touched with greatness”.
One of the main catalysts for the fusion was Labor declaring itself to be a sectional party, acting for the unions and binding itself through the caucus pledge. By contrast, the new Liberals pledged to respect MPs’ right to dissent and to govern for everyone, not just their supporters. Back in 1909, the planks of the first Australian Liberal platform included: promoting economy in public spending and efficiency in public services; developing strong military forces while recognising Australia’s international responsibilities; and opposing government ownership of the means of production, distribution and exchange.
These are the instincts, liberal, conservative and patriotic, which still animate the Liberal Party 100 years on. Deakin’s portrait hangs in the ante-room of the Coalition party room (along with those of Edmund Barton, George Reid, Joseph Cook, Billy Hughes, Stanley Melbourne Bruce, John Latham and Joe Lyons) because he is the principal author of Australian liberalism and therefore a founding father of the political party which represents it (as well as another great strand of Western political thought). .
In Deakin’s time government was generally less important in people’s daily lives. The welfare state was in its infancy. A whole range of social services didn’t exist or weren’t government funded. On the other hand, there was an often naïve faith that government knew best especially in economic decision-making. “We’re all socialists now”, observed Sir William Harcourt in 1894. It wasn’t quite true but reflected the turn-of-the-last-century view that government was far more likely to be part of the solution than part of the problem.
As a minister in the Victorian government, Deakin initiated the first large-scale irrigation works. As Commonwealth attorney-general and then prime minister, he helped to establish “protection all round”, compulsory military service and the Royal Australian Navy. His faith in government, though, didn’t extend to the widespread nationalization of industry, the imposition of punitive taxes or the sublimation of individuals to the state or to state-sponsored institutions. He was neither mistrustful of government nor suspicious of change. He was himself neither conservative nor libertarian. Government should be larger, he thought, but still limited.
A preference for private business, antipathy to higher tax and support for the rights of individuals are the constant links between today’s Liberals and our predecessors from Deakin’s time. From Deakin to Menzies to Fraser to Howard, Liberal governments have emphasised individual choice and market freedom. Policies have changed, though, as our understanding of the limits of government and the behaviour of markets has developed.
Similarly, faith in the benevolence of government, suspicion of the private sector and mistrust of individual achievement has characterized Labor from Deakin’s era to ours. A contemporary Deakin would, I suspect, be unsurprised to find today’s Liberal Party opposing new taxes (even those disguised as environmental charges), questioning government spending and aghast at the creation of a giant nationalized telecommunications monopoly. For a modern Deakin, the wonder would be the Hawke/Keating period where, for a decade or so, out-of-character-before-or-since, Labor became a party of de-regulation, fiscal restraint and privatisation.
In Deakin’s day, Labor sought to end the class war by government ownership. Deakin’s Liberals (and to some extent Menzies’ Liberals too) sought to ameliorate it by government regulation. Almost no one still thinks that the interests of workers and owners in the same business are fundamentally at odds but Labor is far more inclined than Liberals to think that government direction produces better outcomes than the operation of free markets.
The Rudd/Gillard government oscillates between declaring its economic conservatism and attacking three decades of alleged neo-liberalism. It talks about the need for good economic management and for fiscal prudence but has presided over the biggest and fastest expansion of government in at least 40 years. It’s used the global financial crisis to indulge the borrow-and-spend instincts of the Whitlam era. Unlike its immediate Commonwealth predecessors but like all contemporary state Labor governments, it’s allergic to hard decisions. It takes prosperity for granted and relies on revenue windfalls to buy off interest groups and to bribe voters.
For Labor, economic reform has mostly meant new ways for government to have a bigger role. For the Coalition, economic reform has generally meant reducing the size of government and expanding the scope for private initiative. It’s meant more freedom, not less. It’s been about less regulation, not more. It’s involved lower taxes, not higher ones, even when paying more is supposed to save the environment or to keep people off the pension as they grow old.
Two weeks ago Prime Minister Gillard gave a speech titled “reform is not easy but it works”. The measures she described as reforms involve massive new taxes or massive additional spending. Spending money is not reform. Re-structuring the economy would be reform. Increasing the size of government is not reform. Making government more efficient would be reform. Installing insulation badly, building over-priced school halls, paying more than they’re worth for old cars, announcing infrastructure projects that will never happen, or a cable roll out that Australians don’t all necessarily need and won’t all voluntarily buy, is counterfeit reform; in the case of the NBN, an officially-sanctioned cargo cult.
To the current government, “reform” is spending taxpayers’ money and intergovernmental talk-fests. It’s the polar opposite of the reforms that produced such stunning results for Australia under previous governments. They were about opening up government-provided goods and services to competition from the private sector and about allowing Australia to be more competitive on world markets. By contrast, neither Kevin Rudd nor Julia Gillard has been inclined to mention competition. Instead, they have emphasized streamlining, simplifying, and coordinating. For all their talk of productivity, their focus has been more on expansive government than on effective citizens.
The National Broadband Network is superficially attractive (the promise to build an eight lane highway between Melbourne and Sydney would be too) but is likely to become a symbol of all that’s wrong with the Gillard government. “School halls on steroids”, I’ve called it. It will be a monopoly, not a competitive market. It will be owned by government rather than by the private sector. It will use just one technology, not the most suitable or cost effective technologies available. Eventually, everyone will have to use it whether they want to or not.
Everyone wants better broadband services. The issue is what government should responsibly do to deliver it. Is competition between a growing number of businesses more likely to deliver affordable broadband than forcing everyone to connect via the government owned provider? Does it make sense to pay Telstra $11 billion for its existing network only to close it down? Why build a brand new high speed broadband network when Telstra and Optus have existing high speed fibre passing 30 per cent of Australian households? A Productivity Commission enquiry could at least consider these questions. The government might not like the answers, though, which is why it’s so anxious to shield the biggest and most complex infrastructure project in Australian history from a cost benefit analysis.
At $43 billion, the NBN will cost almost $5000 per household just to build. The Gillard government is counting on voters not noticing costs for which they won’t directly be billed. What they will notice, though, are connection costs and usage charges. In Tasmania, where the NBN is now being rolled out, only ten per cent of households are connecting and only a third of those are opting for higher speeds. In many cases, people are declining higher speeds even when it’s effectively free. At least on the evidence from Tasmania, the NBN is an initiative that Australians don’t want, don’t need and won’t pay for yet this is the Gillard government’s principal claim to be an economic reformer.
Selling Telstra was an economic reform because it freed Australia’s largest enterprise from political direction. Introducing competition into telecommunications was an economic reform because it helped to drive prices down and services up. Introducing nationalized broadband is not economic reform because it substitutes political instinct for economic decision-making. The NBN will be surrounded by a thicket of new laws against competition. The 21st century version of the railroad will be associated with today’s version of the laws that state governments used to pass stopping road transport from competing with rail. This is the only economic Hansonism currently on offer.
Early in the government’s first term, the then-finance Minister Lindsay Tanner declared that the government would undertake no significant project without a published cost-benefit analysis. In fact, there’s been no project that’s had one. Not a single one. Labor’s readiness to fund a $43 billion white elephant is probably the main reason for the departure of its most economically literate minister.
The government’s other “reform” claim is the introduction of a carbon price. Generally, speaking, reform should reduce prices, not raise them. Reform should make government smaller, not larger. A $40 a tonne carbon price would double the cost of electricity generation. The Rudd/Gillard emissions trading scheme, just for starters, would have permanently increased the size of government by a percentage point of GDP. It’s not necessary to make consumers pay to have a “market driven” approach to reducing emissions. The Coalition’s policy involves going to the market to buy the best of competing proposals. The need, under Labor’s scheme, to pay the carbon price to government means that it’s a bogus market, designed to raise revenue rather than to establish the most efficient way to achieve a result.
In opposing the National Broadband Network and a carbon price, the Coalition is not “wrecking reform” but asserting the fundamental economic principles on which true reform should be based. Real reform is not a revenue raiser for government or an electoral sweetener. It increases competition rather than dispenses with it. It empowers consumers rather than regulators. It means taking on vested interests not pandering to them or creating new ones.
Three of the four elements in the Coalition’s election refrain: “end the waste, payback the debt, stop the big new taxes and stop the boats” encompassed economic reform. We proposed to end the waste in the school hall programme by funding school communities rather than state governments; and to end the waste in telecommunications by increasing market competition rather than reducing it. We sought a return to surplus via the high road of lower spending rather than the low road of higher taxes.
The lazy way to boost productivity is to stop trying to bring more people into the workforce. The way to a more productive society, however, is to encourage back into the workforce people who are currently out of it. A reason why productivity growth fell during the later Howard years was because employment growth rose.
During the election, the Coalition proposed three policies to nudge the welfare state towards a participation society: one was a relocation allowance for young people who’d been on unemployment benefits for more than 12 months with a bonus for people who then stayed off benefit for a year or more; another was a bonus for businesses that gave work to an unemployed person over 50 for more than six months; finally there was the Coalition’s paid parental leave scheme so mothers didn’t feel they had to choose between work and family. These were good policies and remain Coalition commitments.
As employment minister in the Howard government I had helped to bed down the Job Network and had presided over the big expansion of work-for-the-dole. The Job Network replaced the old Commonwealth Employment Service bureaucracy deploying instead dozens of private, charitable and community based agencies to place unemployed people into work largely on a success fee basis. Work-for-the-dole was a chance for unemployed people to show what they could do rather than what they couldn’t. These programmes helped to change the expectations unemployed people had of themselves and, in part, to drive unemployment to generational lows. As well, I encouraged the government to address the complex interactions of the tax system with the social security system which meant that many unemployed people faced effective marginal tax rates well over 50 per cent. Welfare reform is one of the key themes of my book, Battlelines.
Welfare reform is not mainly about “cracking down on bludgers” or even saving money that might better be spent elsewhere. It’s to empower people as much as to strengthen the economy. Work is an important part of most people’s sense of self so increasing incentives to work strengthens the social fabric as well as improving the economy. By helping people to be economic contributors it normally helps them to be better social contributors too.
One of just two genuine reforms to the current government’s credit is the extension of compulsory income quarantine to all long term unemployment beneficiaries in the Northern Territory. Welfare reform is at least as important as any of the other reform challenges facing our country. Broadly considered, it’s the most important immediate reform task facing the Commonwealth government. This is not an argument for kicking a million disability pensioners and long term, unemployed people off benefit. It’s an argument against paying them a benefit and then largely ignoring them when they are capable of more.
As the Howard government discovered, even small changes to the disability support system can be politically perilous but they should be further explored if Australia’s participation rate is to increase. Less than 10 per cent of disability pensioners earn sufficient income to reduce their pension and less than 10 per cent of them ever leave the pension to go back to work. Nearly 60 per cent of disability pensioners have muscular skeletal problems or mental health issues such as stress or depression. Many disabilities are not an insuperable bar to work. Others can be treated and substantially overcome. Welfare reform is hard but it’s worth the effort because it should help more people to be their best selves.
During the election, the Coalition called for the release of all the modeling and research supporting the recommendations of the Henry tax review. The most attractive of the Henry recommendations was to increase the tax-free threshold to $25,000 and to have a flat rate from that point to an income of $180,000 a year. By taking many welfare recipients out of the tax system, this would substantially end the poverty traps that make work hardly worth the effort for some people on benefits.
Lower, simpler and fairer taxes are in the Coalition’s DNA. In the absence of a parliamentary budget office, though, it will be hard to lead from opposition the tax reform that Australia badly needs. For starters, ensuring that tax changes really do boost incentives to work, aren’t just taking from the right pocket what previously came from the left, or, worse, cover for grabbing even more revenue can be our contribution to advancing the national interest.
A government which thinks tax reform is imposing a great big tax increase on the mining industry to fund a quite small tax cut for companies generally is hardly likely to promote serious tax reform. Next year’s tax summit is likely to canvass tax shifts rather than tax cuts: higher Commonwealth taxes for lower state taxes; higher consumption taxes for lower personal taxes; even higher mining taxes for lower company taxes. Because Labor governments can’t be trusted with tax, any new tax is likely to raise more than the tax it replaces.
In principle, the Coalition supports the simplification and elimination of state taxes but it’s hard to stop the states from re-imposing any tax that’s replaced by a Commonwealth one. Commonwealth government attempts to drive reform by the states are important but they can easily become a politically convenient substitute for reform that the Commonwealth could introduce on its own and an excuse for the Commonwealth failing to get its own house in order.
Because public hospitals and public schools constitute about 5 per cent of GDP, improvements in the way they’re run are also an economic as well as a social reform. Although they’re state-run, the Commonwealth has some capacity to drive change because of the leverage that its funding provides.
The Coalition supports a national move to the activity based funding system, that the Kennett government pioneered, and also a move to the local community management of public hospitals that Victoria has always had. We don’t support confiscating the states’ GST revenue to pay for it and think that the Rudd/Gillard government’s shift from a 40/60 to a 60/40 Commonwealth/state funding mix is an upheaval hard-pressed administrators could do without. Where’s the reform, for instance, in Victoria losing 40 per cent of its GST revenue to get what it’s always had?
We would also support a move to community controlled public schools such as those now operating successfully in Western Australia. Because they’re complex institutions that are delivering essential services that shouldn’t be put in jeopardy, it’s also important that would be-reformers also be respectful ones. In this area more than in most, reform has to be a work-in-progress proceeding incrementally with the involvement of key stakeholders lest it turn out to do more harm than good.
There is no cure-all for the problems of public schools and public hospitals which will always have to juggle limited funds against virtually unlimited potential demand for services but making decision-makers accountable to local boards would help. School principals accountable to parent bodies would be less susceptible to educational fads. Hospital CEOs accountable to local communities would be as concerned about delivering services as about meeting budget.
The economic reforms of the Hawke/Howard era succeeded because there was broad agreement at the time, at least among opinion formers and policy makers, on problems and their solutions. Led by think tanks such as the Centre for Independent Studies and the Institute for Public Affairs and lobby groups such as the Business Council and the Chamber of Commerce; pushed by The Australian newspaper; and influenced by the work of the Thatcher government in Britain, a new conception developed of the role of government: to live within its means, reduce the tax burden on citizens and trust individuals and communities to take responsibility for what mattered most to them.
In part reaction to the failures of nationalization and subsidy to revitalize economies and in part political awakening to the economic theories of Hayek and Friedman, the new thinking emphasized privatisation, de-regulation and competition. It was based on the idea that individuals and communities were usually quite capable of knowing what was best for them without the need for government or benevolent institutions to tell them what to do.
Economic reform has rarely been popular but it has been successful. Under the Howard government, for instance, there were two million new jobs, real wages increased by more than a fifth and people’s real net worth more than doubled. There was a decade and half of almost uninterrupted economic growth despite the Asian financial crisis and the tech-wreck culminating in Australia having the strongest fiscal position in the OECD. These were the benefits to people of two decades of sustained reform. The Labor Party claimed that Australia’s prosperity was no more than a side-effect of the China boom but even the best circumstances take skill to exploit. Certainly, the longer the current government lasts, the better the Howard government looks.
Our economic strengths have to be built on, as well as just preserved, if Australia is to remain the best place in the world to live and work. This is a challenge for political parties, obviously, but it’s a challenge for the community too. A political party that hopes to win elections can’t be a lone voice of intellectual leadership. Its message needs resonance beyond the parliament. At the very least, individuals and organizations need to provide political parties with specific examples of the abuses that they think need a policy response. Otherwise, policy looks like a solution in search of a problem. In part, this was the fate of the Howard government in its last term.
Between now and the next election, the Coalition will be talking to individuals, businesses and organizations about specific problems with the current government’s policies. Necessarily, we will rely on them for information and support. Our policy response will be directed at solving problems rather than at implementing an ideology. Anything else would risk branding the Coalition as beholden to text book theories rather than committed to practical reform.
Deakin was universally described as “affable Alfred” because he gave people a fair hearing and tried to take them on their terms, not his. Sir Robert Garran described Deakin as “a splendid lieutenant to Barton in smoothing relations in the ‘Cabinet of Kings’ which in itself was no small job”. He was invariably able to see the other person’s point of view and to respond in ways that encouraged dialogue and sought common ground. He knew his own mind, of course, but rarely thought that he had nothing left to learn or that there was no further wisdom from which he could benefit. This was a key factor in his ability to form coalitions and to be an effective prime minister in hung parliaments.
As far as the public are concerned, the difference between sensible reform and ideology is the emphasis it puts on meeting people’s needs. To qualify as reform, policy should give people more choice; it should deliver goods or services better or cheaper; it should allow individuals and families to improve their own situation; it should be adaptable to changes in the economy or technology; and it should, at least potentially, improve the living conditions of the most disadvantaged in our society.
Real reform means empowered citizens rather than empowered government. It gives people more scope to enjoy what Sir Robert Menzies once said were the “real freedoms…to worship, to think, to speak, to choose, to be ambitious, to be independent, to be industrious, to acquire skill (and) to seek reward”. Requiring of reform that it passes a practical test of making life better is a way of giving Menzies’ “forgotten people” more of a say in what’s going on. These middle income families, small businesses and people striving to provide for themselves are just as marginalized under the Gillard government as they were under her Labor predecessors.
For us, as for Deakin, reform should start with an honest appraisal of what might be done better. He was essentially a pragmatist, not because he failed to bring values to his consideration of problems, but because he wasn’t doctrinaire about how those problems might be solved. Rather than starting with an abstraction, Deakin began with a consideration of how society might be improved by reference to values that could command an electoral majority. This is the key difference between an ideologue and a reformer.
For Liberals reform will always involve a fair-minded evaluation of what will give people, individually and in their communities, the maximum capacity to determine their own lives. Invariably, this turns out to be the best way to preserve the social fabric and enables us to be both the party of freedom and the party of tradition. The next Coalition government will have a manageable programme of achievable and meaningful reform that it will deliver upon within three years. Deakin showed that this could be done 100 years ago and today’s governments should be no less capable.