What would Bob Hawke and Paul Keating do?

In grappling with Australia’s contemporary economic policy challenges, asking ‘what would Hawke and Keating do?’ should do no harm and might do some good. The modern methods of policy development seem so distantly removed from the successes of the 1980s and early 1990s. Fortunately, the recently aired two-part ABC documentary on the Hawke years offers some insights. Hopefully, so do my memoirs, The Boy from Baradine, relating my experience as an economic adviser in the Hawke office during the transformative economic reform period 1986-1990.

The Hawke-Keating approach was remarkably simple in design: define the problem, communicate it to the general public, and seek to bring the people with you when putting in place the appropriate policy responses.

With the enormous benefit of the economic thinking over two decades preceding the election of the Hawke government, Bob Hawke, Paul Keating and the Cabinet set out explaining the problem confronting the Australian economy: too much rigidity, too much protection and inadequate skills development had made us uncompetitive. We needed to look outward to Asia in anticipation of the Asian century, not inward to our tiny, heavily protected market. If we didn’t, our living standards would fall.

The balance of payments crisis – the threat of becoming a banana republic – was the early warning of the Australian economy’s decline. I started as Hawke’s microeconomic adviser three weeks after Keating’s banana republic statement. I calculated, and they hammered every day, that the world had stripped $6 billion off our national income by paying us less for our rural exports and that we needed to tighten our belts accordingly.

By sticking with this simple message, we brought the nation’s economic problems into the kitchens and lounge rooms of the Australian people.

They understood the problem and responded by acquiescing to, but not cheering: severe budget cuts, tariff reductions, broadening the tax base to lower the rates, and the exposure of government business enterprises to competition. Large reductions in real wages were delivered through an accord with the trade union movement, in exchange for improvements in the social wage in the form of Medicare, family assistance for the working poor, financial support for children of disadvantaged families to finish high school, and opening the gates of universities to the sons and daughters of working-class parents.

The people backed it this plan in both the 1987 and 1990 elections, despite mortgage interest rates reaching 17½ per cent. Yes, mistakes were made, but the public knew that Hawke and Keating always had the nation’s best interests at heart. Their reforms laid the foundations for 26 years of recession-free economic growth that continues to this day.

Contrast that approach with politics and policy in the modern era. In the absence of a single, coherent and sustained story about our economic challenges, policy is piecemeal.

Budget emergencies are on again, off again, wages need to grow but Sunday penalty rates need to be cut, the company tax rate needs to be cut but its base not broadened.

Public policy seems driven more by the appeasement of vested interests and to bridge the divergent beliefs within and between the Coalition parties. Energy policy remains unresolved at a time when investors need a stable policy framework. Personal tax cuts are being offered against a surplus that continues to be projected but not delivered. Think for a moment what that means: the next generation of Australians is being conscripted to pay for personal tax cuts for today’s voting public without having any say in the matter.

Prime minister Turnbull cannot safely chortle about his achievements, such as pruning excessively generous superannuation tax concessions for the well off, for fear of angering sections of his own Coalition government and voting base.

The media has been atomised. Online stories must be filed continuously. Every heading is sensationalised – click bait for mobile phone users. In the post-modern world, positions taken by many political commentators are tribal not evidence based. Right-wing commentators typically are just as hostile to the Turnbull government as the radical left.

Australia would benefit from the government and the opposition developing their stories about our economic challenges, sticking with them, laying out policies they consider are appropriate for addressing them, and engaging in the contest ideas. It’s not that hard. Just ask Hawke and Keating.

Source: http://www.afr.com/opinion/columnists/what...