The banking crisis has thrown Kevin Rudd’s plans for his Government into chaos, but somewhere, deep down, he must be experiencing a twinge of pleasure. It’s the satisfaction of seeing your opponents stumble. The Germans have a word for gaining pleasure from someone else’s misfortune: Schadenfreude.
In this case the misfortune has befallen those who believe in neoliberalism, a class of people recently introduced by Rudd to the Australian public, but better known as economic rationalists.
In his essay "The Global Financial Crisis", published in February’s edition of The Monthly, Rudd argues that the crisis will be the catalyst for an epochal and historic change in prevailing ideas and policy making by western governments. This change will see the downfall of neoliberalism — which he defines as the "free market fundamentalism, extreme capitalism and excessive greed which became the economic orthodoxy of our time". Rudd points to the clear warnings over many years of a looming crisis in banking. But these, he claims, were ignored because of an anti-regulation culture, particularly in the US.
In effect, Rudd sees the financial crisis as the Berlin Wall of the free-market right, marking the end of an era.
Rudd’s statement has been attacked by many commentators. Former Labor treasurer Michael Costa called it "rambling" and "superficial". Liberal frontbencher Tony Abbott dubbed it "playground name-calling" while noting also that Rudd’s position "is actually a radical change in direction". The Australian‘s Greg Sheridan claimed that "its historical and intellectual claims are entirely fraudulent".
Some political journalists have dismissed Rudd’s essay as mere rhetoric, seeing it as a fancy way of attacking Malcolm Turnbull. Perhaps this is because prime ministers are supposed to be pragmatic and are not meant to write essays about intellectual and ideological crises. Yet Rudd is not the first political leader to see Australian politics in ideological terms. At a celebration for the conservative magazine Quadrant in 2006, John Howard spoke warmly of "the battle of ideas" as he praised the "defining ideological struggle" waged by Ronald Reagan and Margaret Thatcher.
Rudd’s ideological statement is significant for many reasons. Firstly, it marks an important break not only with previous Labor approaches but also with the prevailing Anglo-American orthodoxy. Until recently it was taboo for any western leaders to attack free market ideology. The essay in The Monthly rejects the so-called TINA wisdom, the acronym borne of Thatcher’s claim that "There Is No Alternative".
Rudd is not proposing a radical alternative to the free market but rather is pointing out that the TINA approach has run out of steam. This marks him as very different from "Third Way" politicians like former British prime minister Tony Blair to whom he has often been compared. Neither Blair nor current PM Gordon Brown — nor, closer to home, Paul Keating — would ever have savagely attacked free markets in the way Rudd has.
Rudd’s criticism is sincere and consistent with his deepest beliefs as well as his early political statements. He criticised both the economist Milton Friedman and the "godfather" of the free market, Friedrich Hayek, in his maiden speech to Parliament in 1998. In that speech he prophetically called for tighter regulation of banks and global finance and predicted that the Howard government would be harshly judged if it failed to regulate. Today, 10 years later, Rudd’s debut has been vindicated.
The greater significance of Rudd’s essay is, of course, that it sets a benchmark for his own Government. The two biggest and deepest challenges facing Rudd — the economic crisis and climate change — require decisive government intervention because, in different ways, the untrammeled market helped create both problems.
On the other hand, some of the policies his Government is pursuing require a second look in the light of his analysis. In particular, Rudd’s schools policy proposes a market-based model, setting up competition between schools in which parents "vote with their feet" by moving students from "bad" schools to "good schools". A schools policy more in tune with Rudd’s opposition to neoliberalism would not use destructive competitive mechanisms but aim to fix "bad" schools.
However, Rudd’s attack on free market ideology does fit well with his self-anointment as an "economic conservative". According to Rudd, real economic conservatives see the damage that free markets do to social cohesion and order. It’s a view shared by religious leaders, among others. For example, Australian and world banking deregulation has delivered a bubble of soaring housing prices and bloated personal debt which have in turn torn the social fabric. Liberalised trade in alcohol and gambling has provided massive revenue for state treasuries but destroyed families. According to the doctrine of neoliberalism, free trade in gambling and alcohol sales is, of course, "economically rational".
Rudd is undoubtedly a pragmatic and ambitious politician, but he is also an intellectual. An interesting feature of his essay is his engagement with the intellectual foundation of neoliberalism via the work of economists such as Hayek and Ludwig Von Mises.
Hayek is an Austrian economist who is little known to the general public but who has had an enormous influence for 40 years in economic policy in the UK, Britain, Australia and elsewhere. Two generations of World Bank and IMF economists have been schooled in his ideas. Hayek believed that markets were efficient and self-correcting, that
they formed a "spontaneous order" within which individuals pursued
their own ends. Governments exist largely to enforce laws and contracts
and to protect property.
The detail of Rudd’s attacks on the philosophical roots of economic liberalism has prompted surprised and outraged protests from neoliberal think tanks. Indeed the Institute of Public Affairs denounced Rudd’s solution as "neosocialism".
But of course, Rudd’s attack on neoliberalism is not all ideological. He is also sharpening another weapon. His opponent, Malcolm Turnbull, worked for a number of years in one of the very institutions which are now widely blamed for the greed and chaos which has occurred: the merchant banks. With this weapon in his back pocket, we will certainly be hearing more about the evils of the free market in the banking and credit system.
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