Abbott's Faith In Markets Is Blind


Tony Abbott’s recent speech to the World Economic Forum in Davos, Switzerland, in which he asserted that “as soon as people have economic freedom, they create markets”, and that no country had “ever taxed or subsidised its way to prosperity” would have rung oddly in the audience's ears.

As Crikey recently noted, the history of the 20th Century says otherwise:

"Australia’s GDP per capita sits at around seventh in the world by most measures. Above it is Norway, which taxes at 50% and up, and equal or just below us — and lacking ours and Norway’s resources windfalls — are Denmark, Sweden and Finland, also 50%-plus taxers … those statistics are made more revealing when you look at estimated GDP per capita figures from 1900, where Australia sits at No. 2 (behind New Zealand), riding high on the sheep’s back. Sweden is 13th, Norway is 17th and Finland 20th. So we have gone down five or six places, while they have gone up, across a century in which they have applied consistently higher taxation."

While debt and inequality were tabled for discussion at Davos, back home we were treated to another free market screed from the Institute of Public Affairs, which are quickly becoming an enduring feature of our public life. Appearing as it did in the middle of a world forum on inequality, the column by Senior IPA Fellow Julie Novak is worth reading a little more closely — and could well have been titled Markets: A Love Story (Or, Capitalism Works in Practice Exactly as it Does in Theory).

Novak takes exception to a recent Oxfam report on global inequality that dropped just as the Davos delegates were heading for Switzerland. She makes the familiar argument that the “high-taxing, big-spending and stringent regulatory policies” Oxfam is pushing for simply exclude “more people from economic participation”.

Progressive taxation is a scourge, Novak says, and tends to "discourage people from engaging in economic activities, including supplying labour where needed, that would otherwise propel them into higher income brackets”. For instance, “mandated and rising ‘living wages’ risks creating additional unemployment, as companies struggle to afford relatively more expensive labour services”.

There is a great deal to unpack here; it seems for instance curiously convenient that initiatives to improve the lives of the working poor should be injurious to their own prosperity and that businesses must receive all carrots and no sticks.

Sure, global poverty has been reduced over the last four decades, but the conclusions she draws are solidly ideological — that education and healthcare provided by the state (or “under monopoly government control”) mean “high-cost, substandard services … usually at odds with what poor people really need”. On the other hand, the market’s benevolence can't be overstated:

"In an unhampered, free-market economy, the distribution of income is wholly determined by the interplay of mutually beneficial market transactions between sellers and buyers. Incomes are attained by selling goods and services to customers willing to pay for them, and suppliers who most closely meet the needs and desires of consumers are rewarded with revenues that more than cover production costs. The resultant inequality, therefore, derives from the personal choices of the millions, or even billions, of participants in the market process."

This is an appealing picture of the market as it functions in theory — the peaceful and orderly workings of commerce, toiling away quietly for the greater good. Naturally, this vision excludes vast chunks of reality, including the legacies of colonialism and war, systemic sexual and racial discrimination, and the simple factual inequality of those who interact with the market. This is beautifully flourishing laboratory capitalism.

The closest Novak gets to acknowledging the gulf between theory and practice is noting that “we don't interact in unhampered markets, with an alliance of big governments and crony capitalists littering the scene”. For Novak, the only impediments standing in the way of a potential utopia are governments — representatives (however flawed) of the people — and undefined “crony capitalists” (all capitalists are good except crony ones, remember).

Or as Abbott put it at Davos, "A strong economy is far less likely to be one responding to central control than one spontaneously generating its own growth … Better governance, though, is not the same as more government."

Over the past few decades, Abbott said, "more has been achieved to reduce poverty than in any other period in history." Novak agrees — for her the market is a road to prosperity for all, but her examples of upward mobility are comically ludicrous:

"Only 25 of the 85 wealthiest people in the world in 2013 were among the 85 back in 1996, with 60 people (including Rupert Murdoch) dropping out of the list during that period. Entering the list came the likes of Mark Zuckerberg of Facebook fame, the owners of Ferrero Rocher chocolates and Nutella spread, Australian miner Gina Rinehart, and others."

Fret not about economic inequality, kids — just become a mining magnate, a tech success or the owner of a chocolate brand!

What the world needs now, apparently, is less regulation: Novak concludes that if “we are genuinely concerned with ensuring that people escape the mire of poverty … we would advocate policies ensuring that people cooperating in markets are less hampered … a greatly reduced dose of government intervention, so that wealth becomes the rule rather than the exception”.

The nature of these pernicious interventions is never clarified — are we talking minimum wages, child labour laws, safety regulations, anti-discrimination laws, consumer protection, environmental standards, compulsory education? Which aspects of the social contract must be purged to maximise wealth? The details are never specified. If Novak thinks the state should do no more than maintain an army, police national borders and protect private property, she doesn’t say so but leaves us to guess.

None of this is to deny the positive role that markets can and have played in human history, just to question their elevation to the status of infallibility and the persistent failure to include concrete realities in the picture. The market, for those who style themselves “classical liberals”, increasingly appears to assume the role of an omniscient god in the worldview of the religious; of the great man’s enduring rightness in the narratives of doctrinaire Marxists; or of Destiny in Arthurian legend.

The free-market right in Australia is fond of portraying environmentalists as zealous adherents to a “green religion”, but this claim could easily be reversed and used against the accusers, who profess a seemingly blind faith in the virtues of unregulated capitalism.

This faith is not unique to the IPA and its sympathisers but has long penetrated even the notional left. As Guy Rundle noted of Mark Latham’s disappointing Quarterly Essay last year, this was the mercurial former Opposition Leader in his incarnation as a “somewhat simplistic marketophile, advocating policies based on thin evidence that purport to be based on non-ideological problem-solving, but are really the projection of a pretty fixed idea of human life and Australian society”.

If the answer to social and economic problems is always “the market” (more, better, faster, louder, stronger), “solutions” will be limited: capable of taking us only so far, and in only one direction. The resulting conclusions may be palatable to the IPA, the Coalition and the super-wealthy at Davos, but they won’t necessarily suit the rest of us.

Launched in 2004, New Matilda is one of Australia's oldest online independent publications. It's focus is on investigative journalism and analysis, with occasional smart arsery thrown in for reasons of sanity. New Matilda is owned and edited by Walkley Award and Human Rights Award winning journalist Chris Graham.