Former Treasurer and Member for Lilley, Wayne Swan, wrote about Tea Party conservatives, and how they are a threat to Australia's economic record. Read his piece below.
Over the last 30 years, the Australian economy has become one of the most open in the developed world and is now in its 23rd year of recession-free economic growth.
Australia is now the fifth richest nation in per capita GDP terms, according to the IMF. Only Luxembourg, Qatar, Norway and Switzerland are ahead of Australia. Despite the headwinds of the global financial crisis, the Australian economy grew by 15% over the past six years.
During the global crisis, the Australian government took decisive action to support economic growth and jobs. Businesses and workers responded, and we avoided the wide-scale economic destruction seen elsewhere. Australia’s 23m citizens can be proud of this, but should be even prouder of something more impressive.
Through the last three decades –18 years of which were under Labor led social democratic government – Australia did all this and still delivered social fairness. We turned outward to the world, embraced global trade and capital mobility and kept the fair go intact.
Whenever I travel internationally, I am always struck by just how fortunate Australia is to have a strong economy and a just society. It hit home again this week, as I am in London to attend a meeting of the Inclusive Prosperity Commission put on by the Centre for American Progress, which does such great work to advance the cause of fairness.
While Australia has seen some increase in concentration of wealth amongst the very rich, pleasingly we’ve seen lower and middle income earners hold their ground. There are strong reasons for this. Firstly, our industrial relations framework secures a relatively high minimum wage and labour can collectively bargain. Secondly, high quality and affordable health and education services, which produce a healthy and productive labour force. And thirdly, while not perfect it its design or efficiency, there is Australia’s targeted, effective and progressive tax and transfer payment system.
Australia’s economic fundamentals are strong. For 10 years, Australia’s unemployment rate has sat below 6% – even in the midst of the global financial crisis – having only just crept back up to that figure again in January this year. Australia’s level of net government debt stands at 10% of GDP, while the OECD average is around 10 times that.
These results don’t come by accident. Important to this success is that we have held the line on sound fiscal and monetary policy settings.
Most importantly, 30 years of structural reforms have made Australia more open to the world, and the world more open to Australia – reforms like floating the exchange rate, bringing down of the tariff wall, enterprise bargaining and a decent minimum wage, Medicare and universal national superannuation.
Undoubtedly, Australia is also in the right part of the world at the right time. Growth in Asia has driven increases in our terms of trade and national income, and good productivity growth has delivered higher living standards. There is little point, however, in getting the macro settings right and implementing important micro reforms, if they do not produce improved living standards, fairly shared amongst your citizens. On this front Australia also scores well.
While Australia still has pockets of disadvantage, our broader outcomes are very different to those in the US. Since the mid 1990s household income in Australia has improved as the hard won economic reforms of the previous decade kicked-in. Middle income Australian households arenow more than 50% better off than they were in 1995. This has been achieved despite the global financial crisis, and the initial downturn in terms of trade that came with it.
In contrast, US middle income families are earning less in real terms than they were in 1989. In 2012, the real median US household income was $51,017 while 25 years earlier it was $51,681 in current dollars. In other words, a quarter of a century ago, a middle class American family was making more than a middle class American family today.
Meanwhile America’s rich have got richer – a lot richer.
This is something the renowned economist Joseph Stiglitz explored in his book The Price of Inequality. Stiglitz points out that the US is seeing the slow strangulation of the American Dream, and that the US has surrendered much of its civil society to vested interests, which both stifles the lives of the poor but also risks future collective prosperity.
These huge increases in income and wealth at the top end are not trickling down. Indeed, Stiglitz points out that about 60% of the US’s income growth over the past three decades flowed to the top 1%.
Of deeper concern should be, that it’s very likely to stay that way. While many Americans believe fervently that they can ‘make it’ too, economic mobility is fast becoming a thing of the past. In the US, your parents’ income has more influence on your life chances than in just about all other developed countries.
Just as Australia’s economic strength with fairness, is by design, not accident; so America’s deeply entrenched inequality didn’t ‘just happen’. According to Stiglitz, while the market forces are a factor, policies that have shaped the market in favour of the very wealthy are also responsible for this growing gap. Provocatively, we can call it a form of redistribution to the already wealthy. Some call this characterisation class warfare. I call it fighting for fairness.
As well as sharing the gains of economic growth, Australia has done a good job at preserving economic and social mobility. Success in Australia is more likely to be determined by effort, not by where you were born or the wealth you inherit. Across the 17 OECD economies, Australia is placed equal third when it comes to the likelihood of its citizens in the bottom 20% of income earners lifting themselves out of that situation within three years.
Regrettably, Australia’s social democratic model is now under fierce attack from those who believe our public sector is too large. Vested interests, similar to those behind the stark inequality gap in the US, are now mounting a sustained campaign to undo the model.
The challenge for progressives in Australia is to centre our agenda on an overarching theme of growth, and intergenerational mobility and its maintenance. There is a strong reservoir of support for our existing industrial relations system and a deep attachment to Medicare and universal education.
They are worth fighting for in the face of the savage counter attack from Tony Abbott’s Tea Party conservatives, well-funded by vested corporate interests and their media allies.