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Monday, August 8, 2016

Why the era of reform has ended

In case you haven't noticed, you're staring at the end of the era of economic reform. It has ended because it's come to be seen by many voters as no more than a cover for advancing the interests of the rich and powerful at their expense.

The evidence that the jig is up is all around us, in Brexit, Donald Trump and, at home, the near defeat of a government that went to the election with just one substantive proposal - to phase down the rate of company tax - which it sought to hide behind the empty slogan of "jobs and growth".

In the Senate we've seen the rise of the protectionist Xenophones​ and the resurrection of One Nation in even madder form.

To call the end of the reform era is not deny we'll still see the occasional policy proposal worthy of that name - such as Malcolm Turnbull's highly desirable changes to superannuation tax concessions and Labor's plan to curb negative gearing and reduce the capital gains tax discount.

But these have become exceptional events, hidden among the more numerous proposals to disguise rent-seeking as reform.

The economic reform era began in the early 1980s with Maggie Thatcher, Ronald Reagan and, of course, the Hawke-Keating government.

Many of those early reforms were unavoidable and greatly beneficial. America's airline deregulation brought an end to the cosseted flag-carriers and their unaffordable fares. Britain needed to end nationalised coal mines and other inefficiencies.

In Australia, we needed to open up our economy to the reality of a globalising world: to deregulate an inefficient and expensive financial system, float the dollar, phase out protection and move from centralised wage-fixing to collective bargaining.

But from such a promising start, now it's over. What brought the era to its ignominious end? Its noble goals were lost as it was hijacked by faulty ideology and vested interests.

The sceptical approach towards government intervention of the otherwise naive economists promoting reform left them susceptible to the smaller-government ideology - the belief that the private sector always does things better than the public sector, that government does too much and taxes are always too high.

This made them sitting ducks for the greedy rich - who cloak their greed in "libertarianism", while actually resenting being asked to subsidise the poor via taxation.

Economists were also the dupes of business people anxious to find ways of increasing their profits easier than the hard graft of price competition and struggling for market share.

They happily turned the provision of government services over to private firms. It never occurred to them that the private providers might cut corners on quality, exploit the naivety of public officials, find a way to get at the pollies, or lose all sense of restraint in their efforts to rip money out of the public purse.

After the long list of disasters in the field of outsourcing - the great private childcare collapse, the exploitation of foreign students by firms selling phony courses in return for permanent residence, the fly-by-night pink batt installers, and the near destruction of TAFE - the punters can tell something's badly wrong.

An early area of outsourcing was the replacement of the Commonwealth Employment Service with a network of charitable and for-profit providers of "employment services". Just wait for its inadequacies to be exposed when next we suffer a severe recession.

The outsourced provision of aged care is likely to be an ever increasing headache for governments.

Then there's privatisation, where too often governments have sacrificed the reformist ideal of increasing competition to increase efficiency on the altar of using existing or newly created monopoly power to enhance the sale price.

Why maximise sale price at the expense of consumers? Because of the obsession with debt levels and maintaining credit ratings. Faced with a choice between efficiency and the budget deficit, too many state treasuries have looked the other way.

A win for accountants over economists.

But the reformers' greatest failing has been the conceit that they look after efficiency and leave equity to lesser mortals: they ignore their reforms' effect on fairness.

At a time when technological change and globalisation are shifting the distribution of market income in favour of the top few per cent of earners, they're pushing "reforms" to make the tax system less redistributive.

And the very reformers who want freedom for some industries to expand while others contract have been happy to allow the rate of unemployment benefits to fall to almost a third below the poverty line.

Then they wonder why the punters decide something is badly off-beam and turn to soothsayers and medicine men.