TRIUMPH & DEMISE

Has growth come to a stop? 

Is this the real problem behind our current political dysfunction? 

Did this ever look plausible? 

So why is this any more credible today?

The single-most critical question in Australia is if our political system really is broken. 

I believe it is. 

However, as I suggest in this article in today's Canberra Times I believe it's more than just this. I think the economic system's broken as well . . .

INTERREGNUM

Paul Kelly’s books always provide a detailed and accurate reflection of Australian politics. As a result they are becoming both (a) far more interesting and (b) much more depressing.

Last week Kelly spoke at the National Press Club, painting on his broad canvass. He’s sought, previously, to explore the broader themes swirling about this country through the politics of the day. The 1980’s became The End of Certainty, while by the 2000’s the country had become Paradise Divided. Sometimes he struggled as he attempted to weld the limp utterances of our politicians to transcendental themes. Kelly imputed to them foresight and wisdom: some of us merely witnessed the squalid transactions of people seeking power. It is, nonetheless, difficult to dispute the central analysis of his new book.

Triumph and Demise: The Broken Promise of a Labor generation tells the story of the Rudd/Gillard years in all their shameless, tatty, self-interested and dysfunctional glory. Because Kelly can’t help himself, he unearths a theme to weave the years together: a story of loss. The political system is, he opines, broken. It isn’t capable (as it seemingly was in all his previous tomes) of delivering the far-reaching reforms. This carries a heavy and serious implication: our politicians are, today, failing us as they never did in the past. They are trapped in the spin cycle.

Unsurprisingly, Tony Abbott rejects Kelly’s claim. Launching the book the PM insisted, “it’s not the system which is the problem, it is the people who from time to time inhabit it.” So everything’s OK? When Abbott’s own opinion ratings remain – despite a recent small rise – stubbornly lower than for any newly elected government? Should we ignore the fact that people are desperately voting for any candidate other than those from the main parties – a trend reinforced at the latest WA Senate election. Are we to brush aside the reality that neither of the main-party leaders inspire? Ignore Kelly’s verdict at your peril.

Yet I believe there’s more, much more, to our stubborn failure to value our politicians than Kelly’s thesis alone. He dissects the political infighting brilliantly; nevertheless there are two fundamentally different ways of understanding the 2008 financial crisis and our answer to it. Our responses – political, economic and social – have assumed this is an aberrant situation that arose suddenly from specific causes (specifically the sub-prime loan crisis in the United States). Better policy might have avoided the crisis in the first place; better responses would have ameliorated its effect earlier. Thoughts like these help the economists to sleep soundly at night.

Their thesis is based on comforting assumptions. We’re told the crisis wasn’t inevitably destined to turn into a disaster. If only, some say, there’d been faster implementation of stimulus programs, well, then everything would’ve been wonderful. What a pity the wrong policies were followed!

There is, however, another way of dissecting what happened. This theory has an ever-increasing weight of evidence firmly behind it . . . but it’s a very discomforting hypothesis, so don’t expect anyone (least of all economists and those who depend on the financial markets) to tell you about it. The reality might be that the ever-increasing growth on which our economic future has come to depend is about to come to a halt. This doesn’t mean society will come to a sudden full stop, nor will it lead to disaster. Nevertheless, gradually but irrevocably, the basic assumptions underpinning society are increasingly coming under challenge.

Take wages, for example. Previously it didn’t matter (politically) that some people were becoming proportionally richer, because we were all becoming wealthier. Today that ain’t so. Living standards are declining.

That’s a simple phrase, but think about what it means and the transformational nature of the political challenge quickly becomes apparent. Since the 1950’s, the engine underlying the economic model has been powered by growth. First technology, then people, then productivity, and finally resources have allowed the country to surge ahead. When growth slowed, micro-economic reform pushed us over the speed bumps and workers shuffled off into new industries and jobs. And, behind it all, new construction changed our skylines and the face of the suburbs. Life was getting better – it was obvious.

This simple equation has now changed. Last week Lateral Economics released its index of well being which demonstrated that national income declined over the past year. Think about what that means: we’re going backwards. According to the ABS, real income per person has also dropped – for the second year in a row. And the Reserve Bank says it can’t envisage any upturn in employment for two years at least. Europe is mired in its own problems; Japan’s economy has been a basket case since the 1990’s, China’s government faces an ageing population and growing internal demands that it will struggle to meet; and the fragile growth in the US is based on promise: these are credit notes that won’t be met. All the advanced economies desperately require a swift dose of inflation to provide the illusion of growth. Yet even if this arrives, that’s all it will be: a trick, a chimera.

The fundamental principles underlying the so-called ‘Australian settlement’ (the transactional ‘deal’ that’s allowed our economic model to flourish) are at an end. Labor had a chance to re-make the economy in 2008 by telling us some hard truths and using the surplus to smooth our way into this new environment. Instead it shovelled more coal into the fire, attempting to stoke it up again. It flared for a moment, but now it’s fading again.

Now this is all Abbott’s problem. I’ve already got a title for Kelly’s book on this particular decade. It’s called Managing Decline: and the failure of Australia’s political class.