Tony Abbott could promise labour market deregulation and still win September’s election by 20 to 30 seats. But he’s not strong enough to step over the carcass of the Gillard government and do what’s right for the economy, Mark Latham says. Photo: Andrew Meares
Mark Latham
Thank goodness for the high Australian dollar over the past two and a half years. Even with softer-than-expected GDP numbers yesterday, the underlying trend in economic efficiency remains encouraging. This is because the high currency has pressured businesses to cut costs and lift productivity – an important discipline.
In the normal course of political economy, one would have expected the federal government to play this role through micro-economic reform. But after two terms in office, Labor has achieved little. While it has developed a substantial environmental and social policy agenda, micro-reform has been a black hole.
History will record an extraordinary paradox: how the previous Labor government (1983-96) drove a hard-edged reform program, while the Rudd and Gillard cabinets were missing in action. The party, in effect, has never recovered from its first term in opposition after the 1996 election. A pair of ex-ACTU presidents, Simon Crean and Martin Ferguson, abandoned Paul Keating’s legacy by reviving an interventionist platform of corporate welfare and protectionism. No wonder conservative commentators now universally praise the two union leaders – they wrecked Labor’s economic credentials for a generation.
Competitive pressure is good for the economy. It forces firms to innovate, overhaul work practices and upgrade their plant and equipment. Industry welfare, by contrast, smothers this process. It encourages companies to bludge from the system, to rely on government cheques as a way of maintaining profitability.
Ford Australia is a striking example of this problem. During the past decade, it has banked $1 billion in taxpayer funds, yet the business has gone backwards. It felt no need to develop export strategies, while domestically it has been trying to sell sedans in a market dominated by small cars and SUVs.
As Ford’s workers must now appreciate, business welfare destroys employment rather than protecting it. The shortcomings of so-called industry policy are obvious.
In an important speech in March, the Reserve Bank deputy governor, Philip Lowe, reported on the structural resilience of the Australian economy. Unlike previous booms in private investment and the terms of trade, overheating has been avoided. The pressure on inflation, asset prices and consequently, interest rates, has been absorbed by the floating exchange rate and higher household savings. Contrary to whingeing campaigns, large parts of the manufacturing sector are doing well. “Output of machinery and equipment, and of metals, have trended higher over recent years”, Lowe said, while “exports of specialised mining-related and other machinery have increased”.
We are now in an unusual situation, in which the Australian economy is making its own structural adjustments. Political activity in Canberra is superfluous. With the appreciation in the currency, most firms have become more efficient. Australia is enjoying a renewed burst of productivity growth which, in turn, can sustain the nation’s economic success. Even if the mining boom ends, non-resources firms are in better shape to compete globally than three years ago.
Imagine the benefits if the political class got its act together, adding to structural flexibility. The key reform is labour market deregulation – helping companies to further boost efficiency and move closer to international best practice. Under existing laws, rigidity and featherbedding are too easily entrenched.
The ALP will never enact this reform because of trade union control. On the Coalition side, Tony Abbott has promised a Productivity Commission inquiry. This is likely to recommend a re-run of Work Choices, a policy Abbott vigorously opposed in John Howard’s cabinet. Why would next time be any different – he’s not a true believer in free markets. Liberal MPs of courage need to come forward and force their leader to act in the national interest.
Abbott could promise labour market deregulation and still win September’s election by 20 to 30 seats. But he’s not strong enough to step over the carcass of the Gillard government and do what’s right for the economy. No wonder Australians have given up on party politics. It has become irrelevant to their long-term financial interests.
Mark Latham is a former leader of the ALP.
The Australian Financial Review
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