What a progressive economic policy looks like


Per Capita Earlier this month, The Weekend Australian reported that Prime Minister Kevin Rudd 'had no interest in debating whether the private sector should be contracted to deliver government services'. In fixing problems in indigenous communities and elsewhere, the newspaper told us, Rudd was more interested in the quality of services than the 'delivery mechanism'.

Rudd's comments leave unanswered a key question: what does a progressive economic policy look like?

Despite the fact that one of our biggest challenges (tackling climate change) has resulted from the failures of free markets, Rudd and other Australian policy makers continue to remain uncertain about how, and to what extent, governments should intervene in the operations of the capitalist system.

To develop an understanding of what a progressive economic policy may look like it is necessary to take a realistic perspective on the extent to which governments can shape the economic circumstances that affect the people they represent.

As the economist Andrew Charlton pointed out in his book Ozonomics, given the international nature of the movement of money and capital, issues relating to interest rates and the general health of the resource-dependent Australian economy must be examined in the context of the global economy, rather than simply domestic political policies.

So, in an era of (mostly) global (mostly) free trade, how can policy makers develop an economic agenda that both seeks to harness the benefits of capitalism yet also, in a principled and consistent manner, draws a line in the sand and restricts the market in recognition of the environmental, aesthetic and social harms that it can inflict? The foundations of such a progressive economic programme can be built on a few key policies.

Firstly, at the level of domestic economic policy, governments need to recognise that they have a powerful information-gathering role to play. It needs to be acknowledged that to intervene with the running of a capitalist system on a principled (rather than merely pragmatic) basis, evidence-based policies are needed.

All governments would be served well by a national centre for social and environmental policy analysis that draws on existing talent within the private and public sectors. Uncritical supporters of the free market advance complex technical arguments as to why the slightest government intervention in the private sector erases the benefits of the capitalist system. The advocates of a new progressive economic policy need to develop an equally technical (yet more enlightening) scale by which the results of all public policies are measured.

The Australian based think tank Per Capita is just one group encouraging the Rudd Government to become a champion of so-called 'full cost economics' and work on new ways of examining risk and the mixture of public and private involvement in the economy.

The complexities of developing carbon targets to counteract climate change serve as a reminder that the major public policy issues of our time require detailed and technical analysis. To truly counteract the negative effects that capitalism can have upon the built and physical environments, Australian governments should embrace 'full-cost economics' and develop budgets that take into account the total economic, social and environmental costs of policy decisions. Governments must work with the private sector to encourage them to adopt a similar approach.

On the global stage, Australia must resort to working on a multilateral basis to encourage rapidly developing countries to accurately and fully calculate the true costs of their economic policy decisions. Australia should strive to lead the world in social and environmental policy analysis and direct its domestic political, diplomatic and private sectors towards this goal. Only when there is an international commitment to examining the full costs of policy decisions or inaction will governments be in a position to intervene in market processes in a considered and sensible way.

The political left must critically engage the economic right with a view to altering current commonsense understandings of what counts as policy success. Once Australian policy makers have taken the first step towards advancing a progressive economic agenda — the adoption of the full costing of policies — the development of a broader policy terrain may be considered.

With government enhancing its role as the level-headed, evidence-based identifier of risks, it will be possible to convince sceptics that sensible (yet increased) public spending is required to counteract disasters such as global warming.

With the assistance of full-cost economics, political decision-making will come to be viewed in a new light. Indeed, in time, the people of Australia, and their fellow citizens of the world, will demand the adoption of a more progressive economic policy.

The Treasury: What We Do
Per Capita

Andrew ThackrahAndrew Thackrah is a PhD Candidate at the University of Western Australia. He is researching the history of free-market thought in Australia.



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Existing comments

Do we know whether Kevin Rudd or any of his policy makers read the Eureka Street headlines each day?

If not, do any of the Jesuits or anyone else interested in promoting the good stuff contained in Eureka Street know the Prime Minister,someone in Cabinet or a senior official in a Government Department so that we might "infiltrate" that way ?

As a member of Catalyst for Renewal and being heavily involved in Spirituality in the Pub, I firmly believe that it is through good, solid conversation and personal contact that much can be achieved.

And the more people in positions of influence in our country who read Eureka Street
Marea Donovan | 11 March 2008  

I concur with the view that we need to adopt full cost economics in formulating policy. However there are problems involved in reaching a conclusion as to what the full cost of a policy is.

In some areas of policy making it is possible to develop a shadow price for the good which is provided publicly e.g. tollways, freeways etc., thereby enabling good estimates of the full cost.

It is more difficult to calculate the true cost to the community of problems of, let alone solutions to, such things as unemployment, underemployment, racial vilification, lack of public housing.

There is considerable dispute among economists as to how you cost the impact of such problems. For example how does one calculate the internal rate of return for capital (and current) expenditure in skilling up the unemployed so they can obtain work?

A policy focus receiving great publicity is how to involve indigenous Australians from remote communities in the market economy. These Australians, who live miles from resources such as electricity, running water etc., are largely unable to take part in 'normal work'. To date efforts to generate work at their local level have frequently become 'make work' projects with no ongoing capacity.

Full cost economics has much to commend it but is not easily implementable in many policy areas. Some surrogates can be devised but they become "best guesses" which are helpful to decision-making but cannot be considered a statement of the full cost.

Graham Holmes | 12 March 2008  

Another good contribution to an important subject. I hold an honours degree in economics, at Trinity College Dublin, 1966. We talked there about such issues - and something called "Welfare Economics" which I have barely heard of since. Graham Holmes' letter puts the finger on the problem - in the end, interfering with the market involves a lot of guesswork.

Perhaps better to not start with the market model but with the social or ethical goals, then fit economic mechanisms into that as allocation aids. e.g., if you start with the agreed social goal that a country town of 500 thriving small irrigation farmers, their families and human communities and heritage, is worth more to the nation (and to our common humanity) than one super-efficient highly mechanised cotton or rice major agribusiness like Cubbie Station, then you build your water supply economics around that principled goal. Yet Ken Henry at Treasury is reported to want to leave all that to the market to decide. I hope the report was inaccurate.

We have two cultures - it used to be science vs the arts (C P Snow), now it is market economics vs civil society. We need to get the two cultures talking to each other.

tony kevin | 12 March 2008  

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