It is conventional wisdom that the world cannot revert to the pre-COVID-19 economy, but this is mere sophistry — the issue is what will define the next economic order, with the omens pointing to a battle of ideas between the Morrison government and Albanese-led Labor.
This battle may decide the course for politics for some years. History suggests that most recessions produce bigger, more interventionist government with people looking to government for leadership and answers. Strategist and former Liberal Party federal director Sir Lynton Crosby has warned that government post-virus will be “bigger and bolder”, that the “sheer size of the state” will expand, that approval of more government during the crisis will turn into permanent expectations during recovery, and that a threshold for government intervention into undreamed areas has been crossed and “once crossed, it cannot be crossed again”.
In the US The Wall Street Journal quotes Rahm Emanuel, president Barack Obama’s first chief-of-staff, saying: “The era of Ronald Reagan that basically said the government is the enemy is over.” President Donald Trump’s former adviser, Steve Bannon, warns that “limited government conservatism” is “just not relevant” and strong government will be essential in the long confrontation with China. A recent Wall Street Journal-NBC poll had voters saying by a 2-to-1 margin they approved the dramatic expansion of government to meet the crisis.
The economy will not recover quickly. Unemployment will be the central issue of this term.
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This will merely reinforce momentum for more government. The Reserve Bank’s baseline estimate has unemployment peaking at 10 per cent but still at 7.5 per cent in December next year. Its pessimistic scenario has unemployment staying close to its peak well into next year. Chris Richardson, from Deloitte Access Economics, says unemployment will be comfortably above 7 per cent late next year and will not fall to 6 per cent until late the following year, well after the next election. Such estimates may be optimistic.
This week The Economist offered funeral rites for the age of globalisation based on market forces and liberal trade. It warned of the dire consequences. Yet the drive against liberal markets runs in tandem with the lurch to greater, often irrational, government intervention.
India’s Narendra Modi says a new era of economic self-reliance has begun. Japan is subsidising companies that repatriate factories. EU officials talk about buying stakes in firms. Capital flows are suffering. The US and China are locked in a trade and technology war. China attacks Australian exports. Trump declares offshoring parts of the US F-35 fighter (to Australia among other allies) is “crazy” and wants everything made at home. Anyone who thinks all this points to a better world is a fool. But these forces are unleashed. The genie has escaped the bottle.
Australia should have a more rational debate than many other nations — but it will be contentious and bitter. Labor has begun to mark out its territory. Anthony Albanese wants JobKeeper to survive in “transition” and ensure JobSeeker does not fall to the old Newstart rate. He wants support for an additional million casuals, a package for the arts and entertainment sector, and invokes “the power of government to make a positive difference to people’s lives”.
Albanese espouses a remade economy that cares for people with commitments to social housing, the union agenda of more secure jobs and fewer casuals, more renewable energy, infrastructure, high-speed rail, rebuilding public sector jobs, no contracting out of essential services, more funds for the ABC and CSIRO, and more egalitarianism and inclusion.
This is a “new” agenda that sounds remarkably like Labor’s old agenda. It raises the question: will Labor ride to office on public support for more government and hanging high levels of unemployment around Scott Morrison’s political neck or will Labor blow it yet again?
Financial Times columnist Janan Ganesh says the post-pandemic era will be “ripe for a party of big government” but highlights the great paradox — the left wins the ideological debates but tends to lose the elections. Government has expanded relentlessly for a century but the left’s success is not measured by election wins. Ganesh says: “Voters often choose the party that is less keen on government to oversee its expansion.”
The Ganesh thesis applies particularly to Australia. Labor gets frustrated because it thinks it wins the debates and cannot fathom why it loses the elections. It never understood why John Howard was so successful and it cannot comprehend why Morrison won last year, putting it down to a scare campaign and Bill Shorten’s unpopularity.
Labor depicts Morrison as an ideological warrior when Morrison won on the exact opposite — a non-ideological, practical, no-radical-change agenda pitched to the outlook of the “quiet Australians”. He calculated people wanted reliable government and sound economic management and distrusted Labor’s vast tax and spending changes to remake the existing order.
Labor did seize the zeitgeist; it did win the debates about inequality, same-sex marriage, banking atrocities, resentment of big business and climate change, but such victories weren’t enough. It lost the election because distrust of Labor ran too deep, with many non-political Australians suspicious of its tribalism, progressive values, economic unreliability and plans to change the country. Will we see a re-run this term? If Labor cannot win an election after unemployment touches 10 per cent what purpose does it serve?
Most Australians, however, might still remain self-reliant. They might think the present level of 58 per cent of the labour market being on taxpayer support is shameful and demands a private economy restoration. Australians might decide this term they prefer more government and more equity and they might also decide they are prepared to vote for Morrison in 2022.
There are no certainties for anyone. In the immediate future Morrison faces a predicament. His message now is that “the clock is ticking” on the government’s fiscal support. As Josh Frydenberg says, there is no “money tree”. There are more than six million people on JobKeeper and more than 1.6 million on JobSeeker while the banks have provided $220bn in deferred loans. As Morrison says, that support is finite. It is why reopening the economy with safety is now the “urgent” task.
Morrison’s dilemma, however, is that the private economy and labour market on the “other side” will be too weak to sustain a cut-off in public support. Albanese says any notion of “support one day, no support the next is absurd”. Richardson says the fight against unemployment means federal and state budgets doing even more to drive jobs and that might require scaled-back wage subsidies beyond the six-month timeline — the sort of stance Labor hints at.
How will Morrison react? His record suggests a problem-solving pragmatist. The key ingredients are in the mix but it is how they are put together that matters. Morrison wants to retain the national cabinet outlook, seek deal-making between unions, employers and government for better workplace arrangements, emphasise a sovereign Australia, a competitive private sector with incentives for business to lead a jobs recovery, reject austerity and embrace, in effect, a strategy of public and private spending to deliver jobs.
There is no way Morrison will let the labour market fall off a cliff when the six-month timeline expires. But he has long since calculated Albanese Labor wants to sell its alternative strategy in an epic contest over the nation’s recovery.
But Labor should beware. It sits on a generation-long decline in its primary vote. It is tied to a trade union movement materially weak and a network of progressive interest groups that guarantees it is always competitive at elections but usually loses. The risk for Albanese Labor is that it will win the debate about more government in recovery but find most voters unconvinced about its economic trust and reliability. With the exception of Kevin Rudd at the 2007 election this has been Labor’s election problem ever since it ditched the Hawke-Keating ethos.
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