‘Jim’s capitalism’ will leave nation broke … or worse

Treasurer Jim Chalmers. Picture: NCA NewsWire / Gary Ramage

In mid-1776, delegates to the Second Continental Congress gathered in Philadelphia to sign the US Declaration of Independence. It was not a treatise on government but a declaration of war. The citizens of the 13 colonies were waging war on their government, that of King George III, and spelled out their grievances in the document. One familiar-sounding grievance was that King George had “erected a Multitude of new Offices, and sent hither Swarms of Officers to harass our People, and eat out their Substance”. Or, in contemporary parlance, he vastly expanded the bureaucratic and regulatory state to shepherd and tax America’s commerce.

The principal author of the Declaration was Thomas Jefferson, who imbued it with the philosophical reasoning of John Locke in the radical idea that it was not the role of the people to serve the government but rather the role of government to serve the people. And to serve the people, government exists to protect life, liberty and property. It was these principles, embedded in the foundations of the US and subsequently other liberal democracies, that resulted in hitherto unimagined human, social and economic flourishing.

Yet in a remarkable turn of history, nearly 250 years later, in Brisbane, the Treasurer of the Commonwealth of Australia, Jim Chalmers, declared the economic model that delivered this global flourishing was broken and no longer fit for purpose. More so, Chalmers described in his 6000-word essay, titled Capitalism after the Crises, that he has found a new way: a “values-based capitalism”.

Chalmers did not articulate what values would power values-based capitalism but did hint towards those of “many forward-looking businesspeople and investors”. Not the values of the working class or of general Australians, but the values of the upper bourgeoisie who have access and proximity to government.

Decades of economic history have shown private property, the rule of law, free and competitive markets and limited government drive prosperity anywhere and everywhere. But as Barack Obama’s chief of staff, Rahm Emanuel, advised, “never let a crisis go to waste”. Chalmers assessed that three crises in 15 years (the GFC, Covid and inflation) had exposed vulnerabilities in our economic systems necessitating an even greater role for government. This, irrespective of the fact that these crises were greatly amplified by government.

More than 30 years after the fall of the Soviet Union and nearly 40 years since the start of the Hawke-Keating-Walsh reforms, Chalmers apparently believes it is time to give government economic planning another go. To provide centralised management and guidance through “reimagining and redesigning markets … with co-ordination and co-investment”. More government intervention seems necessary because government plans cannot fail, yet it is the government’s plans that were failed.

Chalmers derides as a “caricature for ever more simplistic and uniform policy prescriptions” the Washington Consensus of orthodox classical economics, which advocates for more competitive markets. Chalmers even suggests orthodox classical economics “assumed that markets would typically self-correct before disaster struck”, although no such assumption is made.

Markets can no better predict disasters and crises than can governments. Markets can, however, provide the shock absorbers to minimise the economic effects of disruption and provide the signals and resources to finance recovery. Government intervention in this fundamental market role only distorts these signals and diminishes resources, as has recently been evidenced in Australia’s domestic gas market.

Building on this ahistorical foundation, Chalmers does not dismiss markets out of hand but rather proposes government-designed and managed markets “through the efforts of business, labour and government”. We have seen the consequences of a tight coalition of big government, big business, and big labour. This is not neo-capitalism but rather neo-oligarchy.

Indian revolutionary Mohandas Gandhi was once asked what he thought of Western civilisation. He replied, “I think it would be a good idea”. The Washington Consensus that Chalmers criticises would also be a good idea.

Chalmers’s description of capitalism is a straw man. In Australia, total government spending sits near 50 per cent of GDP and there are 2.2 million public sector employees. In the past six months, the Albanese government has further increased labour and energy market regulation and placed price caps on key domestic commodities. It has delivered a budget projecting an 11 per cent increase in net debt over nine months and flagged further regulation of already highly regulated financial and capital markets. This is not the “more market” economic orthodoxy Chalmers decries.

Ironically also, many of the poor economic results he describes are the adverse outcomes of prior government interventions. Chalmers’s prescription for a values-based capitalism is not capitalism but a rhetorical recycling of prior failed economic policies. We have recently watched the prequel to this movie with the advocates of Modern Monetary Theory claiming all our economic and social ills can be solved by a money-printing expansion of government. Chalmers’s “new” model of capitalism with government-designed and chaperoned markets will lead to the same place – poverty and penury. Possibly worse.

Milton Friedman frequently noted capitalism does not require democracy, but democracy requires capitalism. Values-based capitalism is not just a threat to Australia’s economic prosperity but to our democracy. It should be returned to the dustbin of history from whence it came.

Dimitri Burshtein is a principal at Eminence Advisory and is a former government policy analyst.