Swan's blast from Labor's past

RICH-BASHING will prove a tactical blunder by a government out of step with voters.

IN his now infamous essay in The Monthly, Treasurer Wayne Swan lamented the rise of corporate "vested interests" polluting the policy-making process with their "poison" and destroying the fair go.

It is another less than subtle shift in the government's approach to economic policy as it ratchets up the class-war rhetoric, implements policies that take us back to the future to reach the prime minister's fabled "new economy", misreads the long lost Labor voter and ignores the Labor tradition of co-operative economic reform.

There are vested interests in almost all areas of the economy -- farmers, pharmacists, clubs, carmakers green groups, trade unions. All have a right to advocate to their advantage.

Swan says entrepreneurs are using their money to unduly influence policy. But why wouldn't they when the government capitulated on the carbon pollution reduction scheme, the resource super profits tax and the poker-machine reforms? Carmakers demand and receive millions, yet continue to cut production, show little productivity gains and reduce their workforce.

If anything, the government has encouraged rent seeking. Swan gave these vested interests a clear signal that if they campaign enough, then the government will yield.

"This debate," Swan says, "is at the core of what the Labor Party is about." It may be what this generation of Labor is about, but it would be an anathema to Paul Keating, Bob Hawke and Gough Whitlam. In the 1890s, although labour and capital were often at loggerheads, the goal for workers and their political representatives was co-operation rather than confrontation. Some in the labour movement supported capitalists dependent on protectionism for their profits: farmers and manufacturers. Others in the services sector supported capitalists advocating free trade.

Although the great strikes and a depression energised the clash between labour and capital leading to the formation of the Labor Party the aim, as Bede Nairn argued, was to "civilise" capitalism rather than destroy it.

Critical in Labor's early success was winning the support of the small farmer and the small businessman. To secure majority electoral support, Labor needed to win mainstream voters who were turned off by class appeals, militancy and radicalism.

Modern Labor understood the importance of growing the economy and sharing prosperity rather than simply redistributing a shrinking share of growth. A profitable and successful company means more jobs and usually higher pay. Past Labor leaders clashed with business; but never with such contempt for entrepreneurs in a sector fundamental to our prosperity. Hawke and Keating, in particular, strongly engaged with business on economic reform.

The kind of rhetoric promulgated by Swan is redolent of the far Left who protested against Hawke and Keating at ALP conferences in the 1980s.

Whitlam, Hawke and Keating internationalised the economy, deregulated industries to foster competition and innovation, presided over significant productivity growth, and introduced workplace enterprise bargaining.

Labor's retreat from this tradition resembles the period when the party went into opposition in 1996 and advocated freezing tariff reductions, an interventionist industry policy and re-regulating the labour market.

The worst example of this government's economic approach is its protection of the car industry. Ministers like to talk about open and competitive markets but not when it comes to the car industry.

After $12 billion over the past decade in subsidies and tariff assistance, local carmakers continue to shed jobs and make fewer cars. Employment agreements give wage rises with no productivity trade-off. The challenge for carmakers is to produce cars consumers want to buy, not demand another handout as simply part of the "game" that is played abroad, as Holden suggests. Subsidies do nothing for economic efficiency, growth of the industry and long-term job security. They are a fraud perpetrated on the working class.

While it is good that Labor is reaching out to workers, there is a danger they misunderstand who they are. Most do not respond to class rhetoric, they prize aspiration, reward for effort and respect governments who make tough economic decisions.

Today's "worker" respects entrepreneurship because many of them are entrepreneurs. This is the economic class that Whitlam, Hawke and Keating created. They are the lost Labor voters who no longer believe Labor understands or represents their interests.

Labor's strategy is to use inflamed language and the mirage of protectionism to demonstrate it is a party of workers at a time when the economy is losing jobs. But it is the wrong language and the wrong policies. If this is the Prime Minister's new economy, it pre-dates modern Labor.

Labor does not need to go down this path. It can point to a strong economy compared to the rest of the world. Economic growth is at trend rates. Inflation is stable. Unemployment and interest rates are low. The opposition economic team is embarrassingly weak as Joe Hockey and Andrew Robb stumble on policies, key messages and basic facts.

Labor must give voice to the aspirations of the new economic class and continue the tradition of reform by focusing on productivity, promoting competitive markets and tackling the rising structural gap between spending and revenue, rather than settling for cheap populism and the failed policies of the past.