Australia’s boom in consumption and speculation has masked severe structural weaknesses in our economy – underinvestment in physical infrastructure, skills shortages, depletion of environmental resources, distorted incentives and rewards, growing inequality in private incomes, and a loss of international competitiveness.

Although many of these weaknesses result from the Howard Government’s short-sighted populism and lack of policy competence, in the 2004 election campaign Labor made the extraordinary decision to run dead on economic issues (‘Labor’s loner: how Labor lost the plot’ by Pamela Williams, Australian Financial Review, 8 February 2005). Only since its defeat, as these structural weaknesses have become more obvious, has Labor been (cautiously) criticising the Howard Government’s economic policies. It will be hard for Labor to gain the high electoral ground, however, while it restricts itself to sniping from the Opposition benches and while it accepts the Howard government’s narrow definition of economic management. Labor must develop its own set of economic policies grounded in a clear set of values – social values. A starting point is to remove the false and illogical distinction between ‘economic’ and ‘social’ issues.

Throughout most of human history economic or market activities – production, distribution and exchange – have been embedded in society. The economic sphere has been part of, not apart from, the social sphere. We work, consume and trade not because these activities have merit in themselves, but because they contribute to individual or collective happiness.

The Great Transformation – how we separated the economic and social spheres
In 1944, the economist and historian Karl Polanyi wrote his prophetic work, The Great Transformation: the Political and Economic Origins of Our Time (1945, Beacon Press edition 1957.) He warned that the advanced countries were seeing the rise of the ‘market economy’, in which markets would become the dominant organising forces of society. The notion of markets being embedded in society would give way to a notion of market dominance; ‘society’, if it existed, would be embedded in markets.

There is a clear illogicality in such a dominance. What, we may ask, is the purpose of market activity if it does not serve some other purpose? The commonly-held notion that we must accept the primacy of markets makes no more sense than the obscene logic in the Vietnam War saying, ‘We had to destroy the village in order to save it’.

Thanks to Peter Nicholson at the Australian

In overcoming this means-end confusion, there has been a partial response in ‘triple bottom line’ reporting, whereby firms and government agencies report on ‘economic’ (or financial), ‘environmental’ and ‘social’ aspects of their operations. Similarly, governments and political aspirants categorise their policies into these same headings.

This categorisation is superficially attractive, but it still suffers from what philosophers call a ‘category error’. If I were to say ‘At the Queen Victoria Market you can buy food, fruit and oranges’, the error of categorisation would be obvious. There is a similar, but less obvious, error of categorisation in placing economic policies alongside, rather than as a subset of, social policies. All policies (by the very origin of the term ‘policy’), should be social policies. It is illogical to suggest there has to be some trade-off or balance between ‘economic’ and ‘social’ policies; if economic programs do not contribute to desirable social outcomes (however we may decide what is desirable), they are bad programs.

This does not mean Labor or any other party should allow some soft or romantic social vision to obscure the need for sound economic programs. Far from it; in fact the point of the argument in this article is that Labor should be more assertive on economic issues. Labor politicians and strategists should be very concerned when, as repeated polling shows, it has a handsome winning margin in ‘social’ policies (particularly health and education), but lags by a greater margin in what are known as ‘economic’ policies. Labor has not convinced the electorate that it has an integrated platform.

Towards integration
In the 2004 election (and in the 2001 and 1999 elections) Labor fell into a trap set by the Howard Government, which has a confined notion of economic management. Political scrutiny of programs is limited to a four-year projection of budgetary outlays, a process formalised in its Charter of Budget Honesty. That charter has become, de facto, the measure for policy evaluation. ‘Economic management’ is confined to the bookkeeping function of balancing a cash book, a task within the ability of the most incompetent of governments.

Thus was the Coalition able to ridicule Medicare Gold because of its call on budgetary funds. (Had Medicare Gold been subject to a full economic evaluation, considering its impact on resource allocation throughout society, it would have been seen as far more economically responsible than the Coalition’s proposals for open-ended and inflationary health care subsidies.) Similarly with Labor’s other policy proposals.

So long as Labor subjects its policy proposals to this process it will suffer the frustration of seeing its policies ridiculed on the stage of ‘economic scrutiny’, where the Government has defined economic scrutiny in its own, limited terms. And the Government will continue to stand on its record of ‘sound economic management’ – that is, its skill in impression management as it chooses the ex-post indicators which show it in the best light.

To overcome this obstacle, Labor needs to integrate its policies in a clear vision and set of values – social values – rather than categorising its policies into ‘economic’, ‘social’ and ‘environmental’ headings with their implications of compromise, trade-off, and contradictions.

To set the stage for its own proposals it can start by showing the destructiveness of the Howard Government’s economic programs, not in soft ‘bleeding heart’ terms, but in economic terms that have social meaning. How the Howard Government’s capital gains tax changes have damaged incentives to work or invest to create long term value, while providing an incentive to make speculative profits. How its education policies, in entrenching privilege, are eroding our human capital. How its labour-relations policies are spending down our social capital; if people associate ‘reform’ with outcomes, their political resistance will eventually stymie the possibility of future reform. How its weak environmental policies are destroying our inherited assets. And how its fiscal policies have weakened the assets on our balance sheet – our common wealth.

Labor can take the high ground with its policies, co-ordinating them around values which may be expressed fully or partly in economic terms, but not in the narrow terminology of the counting-house. Economists’ terms such as ‘equity’, ‘efficiency’ and ‘resource allocation’ have meaning only if set in a social context. Nor does the ‘third way’ offer an easy solution, for ‘third way’ platforms are inherently unintegrated, with a little bit of privatisation here, a little bit of socialism there and without any grounding in consistent values.

If Labor does achieve policy integration, it need no longer be apologetic about health, welfare, education, housing, industrial relations or environmental policies. Rather it will be able to craft a progressive and liberal policy platform that will pass economic scrutiny.

Such articulation would force an exposure of the values implicit in the Howard Government’s economic policies; they would be seen to be contradictory, destructive and irresponsible by any reasonable normative standards.

It takes time to capture and hold the high ground. Labor has time, but will it once again squander it with a salvo of disconnected policy statements presented only in the few weeks of the next election campaign?