For the past 30 years the economic orthodoxy that wealth would “trickle down” to working people has prevailed. We’ve been told that austerity was necessary too, to build a future for subsequent generations and lift living standards.
Working people watched their wages stagnate and business profits soar, but didn’t necessarily see the quality jobs and higher living standards they were assured would follow.
In the aftermath of the Great Recession, with even harsher austerity imposed across much of the developed world and with business profitability at an all-time high, the trickle became a very slow drip.
As a member of the Inclusive Prosperity Commission chaired by Lawrence Summers and Ed Balls, I’ve been reminded yet again just how different the Australian experience was during the GFC. Here, over the past 20 years the rising tide of economic growth lifted all ships – including the smallest, which in other countries were left stranded.
Our commission’s report was released earlier this month in Washington. It should renew pressure on politicians and economists to place inequality at the forefront of future discussions. It is in these future discussions that the Australian experience is highly relevant. The task is urgent: Oxfam recently reported that, by 2016, the top 1% will possess more than 50% of the world’s wealth.
Over the past 30 years, Australia has done a better job matching strong economic growth with social equity than just about any other developed economy. During this time incomes, particularly in the middle, increased by 50%. In 2014, the OECD Better Life Index ranked Australia as the number one country in the world based on a cross section of economic and social measures.
This outcome is no accident. It is the result of three decades of structural reforms which made Australia more open to the world and the world more open to Australia.
These reforms increased productivity, competition and investment while maintaining a strong social safety net. They included the floating of the Australian dollar, bringing down of the tariff wall, prudent fiscal and monetary policy, enterprise bargaining (which occurs above a strong set of workplace conditions including a high minimum wage), a progressive targeted tax and transfer system, and universal systems for healthcare, education and superannuation.
These reforms formed the foundation of the “Australian model” which has, over the past 30 years, seen Australia become the economic envy of the developed world.
However, now – six years on from the Great Recession and with the twin shadows of secular stagnation and economic inequality hanging ominously over the developed world – there is once again a need for bold structural reforms.
These reforms must centre on an inclusive agenda where the benefits of growth flow through to the wider community in the form of jobs, decent incomes, and rising living standards.
Despite Australia’s strong performance between 2007 and 2013, where active fiscal policy and private investment supported strong employment gains, we are not isolated from global trends.
If Australia and other developed economies are going to overcome the economic headwinds of secular stagnation and rising inequality, there is an ongoing imperative to implement structural reforms which drive productivity growth and fairly share its benefits.
Over the past 12 months, we have seen Australia’s conservative government use the premise of structural reform as justification for undermining the Australian model at the very time the rest of the developed world is looking to Australia as a road map to more inclusive prosperity.
The Australian government and governments across the developed world need to acknowledge and accept that inequality is not a fringe issue and not be sitting on the sidelines. Essential to combating its rise is the recognition that nurses, builders, teachers, labourers, hairdressers, shop assistants and waiters are as much generators of growth as bankers, investors, businesses and multinational companies.
It’s understandable many in the developed world would be cynical and see the current debate on inequality as merely political positioning rather than a genuine discussion about our values and their link to sustainable and equitable growth.
Therefore, it is a welcome development that US President Barack Obama not only used his State of the Union address to place inequality at the centre of American politics, but also unveiled a suite of reforms which aimed to create a more inclusive prosperity. These centred on making the tax system more progressive to support free community college, subsidised childcare and tax cuts for low and middle income earners.
The political and economic debate is shifting – the discussion about the need to address economic inequality is no longer confined to the corridors of academia. And, as my fellow commissioner EJ Dionne argued recently, there are those on the political rightwing who are sensing the change. This gives the political (and economic) leftwing an opportunity it has not had for many years: a chance to set the terms of the debate and achieve lasting policy reforms, which become the great enablers of social mobility and economic growth in the 21st century.
Originally published on the Guardian Australia.