HON. WAYNE SWAN MP
FEDERAL MEMBER FOR LILLEY
"10 YEARS AFTER THE CRASH" CONFERENCE
WEDNESDAY, 13 SEPTEMBER 2017
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The collective effort of the international community through through 2008 and 2009 averted the great Depression Mark II. It taught us the importance of international coordination and cooperation.Today I genuinely doubt the capacity of global institutions and sovereign governments to respond as they through Christmas 2008 and March 2009.
What we’ve learnt over the past nine years is that our conservative opponents will do anything to discredit Keynesian economic policy and demonise deficit and debt in the name of austerity.
We know that in Britain the early withdrawal of stimulus and in the United States inadequate stimulus condemned both countries to a slower recovery and high levels of capital and skills destruction.
Australia was one of only two advanced economies to avoid recession.
The capital and skill destruction avoided in Australia was key to ensuring higher levels of growth in the years following the crisis.
As the next graph shows post crisis, employment participation in Australia exceeded levels seen in most advanced economies including Britain and the United States.
Right now even though the US unemployment rate is more than one percentage point below the Australian unemployment rate, employment ratios continue to be higher in Australia.
The key lesson from these comparisons is the avoidance of deep recessions improves outcomes in the labour market over an extended period of time.
Conversely countries like the US or UK where austerity took the hold after 2010 have been left with deep scars of lost output and skill destruction.
The continuing lesson from this period is that ideological opposition to government action will say and do anything except acknowledge the effectiveness of Keynesian stimulus.
So what can be done to avoid future crises?
I won’t touch on the financial system tonight but I do want to talk about the importance of the deployment of fiscal policy as a structural reform to drive growth with equity.
The GFC also exposed the teetering edifice of neoliberal economics across the world.
It shone a light on growing income and wealth inequality over thirty years which was exacerbated by high levels of unemployment and excessive reliance on monetary policy.
It revealed that weak and anaemic growth was a product of growing income inequality and confirmed that a declining proportion of GDP going to low and middle income earners acts as a handbrake on both economic growth and living standards.
This graph shows income growth by decade of the bottom 90 per cent of seven advanced economies.
If you exclude Sweden and Australia, income growth for the bottom 90 per cent has stagnated and declined over the past thirty years but most particularly over the last decade in Canada, France, Japan, the UK and the US.
The empirical work of the IMF shows conclusively that when the benefits of growth are concentrated growth is weaker and when growth is more fairly shared growth is stronger.
Over thirty years Australia was one country that did a better job of mixing strong growth with social equity.
Australia’s case demonstrates that ex-post redistribution is not enough.
A highly progressive personal and corporate tax system is critical along with a highly targeted transfer payments system and retirement income policy.
Just as important, if not more important, is pre-distribution with a strong voice for labour expressed in the form of a higher minimum wage and an explicit set of minimum conditions over which bargaining delivers additional productivity gains.
A lesson from this period is that we need unions more than ever before.
Not just through unions at the bargaining table, but in institutions where workers have the opportunity to share in profits and corporate governance.
The GFC and its aftermath points to the need for much more active fiscal policy which uses tax and expenditure measures as structural instruments to improve medium to long term growth.
Activist fiscal and monetary policy, promoting and sustaining full employment has to be a non-negotiable objective.
Policies to maintain full employment include reinvigorated industrial policy, large public investment in energy efficiency and renewable energy and investment in other critical economic and social infrastructure.
In Australia the Clean Energy Finance Corporation (CEFC) is driving private investment programs in renewable energy and energy efficiency which is a model that could be adopted across many areas including housing and public transport infrastructure.
The case for an investment-state by raising public investment, increasing workers purchasing power and promoting competitiveness is unassailable when public borrowing costs are close to zero.
There is a vibrant alternative to trickle-down economics, that is popular not populist.
There is an opportunity for the left to lead on jobs with an inclusive growth agenda. We will no longer win with platitudes about education and training or mild redistribution; we need a strong state which has a wealth creation and distribution agenda at its core.
These aims are unobtainable unless there is strong international leadership to deal with multinational tax evasion, financial regulation and climate change.
The GFC also demonstrated that dealing with financial panic and preventing financial collapse nationally and internationally will always require governments to take the role of lender of last resort while simultaneously pursuing fiscal and monetary stimulus.
The actions of the G20 through 2008 and 2009 ensured we avoided the Great Depression Mark II.
Now the world can’t afford a race to the bottom on financial regulation, corporate tax rates, new trade barriers and climate change.
I genuinely doubt the ability of global institutions to respond as they did at the height of the GFC.
The Australian experience of structural reform – inclusive prosperity through market opening reforms, sensible fiscal and monetary policy in concert with a fair industrial relations system and a strong progressive tax and transfer system is a pathway to avoid anaemic growth and political polarisation infecting the global economy.
There is a grave danger that beggar-thy-neighbour policies on trade, tax and financial regulation will push us towards an economic downturn and reduced living standards.
So we need a renew pushed for global rules to enable countries to secure their corporate and individual tax bases and reach trade agreements that are fair both domestically and internationally and deal with climate change.
It will be a catastrophe if nationalism sees countries turn their back on the international order and embrace populist solutions that are a route to low productivity and rising global poverty.
The critical question is why have social democratic or labour parties failed politically to build stronger and electorally successful coalitions in the face of rising wealth and income inequality.
Clearly some social democratic parties veered to far down the neoliberal path and failed to present a robust economic alternative and were run over by right wing populists using identity politics of racism and sexism to camouflage their wealth concentration agenda.
The economic case against neo-liberal economics is insufficient unless (1) we make a strong economic case that good wages and working conditions for low and middle income earners promote growth and are not just a consequence of it.
And (2) winning the ideas debate is insufficient unless we are backed by strong and powerful political campaigns backed by grassroots movements