Speech - GFC+10: A New Platform For A New Debate (Address to the National Press Club)









Good afternoon,

Welcome everyone, and a very special welcome to Ed, who I’ve had the privilege of knowing since he was a minister in Gordon Brown’s government. Over our careers, both of us have experienced political life after political death, having lost our seats in unexpected circumstances. I fought my way back; Ed is dancing his way back ‘Gangnam style’. Anyone who has ever seen him on his feet in parliament, or on ‘Strictly Come Dancing’, will know that he floats like a butterfly and stings like a bee. Well, maybe ‘butterfly’ is an exaggeration, but he’s danced his way to being the people’s hero.

Recently we politically tangoed together on the Inclusive Prosperity Commission – which was formed to explore what a social-democratic approach to economics might mean in the post-GFC world. The Commission’s 2015 report warned that the primary challenge Western liberal democracies face today is neither military nor philosophical, but economic. More precisely, it is inequality. The dangerous tectonic shifts in wealth and income inequality which have grown over the past 40 years, and were exposed by the Great Recession now threaten not only economic growth, but confidence in democracy itself.

Two and a half years on from the publication of that report our politics is still being shaken by these underlying changes in the economy. In my book The Good Fight, which as it happens I launched here at the National Press Club three years ago, I highlighted the threat that rising inequality and growing corporate power represented to our democracy. While these two threats are still creating tremors in Australian democracy, we haven’t seen the political earthquakes here we’ve seen in the UK and the US. There are many reasons for this – and I’m sure we’re all interested to hear Ed’s analysis – but to understand our current economic challenges, we need to rewind ten years to look at the defining economic event of our time: the Global Financial Crisis, or Great Recession.

Next month marks the tenth anniversary since Northern Rock experienced the first run on a British bank in 150 years. While Northern Rock would soon be eclipsed by even greater financial catastrophes across the Atlantic, it was one of the first signs that the global economic system was teetering. When I stood here three years ago, I outlined the Labor Government’s robust response to the GFC – what we did, why we did it, how we did it, and the fight we faced along the way. I believe now, ten years on, it is time to re-examine the GFC and assess what enduring policy lessons can be drawn from it. And this is one of the driving motivations behind the GFC+10 project.

I already know the first question in many heads in this room: you’re thinking this was ten years ago, why does it matter today? The GFC matters today because it isn’t just a debate about Australia, or one crisis, and most importantly it’s not just ten years old. It’s a debate that goes back 80 years to the Great Depression and the publication of Keynes’s General Theory – a debate about what role government should play in the economy. Keynes’s book famously foreshadowed the post-World War II welfare state, which for more than three decades underwrote the Golden Age of capitalism, before it succumbed to the trickle-down project of the 1980s. The arc of the trickledown experiment reached its zenith with the events of ten years ago, and the political aftershocks – like Donald Trump and Brexit – are still being felt today. 

For me, this debate is both personal and political. On the personal side, I’ve had some people telling me I’ve changed my policy tune recently. I’ve been deeply engaged and concerned about unemployment and poverty all of my adult life, and I have the boring, worthy books, speeches and articles to prove it. But part of the rap I will cop. I have changed my tune. And it was the GFC that changed it. If you’re engaged in the public economic debate you should be required to answer one question. Which core assumption about how the economy operates did you change between 2007 and 2010? If the answer is none of them, then you are either a genius – and there weren’t many of those during the GFC – or you are a charlatan.

For me, aided not only by my experience of the crisis but by Thomas Piketty’s brilliant scholarship, I now see more clearly how growing inequality is an inevitable consequence of the 40 year dominance of a particular economic policy mindset. I see how inequality damages growth, makes our systems more fragile and crisis-prone, and has a similar effect on our politics. This isn’t to say market forces don’t play an important role in the allocation of resources. They do. The market can be a force for good, rewarding hard work, effort and enterprise. But I also see, upon reflection, that the bastardisation of the market, the rampant abuses, corruption and ruthlessness by some market players has severely blackened its reputation. And policy-makers across the world are acknowledging this. You would have to suffer a special kind of ideological blindness not to see this!

So, that’s my confession up-front. Now back to our story. Opponents of government action have a passion against government’s role in the economy that is at least the equal of mine for it. You have to ask yourself: why? If this is all ancient history, and the case against intervention were so obvious, as they proclaim, why are so many still trying to demonise it? Well, here you have the crux of the matter – policy passions around the GFC are undimmed, because they still matter deeply to both sides. What the last ten years also confirmed – and what the conservatives and their media and business supporters cannot acknowledge – is that government intervention worked. It’s too deep an ideological wound that puts at risk the whole teetering edifice of neoliberal economics, and teetering it is.

If we accept the fundamentally and demonstrably false conservative narrative that laissez faire would have seen us through the crisis, then the next economic crisis – and there is always a next economic crisis – will result in mass bankruptcies, mass unemployment and mass human misery. As much as anything, that’s why our handling of the GFC will always matter. Australia came through the GFC by choice, not by chance – one of only a few economies to avoid a deep and devastating recession. Elsewhere, stimulus gave way to austerity that prolonged the length and depth of their recessions.

Our stimulus package, lauded by Jospeh Stiglitz as ‘one of the best-designed Keynesian stimulus packages in the world’ and recognised by the IMF as ‘among the most effective in the OECD’, created a new template for handling future economic crises. I’m incredibly proud of that. And gratified that the majority of Australians recognise the soundness of the approach we took. Recent polling by The Australia Institute found a majority of Australians, a remarkable 62 per cent, agreed that the GFC would have sent the country into recession if the Labor Government had not taken rapid steps to provide large fiscal stimulus. Only 22 per cent of people disagreed. And just last week a poll in Tony Abbott’s electorate of Warringah – the third-highest-income-earning electorate in the country – found 54 per cent supported the stimulus including 43 per cent of Liberal voters.

Ten years on from the crisis, only a small but influential group holds out, repeating the myth that Australia’s success was due to the combination of a robust Chinese economy and a resilient mining industry. They will of course accept any explanation, grasp at any straw rather than concede the effectiveness of Keynesian policy, but their position has always been and remains indefensible. The facts are against them. Dead against them. China’s growth supported stronger domestic growth from 2010 onwards, but it had little to do with Australia’s performance during the critical year that followed the collapse of Lehman Brothers in 2008. Those holding up the mining industry as Australia’s saviour overlook Treasury Secretary Ken Henry’s argument – had every industry shed as many jobs as the miners did in the aftermath of the crisis, unemployment would have more than quadrupled, from 4.6 to 19 per cent, in just six months.

The experience of other countries provides a sobering glimpse of what would have happened had the deniers been in charge. Governments that were timid in deploying fiscal stimulus, and those who moved in exactly the wrong direction by inflicting austerity on their citizens, are still feeling the enormous economic and human cost of their response. You may consider me indulgent to stress the importance of the stimulus and to disparage its opponents, but my appearance here today is much more about lessons for the future than it is about the legacy of the past.

Within the past year, both our current Prime Minister and his Treasurer have explicitly tried to discredit Australia’s Keynesian policy response to the GFC. But without our structural intervention, the Australian economy would have suffered the same skills and capital destruction that dragged down most other advanced economies. And as a result our democracy would be weaker. The strength of our democracy stems not just from our actions during the GFC, but because for over thirty years median household incomes in Australia have done much better than virtually any other advanced economy.

The difference between us having a Hanson in the Senate and them having a Trump in the White House is as simple as the difference between them having thirty years of wage stagnation and us having thirty years of wage growth. But in recent years it’s become clear we’re not immune to the sorts of economic trends which have brought other Western liberal democracies to the brink. The share of income going to employees is at its lowest level in almost sixty years, when records began. Underemployment is at its highest rate in almost forty years, when records began. Private sector real wage growth is at its slowest rate in at least twenty years, when records began. The devastating political consequences of the neoliberal model across the developed world are now evident for all to see. That is why its embrace by the Turnbull government is a threat to growth, living standards and political stability.

If we are to avoid going down the American road of rampant inequality and a hollowed out middle class, we need sensible fiscal and monetary policy to sustain full employment. Full employment must be the central objective for a progressive party. We need polices which give a stronger voice to working people and build a world leading progressive taxation system. Taming corporate excess through reforms to corporate governance and encouraging long term investment over short-term speculation is a high priority. The merge, purge and gouge mentality of some corporates is economically counterproductive and deeply damaging to our social cohesion. The recent behaviour of the Commonwealth Bank and BHP, two of our largest companies, shows the need for a radical shakeup of board selection. In the last 10 years, less than 15 people have been voted off ASX 200 boards. If there was an outcome like that out across three parliamentary elections it would be fair to say we have an autocracy, not a democracy. In Sweden, leading shareholders propose a shortlist of alternative candidates for a company director positions. A similar system could be proposed in Australia – this would bust up the directors’ club quick smart.

The economic challenges we face are significant but not insurmountable. Labor, under Bill Shorten, Chris Bowen and Jenny Macklin have articulated a clear alternative to the Turnbull trickle-down model. Our future political stability and economic prosperity demands that we draw on lessons from our past and the experience of other countries like the UK who have walked further down the American road. We can avoid the political earthquakes they’ve experienced. Our future political stability and economic prosperity demands an understanding that a strong working class and strong middle class are the sources of economic growth, not merely a result of it. Our future political stability and economic prosperity demand we recognise that social mobility is the key to an optimistic society and that inequality isn’t just unfair, it’s inefficient.

When inequality explodes, as we have seen, it erodes faith in our institutions and undermines democracy. Australians now have to decide whether we want to pursue growth through equity to achieve stability, or increasingly resemble the social and economic disaster that is the modern United States. Falling real wages for more than a generation. Mass blue-collar unemployment. Drug epidemics. Rising working class mortality rates. Ongoing political crisis. But it’s not too late for us to turn back. The policies are there to be found. The politics is there to be won. That’s what the GFC+10 project is about and you’ll be hearing a lot more about this over the coming year.