Friday, February 20, 2009

Unbecoming of age: Australia's financial deregulation

After Kevin Rudd's post-Neoliberalism manifesto it was only a matter of time before his predecessor -- John Howard -- would appear to both set Rudd straight and to provide a set of scissor-ready quotes that can be cut'n'pasted into further Labor rhetoric about the defence and affirmation of neoliberalism residing in the Liberal party.

Howard, in his inaugural speech last night at the Menzies Research Centre, did voice the common-sense argument that the Hawke-Keating governments must be included in the list of those who Neoliberalised Australia. This is the central political flaw in Rudd's polemic: that any repudiation of Australian neoliberalism can't reasonably ignore the great neoliberalisers who floated the exchange rate, relaxed banking restrictions -- including permitting the entry of foreign banks --, oversaw the shift of the Reserve Bank's primary goal from unemployment, to the current account deficit, to the focus on inflation --effectively from protecting jobs to protecting finance capital --, privatised former government enterprises, reduced tariff protection, and used the increasingly hollowed out Accords to both dismantle the Arbitration system and de-unionise labour.

Yet Ruud's essay signals that there has been a change in rhetoric, or at least ideology, as David McKnight argues, which constitutes an opening for much needed government intervention in the face of the climate and financial crises. Let's hold Rudd to his anti-free market ideology, is McKnight's preferred response to this shift in political language. This is a useful goal, but there are lessons here from the long Labor decade that might be worth revisiting as a warning to such pragmatic support for what might merely be a change in ideology, rather than in governing practices.

Firstly, we need to admit that the ALP neoliberalised Australian society. Not just the economy. Neoliberalism is a political, social and cultural project, and not just a doctrine about free markets and minimal government. Neoliberalism is a political project equally at home in the Labor and Liberal parties.

Secondly, there might be elements (practices) of neoliberalism that are worthwhile, that promote equality and justice. Just as the New Liberalism of the late 19th and early 20th century did much to establish the social and economic protections that stabilised many sections of Australian society during the twentieth century, there are also techniques and rationalities of neoliberal forms of governing that promote social justice and democratic participation better than so-called social democratic techniques. The desire to wholely repudiate neoliberalism from the Left is an understandable yet dangerous one. For example, flexible work practices are odious when they are used to casualise and make precarious the lives of manual labourers, so that employers can minimise costs and committments to employees. On the other hand, flexibility in working hours for parents or carers is to be encouraged. The sorts of practices of flexibility that result in job-sharing could do much to reduce job-losses as employers increasingly look to cut labour costs as turnover suffers. James Ferguson has developed this line of thinking based on his anthropological work in Africa.

Thirdly, the Hawke-Keating government modernised aspects of white, male, heterosexual Labourism that needed changing. This modernisation, however, was caught up and entwined in the national coming-of-age narrative that had financial 'deregulation' as its central event . Those worthwhile elements of Australian Labourism -- elements which articulated to those social democratic practices that Whitlam sought to implement -- need not be cast off as part of the adolescence of Australian political culture: as the eczema of Australian modernity which was cured by the mature openness and independence that opening the financial arteries of the Australian economy achieved. Neoliberal globalization is essentially a project aimed at installing a political culture which serves the movement of finance capital to all reaches of the globe. Neoliberalism is the (political-)culture of finance capital, and it's that nexus that needs to be broken and rearticulated to other political-cultural forms.

To that end, Steve Keen has a useful breakdown of the emergence of Neoliberalised finance capitalism, Australian-style, here. Keen, in response to John Howard's specch last night, writes:

how anyone could champion the first reform–the deregulation of the financial system–as a “great” reform in today’s climate beggars belief.

As I argued in the Roving Cavaliers of Credit, financial deregulation was based on a misguided belief that the financial system operated like an ordinary market for goods, where the market itself would work out a sensible volume of and price for credit. A proper analysis of how money is created shows instead that a deregulated financial system will pump out as much credit as borrowers can be enticed to take on. In a world in which leveraged speculation on asset prices is possible, that will lead to the economy taking on so much debt that it will ultimately fall into a debt-induced crisis–which is where we are now.

Once in this situation, deregulated finance then amplifies the problem by going from supplying too much credit to cutting off the credit tap in a manner that reduces overall economic activity.

So the financial deregulation that Howard championed last night, and that successive Labor and Liberal governments introduced, led not to a better functioning economic system, but to a financial catastrophe that is still in its infancy.

To argue that the entire crisis was due just to the subprime scam, and lax financial regulation, is to ignore the obvious signs in the data that too much credit was being generated relative to income. These signs go back to mid-1964 in Australia, and to Armistice Day in the USA.

I expect that the belief that the Australian banking system is immune from the problems that have beset the rest of the world will be sorely tested in the next year or two, as the macroeconomic crisis caused by financial deregulation strikes at the heart of Australian homeownership. The level of household debt in Australia is as high as in America (when measured in terms of each country’s GDP), and though all the focus has been on the USA’s irresponsible lending to the Subprimes, in fact household debt in Australia grew three times as fast as it did in America in the last twenty years.

The Australian financial system is thus dependent on all Australian mortgage holders being able to service their debts, when the only source most of them now have to do that is their jobs. As jobs go as the crisis deepens, the solvency of the Australian financial system will be sorely tested.

No-one will then claim that financial deregulation was a “great reform”.

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