Among Australian economists, the reform years of Bob Hawke and Paul Keating (1983-1996) have achieved near mythical status. Their governments have been credited with opening up the country to foreign competition via reductions of the tariffs, freeing industry from the shackles of the union, reducing industry subsidies, and floating the Australian dollar. Legacies of those days include HECS, superannuation, and the Productivity Commission.
If you arrived in this country in 1995 or 2000, the evidence that a golden period of reform had just happened would have seemed overwhelming.
But with the benefit of another 20 years following the end of the last Keating government, what would the verdict now be? What were the mistakes made by those governments that in hindsight have come to haunt us? I don’t pretend to have any definitive answers as I am sure many of the readers will know more about that era than me, but do want to share my suspicion that the Hawke-Keating governments caused a lot of economic harm that would not have been obvious to observers at the time. To briefly mention a few of my misgivings about the reforms in those years:
1. The compulsory superannuation industry set up in those days has given us much higher costs of retirement than we should have. Compared to Denmark and the Netherlands, where government-run superannuation funds have overheads of around 0.1% per year, Australian super-funds run at around 1% per year. That may not sound like much, but it means that over your whole balance, you lose 1% every year. On a working life of 40 years, that means you lose close to 40% of the first dollars you put in at the start on overhead when you take it out at 65. It means all those skyscrapers in the middle of our major cities belonging to superannuation funds are there because of policy, not competitive forces, as later attempts to force cheap default super-funds have by and large failed. And one should not underestimate the knock-on effects of the huge rents involved in these overhead fees: because unions and employers together get to decide which superannuation funds the employees get to chose from, the superannuation rules have an in-built incentive for both of those decision makers to be co-opted by super funds (and I encourage you to look at how many of them are now in the boards of these funds!). They have created lobbies to ensure that employees have no choice but to use certain superannuation funds (legalised monopolies!). Also, because superannuation is intertwined with income and income tax, a lobby group has arisen to allow circumvention of income tax laws, dressed up as investment and salary sacrificing. In effect, a whole industry of superannuation consulting and lobbying has arisen due to the anti-competitive legislation of the Hawke/Keating years. I don’t think this was done on purpose: just the result of poorly thought-through legislation. But it now is a reality, an economic drag on the system.
2. The Hawke/Keating years in hindsight saw the rise of medical cartels, kick-started by a policy of reducing the number of medical specialists trained at the unis (probably done for the purpose of keeping costs down), which gave the remaining medicos higher salaries which they subsequently tried to protect by keeping their numbers low. That arguably gave us the over-priced medical cartels that now have a large say on health policy.
3. The Hawke/Keating governments saw the rise of politicised ministries, media management, and what is called ‘managerialism’, in essence a form of hidden unemployment masquerading as compliance-oriented management and bureaucracy. The lobbies representing these hidden unemployed now bedevil education, health, and general policy-development across the board in government. See for instance, this Ross Gittins review of a recent book by former senior civil servants arguing a similar same point. The authors of that book tend to blame more recent governments for politicising the civil service, but the trends were arguably set in motion during the Hawke/Keating years.
4. The Hawke/Keating governments saw the privitisation of the then nationally owned Commonwealth bank, which in hindsight can be argued to have reduced the competitive pressures on mortgage interest rates and other financial products offered by the big banks. Again, with mortgage interest rates for households being easily 2% higher than the interest rates charged to banks, we are talking a huge additional yearly overhead cost on a large number of households in Australia, the indirect result of policy.
I encourage you to add your own examples in the comment box of the actual economic effects of the policies of the Hawke/Keating era. In hindsight, I am simply not sure whether to call the Hawke/Keating years the glory days of de-regulation, or the disaster years of a regulatory explosion. I do know that inequality increased a lot following those reform years, in part because of the tax changes then introduced. And the interest groups then created are among the biggest obstacles to a fairer society now. Perhaps that was inevitable and things would have been worse without the positive reforms of that era, perhaps not. It is time though to take off the rose-colored glasses and critically re-assess the long-term consequences of those years.