How academics, ministry experts, and civil society are losing: is the government now for the few?

The latest federal budget in Australia by the Liberal Party was a real break with the recent past in which politicians were reluctant to offend any large group of voters and in which the status quo with respect to entitlements was avidly kept. There was a bit of playing around with extra money under Labor – spent on projects like the NBN – and there were some attempts at taxing the richest sectors more, such as the carbon tax, but it was largely a case of ‘All quiet on the Western front’.

This budget was different and seems to herald a shift in orientation of our political elites, not just the Liberal Party. What seems to have happened is that the political elites now take their cue from well-organised interest groups, to the detriment of the unorganised majority, effectively trailing the US by about a decade. The US saw the same move towards a ‘money talks’ society about 10 years ago, including the lifting of the Glass-Steagall laws that were meant to prevent the kind of financial piracy that lead to the GFC. In the US the trend is again reversing, but here we are just getting to the crest of money-talks politics. This is dressed up as going towards ‘small government’, but in reality we are talking about Government for the few. It is an inequality increasing agenda that rewards topic-specific organisation. Let me expand.

As Ross Gittins has pointed out in a whole set of articles on the budget, the headline changes are quite dramatic for the majority, especially for young poor people: the Gonski reforms, benefitting the least able within the schooling system, have been axed; the Carbon Tax, a tax mainly on a couple of big firms (mines and electricity generators), has been repealed; the age-pension, which is one of the main transfer programs, has now been indexed to inflation rather than average wages, which implies a 2% reduction in relative terms per year and 25% within about 12 years; the public school system and the hospitals will similarly see their commonwealth subsidies indexed to inflation, ensuring the same 25% decline in about 12 years; the cuts in parenting support similarly hit large parts of the population, whilst the effective halving of the unemployment benefits for the young (via the 6-months-on, 6-months-off rules) are estimated by the Department of Social Services to eventually impoverish close to half a million people.

One might see all this as indications of a move towards ‘small government’ and ‘starving the beast of government of funds’. That is certainly the storyline kept up by the Coalition and one that business economists bandy around also. It was the story of the Bush years in the US. If you look closely though, you will find it is not about small government at all. For you would have missed all the areas where government just got bigger. Substantially bigger. So look at the other changes to see the full picture.

In terms of small fry, the government has increased its budget for infrastructure and armament by several billion a year, benefiting a few large construction companies and arms dealers.

The more radical increase in government spending comes via the liberalisation of the Hecs fees though: this can be expected to double if not treble the government subsidies for education in terms of new loans, which is currently a flow of around 6 billion a year. The government could thus quite possibly lend out an additional 10 billion AUS a year in coming years, or 50 billion over the next 5 years. That is an increase in the size of the government that dwarfs all the other changes, cuts or increases. It will not be counted as new government debt because of the presumption that these loans will be paid back in the future, but, as the UK experience suggests, non-repayment rates can easily go to 30-40%, particularly when the loans are indexed to nominal interest rates and hence blow up quickly for anyone who cannot repay them fast. A 40% non-payment rate would mean an effective cost blow-out of 4 to 7 billion a year, much bigger than any other item on the budget!

So just on the proposed changes to Hecs alone, one should see this budget as a massive expansion of government, not a move towards small government at all.

And one should be clear as to whom the winners and losers of this expansion will be: the losers will course be the students and their parents, which is the whole of the middle classes. The winners will be a quite small but well-organised group of top-administrators at the top 10 universities in the country who have lobbied for these changes for years. So for the benefit of a few hundred people, who wield large bureaucracies inside their universities that help them lobby politics on this topic, this government is expanding its involvement via government-backed loans quite massively.

Similarly, the axing of the Carbon Tax (something I don’t actually mind because the Carbon Tax was never going to have the effect it was supposed to have) benefits large generators and rich shareholders in London and New York and other overseas places (who own around 85% of all the shares of our biggest 3 mining firms).

The same theme of how the budget benefits very small but well-organised groups at the expense of millions of voters pertains to many other changes. Private schools for instance have not been affected by the reduced subsidies to public schools as their implicit subsidies (via tax write-offs) have been untouched. Indeed, with the temporary increase of the top rate of income tax, private schools are now subsidised more by the government, not less!

The reduction in Corporate Tax will also primarily benefit a few very large firms that make lots of profits, including those big three foreign-owned mining firms (BHP, Tinto, Extrata).

Then think of what has not been affected: there has been no move to reduce the tax write-offs used by the Super-rich; no move to unravel the medical cartels; no move to reduce the fees charged by the superannuation firms; no move against the fuel subsidies for the mining industry; no increase in accountability of financial advisers.

Worse, down the line, it is expected that we are looking at reductions in the marginal rate of taxation about $200,000, something that will benefit only a few percent of the population but will cost the other 99%.

We are clearly looking at the effect of years of lobbying of interest groups behind the scenes and a fundamental shift in the orientation of political elites on both sides of politics towards this lobbying, ie towards the ‘stakeholders’ they hang out with.

The writing was already on the wall in 2010 when the Labor government did not manage to push through a mining tax which would essentially have meant a grab for the profits of largely foreign shareholders (!!). It was obviously beneficial to the Australian population, but could not be pushed through due to concentrated lobbying and media efforts of the big foreign-owned mining companies. It also revealed the failure of civil society, top ministry advisers, and of academics who were caught off-guard by the media-blitz. The politicians saw ‘us’ lose.

This loss heralded a short period in which the Labor government effectively was in tax limbo-land, unable to push through any major change that would adversely affect the well-organised and the well-funded. Worse, it was co-opted to fund fanciful and inefficient projects like the NBN, which also benefited the few over the many. There were many other examples.

The shift in power that was hinted at following the battle over the mining tax in 2010 has now become much more apparent and ingrained: it seems to have become the actual policy of the government in power to do the bidding of the few. Like many newspapers, politicians are simply going with the stories that they get bombarded with, offered for free, which are the stories by the well-funded few (as well as the baby-boomers). These are our ‘Bush years’, whether or not the changes survive the Senate.

So we are looking at a shift in political influence in this country, away from the masses and towards the well-funded and the well-organised. For the moment, academics, ministry experts, and civil society, still oriented towards the wellbeing of the many, have no answer. Ministry experts who could formulate alternatives are being fired, left, right, and center. We are losing. Big time.

But what are the underlying reasons for this shift in our political elites to do the bidding of well-organised vested interests? What has eroded the relative ability of the many to have their needs represented and championed in our democracy? Where is this ‘regulatory capture’ of the government by the well-funded and the well-organised leading us as a society?

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Ross Cornwill
Ross Cornwill
7 years ago

My first observation is that Labor has been spelt Labour through the article. My second was after this I lacked interest in reading it.

Deena Bennett
Deena Bennett
7 years ago
Reply to  Ross Cornwill

Then you threw the baby out with the bath-water.

Deena Bennett
Deena Bennett
7 years ago
Reply to  Ross Cornwill

Hm, perhaps I should have read more of the correspondence. No, you are still more than a little precious.

Michael
Michael
7 years ago

None of this is news surely to anyone who has been paying attention? The coalition is trying this on because Labor has been at a particularly low point being dragged down by internal power struggles, it’s association with unions and it’s loss of a social base. It’s not going to be all smooth sailing though as Australia doesn’t have voluntary voting so eventually people will vote in their self interest. Libertarianism might be fashionable in what passes for intellectual circles the right mixes with but it’s note popular in voter-land where they have a bit more common sense about it’s downsides.

john Walker
7 years ago

Paul
“what are the underlying reasons for this shift in our political elites to do the bidding of well-organised vested interests? ”
I hope you are going to continue, yes?

Paul frijters
Paul frijters
7 years ago

Michael,

It’s not just the liberals, see the links. It is a more general loss of influence of what you might call the technocrats (which includes economists) in favour of topic-organised interest groups. I agree that it can’t last, partially because of compulsory voting.

John,

Yes, more parts to follow! I prefer it if others also take a stab at thinking at what the underlying reasons might be though. It is not so clear where this trend is coming from are where it is going.

john Walker
7 years ago
Reply to  Paul frijters

Paul Look forward to ‘read more’.
As for a contribution – one of the Ipkats recently published a report of yet another EC consultation re IP.
In concluding comments Jeremy offered a broader reflection, that struck me as telling and relevent:

This Kat continues to oscillate between acute anxiety and deep concern that discussions about IP enforcement in the European Union are all too easily broken down into IP owners talking with each other, litigators sharing thoughts with litigators, economists discussing their notions with fellow economists, politicians with politicians and so on. This is why there seem to be so many versions of self-defined consensus.

conrad
conrad
7 years ago

Perhaps the underlying reason is that it’s actually very hard to create and keep the kind of structures where you have a big middle class that lives relatively well, invents lots of stuff, etc. . This type of structure is basically an anomaly of the 20th century, and for most of the rest of human history you basically had elites and peasants. So you might want to frame the question as how to keep and build this structure rather than just looking at what erodes it.

paul frijters
paul frijters
7 years ago
Reply to  conrad

I dont want to be too dramatic: in the historical scheme of things, this is but a small change. A reduction in the power of the state bureaucracy and civil society on the one hand, and an increase in that of organised money on the other. We’re still firmly a democracy that provides low crime, and a decent minimum education and health care for nearly everyone. Not to mention the free bbq’s in every public park! Life in Australia is still great and there is nothing new about special interests getting returns on their lobbying.

What is ‘odd’ about this change is that it is not ‘business’ in a broad sense that is winning influence. Many industries seem to have lost subsidies. I also cant see much benefit to the hundreds of thousands of small businesses in the recent changes. The winners in university land are essentially not even business people but public sector managers pretending to be business people. It is the strong concentration of the winners at the top of the large organisations that is striking.

And not all the changes are bad either. There is much to be said for a reduction in the number of public sector workers in many departments, both nationally and at the state level. It’s the cutting of ‘internal expertise’ and the expansion of government in selected areas for the benefit of a few that is the odd bit.

Michael
Michael
7 years ago
Reply to  paul frijters

I think you are confusing side-effects with policy intent. The winners you highlight in the university structure are a means to an end only – not the intent of the policy. The policy intent is very simple – to make tertiary education more a positional good. Rich kids should go to exclusive, elite universities that you have to buy your way into with money or connections and cheap crap for the rest. What’s the point of having lots of money if you can’t keep the riff raft out of your institutions?

derrida derider
derrida derider
7 years ago
Reply to  conrad

Yes indeed. The period 1945-1975 was the historic anomaly, not the disappointing decades since. The anomaly was not rapid growth (common enough after a massive disaster – Mancur Olson explained why), but the wide sharing of the proceeds.

Capitalism is just reverting to its normal self, and short of something as disruptive to established institutions as a world war – a cure worse than the disease – the reversion will not be stopped.

Paul frijters
Paul frijters
7 years ago

Sounds defeatist to me. In the long sweep of things our society is much better than the pre capitalist or early capitalist ones. It takes effort, true, but it’s not all futile.

paul walter
paul walter
7 years ago

I doubt whether neoliberalism has peaked, more to the point, just as it is consolidating its transformation from an economic theory through alibi forpilfer to raison d’etre for acheivement of government to implement its (myopic, unimaginative) version of “reform”, its fundamental weaknesses have allowed it to become the ideology of neo feudalism in the Surveillance Age.

Ross Cornwill
Ross Cornwill
7 years ago

Glad to see the spelling correction. Now makes a damm good read. Thanks.

john Walker
7 years ago

Not sure what neo liberalisum really means , in my world there seems to be a lot more regulations, regulators and admin now than there was 25 years ago.

Alphonse
Alphonse
7 years ago

Ok, I’m late to the party (just got here on a search for something else) but JW, your answer is that regulation must increase in step with an increasingly complex and specialising and self-impinging and globalising and techologically advancing world. The neolib squawk about red tape sounds sweeping in concept but its implementation proves to be either marginal tinkering or grossly negligent craziness.