Economic Reform is Possible Without Savaging the Welfare State

Listener: 2 September, 1995.

Keywords: Social Policy;

Prime Minister Paul Keating has an almost mythical reputation. As Treasurer (the Australian Minister of Finance) he presided over a major transformation of economic structure while the Australian economy continued to prosper. More recently he led his Labor Party into a “can’t win” election, and won it handsomely. While he is not popular because of his personal arrogance and an acerbic tongue, he can be proud of his government’s accomplishments.

A sartorial dresser, he is not really comfortable in a formal speech, but revels in bashing the opposition leader (currently John Howard) and his Liberal Party’s policies. Yet at his presentation to the 1995 Social Policy Conference in Sydney last July, I was more struck by his claim to have transformed the social infrastructure of Australia. Here is his own list of the achievements in social policy:

“- the introduction of Medicare;
– payments for low income families increased by at least 80 percent in real terms;
– an age pension set at the benchmark of at least 25 percent of average earnings;
– reforms to superannuation so that close to 90 percent of the workforce receive superannuation compared with less than 40 percent in 1983;
– the introduction of a Job Compact which means that everyone unemployed for 18 months or more will be offered a job;
– the establishment of the Child Support Scheme;
– a more than five-fold increase in child care places, with a commitment to meet demand for work-related child care by 2001;
– the extension of Child Care Assistance and the introduction of the Child Care Cash rebate;
– the recognition and protection of native title;
– more than 7 in 10 young people completing high school compared with only 3 in 10 in 1983;
– more than 50 percent increase in tertiary enrolments in tertiary education;
– the establishment of a national vocational education system;
– a comprehensive network of community care services for older people and people with disabilities through the Home and Community Care Program;
– the enactment of the Disability Discrimination Act making discrimination on the grounds of disability unlawful;
– the Government’s landmark Sex Discrimination Act outlawing discrimination on the basis of sex, marital status or pregnancy.”

Now the list needs to be taken with a grain of salt for at least four reasons: it applies to a twelve year period; some items New Zealand had already achieved in 1983; it does not mention retreats and cuts; and the speech was oriented for the next election. (Keating may have been planning an early election, but the result of the Queensland State election, in which a very popular premier squeaked in by a one seat margin, has probably put that plan off.)

Nevertheless, one cannot be but struck by the range of social innovation, in comparison to New Zealand’s record over the same period. Which of our recent prime ministers could make a similar claim?

What is intriguing about Keating’s claim is that the economic transformation he presided over is broadly similar to that which happened in New Zealand. Both economies have become much more open to the world economy, and make much more use of the market mechanism. But in the Australian case there has not had to be the same savaging of the welfare state.

Why then did we have to do so in New Zealand? We are frequently told that major reductions in the role of the welfare state are necessary for the economic reforms to work. Yet the Australian reforms worked without them. Over the last twelve years Australia has done much better than New Zealand on most economic indicators – inflation being the exception – despite its external situation deteriorating in comparison to here. Sometimes in occasional years, or on occasional indicators, New Zealand has done better, but the long run record is of the Australian economy outstripping the New Zealand one. The Australians conducted their transformation under a pragmatic management regime, while the New Zealand one was implemented in an extreme ideological manner. Ours has been much less successful.

So New Zealand had to cut back its welfare state because its economic reforms failed to deliver the benefits that were promised. Despite the recent economic boom, they have still failed to do so. In a way Roger Douglas made a faustian pact with the devil. “Throw away all Labour’s economic principles, and I will give you undreamed of prosperity.” But the devil has still to deliver his side of the bargain, and Labour had to increasingly abandon its social principles too, in a way that many Australian’s find astonishing.

There are those who conclude that in order to re-establish the welfare state, we need to go back to the past of a fortress New Zealand relying on a few privileged industries to generate foreign exchange. We cannot. The economy that sustained the traditional New Zealand welfare state has been destroyed by changes in the world economy.

Yet that does not mean we have to abandon welfare altogether, or cut it back to the mean minimalism of the American “residual” welfare state. That seems to be the model which dominates the thinking of most of our reformers. The experiences of Australia, and of continental Europe, tell us there is an alternative.