Ruddonomics

By Sinclair Davidson And Alex Robson

Wall Street Journal Asia – 23 October 2007

It looks like Australia may have lost its nerve for economic liberalism. In Sunday’s nationally televised debate, Prime Minister John Howard touted his vision: a "new society" based on entrepreneurialism and individualism. Opposition leader Kevin Rudd a self-proclaimed Christian socialist, backed bigger government and expanded social spending. Yet immediately following the debate, Mr Rudd. was declared the winner by most of the popular media.

Next month’s national election result could have significant implications for Australia, the world’s 15th-largest economy and a key U.S. ally in Asia. Over the past two decades, successive Labor and Liberal governments have ripped down trade barriers, privatized industries, floated the Australian dollar and opened the country to international capital flows. The economy is in its 16th year of uninterrupted economic growth, free of public debt, and enjoying low inflation and the lowest level of unemployment in 33 years.

Mr Rudd, a 50-year-old former bureaucrat, has cleverly mimicked the government’s record, even labeling himself an "economic conservative." That tack has apparently won him support among Australia’s middle classes, who have benefited most strongly from the economic boom and don’t want to see a change in economic strategy. He’s now leading Mr. Howard by about 10 percentage points in most national polls. But a closer look at Mr Rudd’s. record reveals that he’s not a reformer, but rather an unreconstructed interventionist masquerading as a free market conservative. Call it "Ruddonomics."

Take his parliamentary record, for a start. Since coming into the Parliament in 1998, Mr.Rudd has toed the party line and opposed most efforts to further reform the economy. The Australian Labor Party opposed the privatization of Australia’s government-owned telecommunications provider, Telstra; strongly protested industrial relations reform, including Mr. Howard’s recent efforts to reduce union power and abolish unfair dismissal laws; and, most importantly, opposed all significant tax reform over Mr. Howard’s tenure, including cuts in income taxes. Mr. Rudd’s economic philosophy isn’t a secret. In a speech to the free market Center for Independent Studies in Sydney last year, he openly attacked the free market ideas of Nobel Laureate Friedrich Hayek, branding him a "market fundamentalist." In Mr Rudd’s. mind, it’s okay to accept "the economic logic of markets but . . . these must be properly regulated and that the social havoc they cause must be addressed by state intervention." He also argued that public policy should deliver long-term market-friendly reform tempered by "social responsibility."

In practice, a Labor government under Mr. Rudd would re-regulate economic life. Over the past year he has promised to set up no fewer than 68 new bureaucracies and establish 96 reviews if elected. He promises to ratify the Kyoto Protocol and commit Australia to a costly program of reducing its greenhouse gas emissions to 60% of 2000 levels by 2050. His proposed industry policy—constructed by Kim Carr, a declared socialist—would create an uberbureaucracy of 12 Industry Innovation Councils. The goal, it seems, is to promote manufacturing by "picking winners"—a policy with an appalling track record of failure both in Australia and elsewhere. To round things off, Mr. Rudd’s labor-market policy promises to abolish individual workplace agreements and to restore union power over policy making to its former glory.

Given the Howard government’s record of economic success, Mr Rudd’s dominant lead this far into the electoral cycle is a remarkable achievement. But it’s also not without precedent. Australia has been through this kind of economic soul-searching before, with an eerily similar Labor campaign pitch—and a disastrous outcome.

In 1972, Prime Minister Gough Whitlam led Labor out of a 23-year-long electoral hiatus by running the most comprehensive negative campaign in Australia’s history. His "It’s Time" platform emphasized the Liberal Party’s long stint in power without laying out a coherent alternate economic vision. He then embarked on a disastrous three-year premiership, during which time he socialized Australia’s health and education systems and unapologetically increased the size of government. Inflation soared, as did the levels of national debt. Today,
Australia is still living with many of Mr. Whitlam’s mistakes.

Mr Rudd’s 2007 campaign strikes a similar tone. His slogan—"New Leadership"—is aimed squarely at Mr. Howard’s political longevity, rather than any apparent policy differences. Indeed, an integral part of Mr.Rudd’s strategy is to mimic everything his opponent says on monetary and fiscal policy, including keeping a budget surplus and an independent central bank. Even Mr. Rudd’s Labor Party colleagues—many of whom are closely affiliated with left-wing labor unions—now cloak themselves in the jargon of economic conservatism, while touting big government platforms such as a federal government takeover of the nation’s hospital system.

At the same time, Mr. Rudd has judiciously employed the "It’s Time" strategy, carefully pointing out that his opponent has been around for an awfully long time, and is "old," "stale" and "out of ideas." To top it all off, he often cautions voters about the evils of negative campaigning, and reprimands Mr. Howard for directing any criticism at him, no matter how minor.

We’ll soon know if Australian voters will repeat their 1972 mistake, and go with a candidate who promises bigger government. When asked whom they want to run the economy, voters overwhelmingly favor Mr. Howard. Yet betting markets, which have a good track record of predicting voting outcomes, show that Mr. Howard only has a 40% chance of holding on to power. That most voters do not seem to know or care about any of this speaks volumes about Mr. Rudd’s campaign strategy and Mr. Howard’s inability to cut through the spin. For the most part, Australians do not seem to recognize that good economic policy does not require "new leadership" or "new ideas." The current economic boom has lasted so long that most citizens— including Mr Rudd, it seems— have forgotten the three main ingredients of policy success: minimal intervention, transparent regulation and broad economic liberalization.

Mr Rudd has done well to convince voters he represents new leadership, as the results of Sunday’s debate show. Yet it isn’t clear which aspect of his election platform is new. If Ruddonomics wins the day, Australia could find itself back in a 1970s mindset, with bigger government and a less competitive economy. In a modern, rapidly globalizing world, that’s not a vision for the future— that’s a vision for the past.

Mr. Davidson is a professor in the School of Economics, Finance and Marketing at RMIT University in Melbourne. Mr. Robson is a lecturer in the department of economics at the Australian National University in Canberra.

Not till you see the whites of their eyes

I think John Howard should wait a while before calling the election.

A section of Australian voters are still infatuated with Kevin ("me-too") Rudd, who seems anxious to get this election in the bag while he still has a large lead in the polls.

The next few weeks will increase in intensity, and show up flaws in the conga-line of "wannabes" that are following Kev around. See for example Robert McLelland's gaffe on going easy on terrorists, or Peter Garret's hypocrisy about the Tasmanian Pulp Mill. In fact if you scratch more closely at any of the Labor front bench, it's easy to see the amateurish cracks in the facade that is "Kev 07".

John Howard should take a leaf out of Neville Wran's book, who espoused the idea of applying the "blowtorch to the belly" of his oponents - keeping the heat on them to really see what they're made of.

It's only when the heat is on, when the pressure is unbearable, when they wish the blowtorch would go away, that you really get to see what someone is made of.

Take your time, Mr Howard. Keep the heat on. The Rudd facade will slowly melt away, until it's pretty obvious to everyone that Emporer Kev isn't really wearing any new clothes at all.