Jim Chalmers’ new economics: a frontal assault on capitalism?

Feb 17, 2023
Australian Fifty Dollar Note.

It’s no surprise that Jim Chalmers’ gentle challenge to neoliberal economics has generated an often rabid and intensely hostile response from the Murdoch media. To be hoped for is a more reasoned, informed national debate which focusses on, as Chalmers points to, fundamental changes to our economic environment.

Some digging is needed to extract from the 6000 words Chalmers’ underlying focus: the uncontroversial fact that markets fail – as the GFC and the IPCC’s urgent call for massive market intervention highlight. Chalmers goes on to make the assertion that the market mechanism has no divinely bestowed automatic capacity to fix such failures. Hardly a controversial conclusion given the much touted market mechanism has been thriving and driving the globe to a climate induced economic meltdown. Chalmers then singles out income inequality as a prime example of market failure picking up on the fact that the market mechanism, while exemplary in increasing a country’s wealth, has lacked a moral compass when it comes to its distribution. No self-correcting mechanism here where 43% of the world’s wealth is owned by 1% of individuals and two thirds by 5%.

Over and above these global failures, Chalmers could well add the lack of low cost housing and failures in provision of for-profit aged care to a longer list of Australian market failures. Chalmers ‘value driven’ investment is, then, an acknowledgment of these failures and a way, albeit with scant detail, of how to resolve them.

That Chalmers found room to append a critique of supply side economics no doubt also energised the Murdoch media. Embraced by neoliberals, supply sider theory has it that cutting corporate and high wealth individuals’ taxes, while reducing government revenue in the short run, will incentivise investment, raise economic growth and thereby eventually pay for itself. There is a surfeit of research and empirical data which show this is in fact not what has happened. Rather, overall debt levels have risen and income inequality widened. In reality companies have typically siphoned off gains from lower taxes into bonuses and share buybacks while wealthy individuals have directed funds to tax havens and low capital gains taxed real estate.

No surprise then that Chalmers’ essay has rung free marketeers’ alarm bells. And no surprise that the Murdoch press unleashed its editorial attack pack in a full-on editorial pile-on over the past weeks – supported by the now industry captive AFR. Chalmers is portrayed as making a frontal assault on capitalism, on the hidden hand of the market mechanism and attempting to unleash an avalanche of wasteful government winner picking subsidies. The back-up of evidence and reasoning would fail economics 101. Adam Creighton piling in from Washington opines the real problem is too much regulation. Why? “Energy…no longer resembles anything remotely akin to a free market after years of government subsidies and meddling (they) have destroyed any hope of cheap power for the foreseeable future”. Chris Kenny applies his credentials in wildlife studies to economics by also launching a broadside against government intervention on our energy market. “Enforced renewable energy targets and subsidies – and CEFC investments -have deliberately undermined the economics of coal and gas generation to force them out.”

The Australian Financial Review has added to the anti-interventionist pile-on with its attack on the government’s cap on the wholesale gas price. It is portrayed in a recent editorial as a disastrous intervention that will seriously harm future investment. How this is so when it is a temporary measure and at a price well above the pre-war commercial rate is left entirely to the reader’s imagination.

All this ignores – deliberately it would seem if these journalists did read Chalmers’ essay – that the Treasurer is not dispensing with the market mechanism but seeks to nourish it with needed information and incentives where markets are failing. This is not exactly, as Judith Sloan in the Australian asserts, a remaking of our form of capitalism. Sloan could learn from the economic history of successful capitalist democracies. The Governments of Japan, South Korea, Singapore, Sweden and Denmark have all at times marshalled and directed resources into chosen growth sectors. Of course Australia too has chosen this path – witness the annual billion dollar plus subsidies flowing to the oil, gas and coal industries. Witness the extraordinarily generous royalty and depreciation schedules which allow many mining companies to pay risibly little tax. Witness the massive flow of funds into rural roads and inland rail by Federal and State governments. What Chalmers is proposing then, is not necessarily greater intervention but a redirection and re-allocation of government support to areas of genuine market failures – that is, to areas of both demonstrable need and demonstrable long term profitability.

Nevertheless, Murdoch journalists still hold tenaciously to the view that current intervention in the energy market is wholly unwarranted and harmful. Of course I have never seen any of these journalists suggest subsidies for the mining industry should be withdrawn to create a genuinely free market. Rather, as in a recent editorial, The Australia prefers to charge the Government with unjustified intervention in accelerating the transition to renewable energy. Such intervention and subsidies have, it bizarrely claims, only made “… existing technologies more expensive and less efficient…”.

If we follow the economic evidence then, it is hard not to conclude that Judith Sloan and her co pile-oners are protagonist not of the free market but of the status quo – of industries which are feeding off past government generosity.

Left unsaid is that these status quo industries are being isolated by a broader reorientation of corporate attitudes – as Graeme Samuels makes clear in a recent AFR article (1 February). Post GFC he points out, a new world view has emerged led by investors and the business community which “… could break the consensus that has governed business for two generations and offer a new model for capitalism based on the watchwords of purpose, inclusion and sustainability”. He goes on to quote Larry Fink, head of the world’s largest investment fund Blackrock, who noted back in 2018 that people were now looking for companies to deliver not only financial performance but also a contribution to society by benefiting customers and communities as well as shareholders.

Globally then – no less so in Australia – adoption of corporate social responsibility (CSR) is becoming mainstream. A recent US survey reveals 90% of the S and P 500 companies were publishing CSR reports. Members of the Business Council of Australia are, we are told, all addressing this issue. Indeed, its president Jennifer Westacott primly slapped down Morrison in 2019 when he criticised corporates for straying into social issues – asserting there was in fact no conflict of interest.

CSR typically encourages companies to adopt environmental, ethical, financial and philanthropic agendas. As such, there is the making of a corporate bridge to values based investing albeit very much under construction in Australia. For Paul Kelly, some of what is being put out as CSR is, as he puts it in his own pile-on colourful language, “..nauseating hypocrisy waiting to be expressed”. Still, what Kelly may have difficulty accepting is that the business community will, sooner rather than later, need to develop business models which accommodate social values and sustainability. In that regard climate change is the first cab in the rank. Here we have had to pick a winner in the form of a transition to a carbon neutral economy using, at times, wide reaching market intervention. The irony is this intervention in Australia is already beginning to produce cheaper energy than its carbon competitors. As with climate change denialist, for the Murdoch pile-oners such a fact is no barrier to deliberate misrepresentation and obfuscation.

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