Been there, done that – Thatcherism and Reaganomics revisited

The Treasurer, Josh Frydenberg, has announced the government recovery strategy – emulate Margaret Thatcher and Ronald Reagan. The problem is that Australia has been there and done that with the same very mixed results Reagan and Thatcher achieved.

For a start Thatcher and Australian Governments had one overwhelming similarity. Presented with a massive financial windfall gain from North Sea oil and energy and minerals respectively they proceeded to spend it as if there was no tomorrow and never once thought of establishing something similar to the Norwegian sovereign wealth fund. The Future Fund, despite anything Peter Costello says, is no more a real sovereign wealth fund than the knife Dundee confronted in New York was a real knife.

A second similarity was over trade unions. Thatcher took on the coal miners – supported by thousands of police – and ‘won’. Today any visitor to the coal mining towns affected will find more charity shops than any other retail outlets and some of the residents will not have worked in a regular job for decades. In Australia we had masked mercenaries and hundreds of police ‘breaking the power’ of the MUA and John Howard’s Work Choices which cost him an election and his seat. Reagan did the same as Thatcher and Howard but with air traffic controllers.

Both Australia and the UK favoured tax cuts for the wealthy over fighting inequality and neglected the building of social housing. In Thatcher’s case selling it off.

In the UK the financial services industry came to dominate the economy while other industries declined. In Australia it was mining with a Treasurer actually challenging a major manufacturing industry, the automotive industry, to shut down and leave the country. In America there was a class war which, as Warren Buffet said, the rich were winning.

When Margaret Thatcher came to power in 1979 there were 1.5 million unemployed. When she left in 1990 there were 2 million. John Howard, the closest Australian parallel to Thatcher, presided over the 1982-83 recession, then the worst since the Great Depression.

Alex Millmow (The Age 19 April 2007) reported that when Howard, the Thatcher acolyte, became treasurer, the budget deficit was $3.2 billion, inflation 8 per cent, the unemployment rate 6.3 per cent and the growth rate 1.6 per cent. Howard’s excuse back then for not introducing the changes he wanted was – “Fraser wouldn’t let me” – a claim Fraser contemptuously denied.

“When he surrendered the Treasury keys to Paul Keating in March 1983, the budget deficit was $4.3 billion, inflation was 11 per cent, unemployment was 10.2 per cent and growth was a negative 0.4 per cent $9 billion,” Millmow wrote.

The Hawke-Keating economy didn’t do much better as they too pursued a campaign of deregulation and ‘reform’ although it did bequeath Australia substantial structural reforms in terms of superannuation and other policies while Howard did the same with the GST. On the other hand Reagan, Thatcher and Australia all presided over policies which increased both inequality and middle class welfare with John Howard showing even more enthusiasm for that policy than Reagan and Thatcher.

Frydenberg, and the other proponents of Thatcherism and Reaganism, point to Thatcher’s success on inflation, deregulation and overall economic growth.

“Up to a point Lord Copper” is probably the best response to that and it can be contrasted with some other Australian developments.

As early as 2013 the Productivity Commission was pointing to the emerging problems within this pretty picture saying: “While real individual and household incomes have both risen across their distributions, increases have been uneven. The rate of growth has been higher at the ‘top end’ of the distributions than the ‘bottom end’.

“These changes underlie the recently observed increases in summary measures of inequality (such as the Gini Coefficient) in Australia for individual and household incomes. At the individual level, the key drivers are the widening dispersion of hourly wages of full-time employees and (to a lesser extent) the relatively stronger growth in part-time employment.

“At the household level, the key driver has been capital income growth amongst higher income households.”

Thatcher was also a pioneer of privatisation and the UK’s water, rail and power industries were privatised resulting in higher prices and poorer quality services. Australian Governments – State and Federal – followed suit with power privatisation providing a bonanza for investors and higher prices for consumers.

It is harder to compare Reagan and Australia because the US and Australia are so different in structural ways even if we do tend to exaggerate other differences a bit.

There is no doubt that Reagan presided over significant economic growth and reduced unemployment. But on the other hand inequality increased and the destruction of the US middle class – which did so much to create current day populism – was a pronounced side effect of his tax policies. He did though campaign on optimism – ‘It’s morning in America’ – unlike the dystopian visions of Howard, Thatcher and Trump.

Nevertheless, adopting the Laffer Curve theory Reagan claimed his tax cuts would increase growth and reduce the deficit. In fact the deficit increased and the wealthy benefited. The proposed Frydenberg tax cuts will have the same effect.

In foreign policy the Reagan administration cooperated with drug dealers (while Nancy Reagan was preaching just say no) to fund its regional wars and subversion. It wasted billions on the Star Wars missile defence plan. It never worked, even if he convinced many Americans that it existed and did. His staff conducted secret backdoor negotiations to undermine Jimmy Carter’s efforts to free the Iranian Embassy hostages – a truly evil act.

Thatcher invaded the Falklands perpetuating an imperial anomaly while we have tagged along on the coattails of the UK and US in Malaysia, Vietnam, Iraq and Afghanistan.

Morrison, who absented himself from the Parliamentary gay marriage vote and voted consistently against any legislation designed to reduce or eliminate discrimination against gays, would sympathise with Thatcher’s anti-homosexual legislation. Thatcher’s policy did, inadvertently, give us the Hockney LA paintings he did in self-imposed exile but Morrison’s gave us nothing.

To Reagan’s credit he and Gorbachev, in a modest building near the Reykjavik waterfront, established a far-reaching consensus on nuclear disarmament – sadly later dispensed with by their mutual military-industrial complexes.

But for Frydenberg the best advice comes from David Runciman’s book When Power Stops: Thatcher was “a remarkable politician. But she left a terrible mess in her wake and it’s unclear why anyone would want to emulate that”.

print

Noel Turnbull is a blogger who has had a 40-year-plus career in public relations, politics, journalism and academia.

This entry was posted in Economy, Politics. Bookmark the permalink.

For questions regarding our comment system please click here.
(Please note that we are unable to post comments on your behalf.)


Leave a Reply

Your email address will not be published. Required fields are marked *