economic policy (australia)

7/29/2019 Economic Policy (australia)

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THE RUSH TO REGULATE: THE SHIFT IN AUSTRALIAFROM THE RULE OF MARKETS TO THE RULE OFCAPITAL

Dick Bryan

There has been a significant shift in the momentum of national economic policy inAustralia, from the market a s an end in itself towards a regulated policy agenda thatasserts the social, cultural and economic rule of capital. This 'new' policy is whatneo-liberalism really involves. Argum ents a bout 'free markets' and 'economicrationalism' fail to recognise the shift and are thus not germane to current policyanalysis.

It is a great mistake to think that that all Co nse rva tive s have to offer is solutionsbased on free markets. If we think that then we would have little to say aboutour public services where there are limits to the role of the free market.

British Conservative Party leader William Hagu e, ina speech celebrating the 20th anniversary of the

election of the first Thatcher Governm ent.

IntroductionIt's almost official. The ideology of free markets and the level playing field is nolonger driving economic policy in Australia.Just as, internationally, the IMF and a raft of policy advisors and commentators aresuddenly advocating the regulation of short-term capital flows (e.g. Roubini 2000),and Milton Friedman's long prevailing view that speculation will move a marketmo re rapidly towards eq uilibrium is being disow ned, so in Australia the urge to regulateis overwhelming. The ALP, whose governments initiated so much of what is called


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'deregulation', approached the 1998 election as a born-again interventionist partyLabor leader Kim Beazley described his party's (and his own) pro-market 1980sarguments as 'stultifying', saying instead that ' the public demands an interventionisgovernment ' (Australian Financial Review 30.9 .98: 14). Even the cuiTent gov ernm entmore 'free market' in its rhetoric than most, is steadily backing off its earlier viewsOn the world scene. Prime M inister How ard now w ants to be seen as a leading ad voc ateof global financial regulation to ensure stability, offering Australia's services to thecause for instance telling the 10th International Conference of Banking Supervisorsof the need for better monitoring and supervision of short-term financial fiows andderivatives transa ctions and of the need for mea sures to better manag e future financiacrises (Howard 1998a).

But it is in the do m estic con text that the Ho wa rd A dm inistra tion 's shift from freemarket ideology has been most significant. In this paper I want to examine that shiftand explain the alternative policy framework now emerging and to do so fromwh at is these days the unfashiona ble persp ective of the left. The thrust of my argu m enis as follows. While the Australian debate about free markets, on the part of bothadvocates and critics, has always been largely rhetorical about the direction ofpolicy movement rather than absolute policy packages there has been a notablemove away from even formal adherence to the ideology of free markets. The reasonfor this is, at base, that 'free market ' economics, although depicting a sympatheticideology of individualism, private property and competition, no longer meets theoverall needs of capital, particularly in a period of economic volatility.' It has longbeen understood (but recently largely forgotten) that capital requires the state notonly to 'set the rules of the game', but to actively regulate social and economicprocesses. As Polanyi (1944) pointed out decades ago, the market was, and must beplanned. The Howard Government 's shif t away from 'free markets ' has to beunderstood in this context. A range of regulatory interventions and a culture ofregulation are essential to capital in periods of economic volatility in order to secureconditions of profitability. Critiques of 'economic rationalism' miss this point andhave served to deflect attention from the real underlying trends.Free markets as a social philosophyFirst, a brief comment on terminology. I use the term 'free market' in relation to theHoward Government's original ideology, and as it remains widely depicted todayBehind that ideology lies the formal weight of neo-classical economics, whosetheoretical focus is the conditions under which individuals interacting in suitablyorganised markets can make optimising decisions for themselves and, in the processgenerate 'efficiency'. That theory also proposes a significant role for the state. Notonly is it held responsible for monetary and fiscal policy; it also has a more precise


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role in terms both of the minimal regulations required to maintain the associationbetween markets and efficiency, and specifically of 'extemalities': costs and benefitsthat flow from production and are not captured by market prices. In practice, thoseextemalities are extensive.Specifically, I choose 'free market' over two other widely used terms that are oftenapplied in this context: economic rationalism and neo-liberalism. The term 'econ om icrationalism", as it has been applied in Australia (e.g. Pusey 1991), signals the rule ofneo-classically trained economists in policy formation, and the imposition of neo-classical economic calculation into all facets of policy. My concem about the term isthat, although dep icting a real policy influenc e, it isolates econo mic calculation fromits social context. Exaggerating the importance of particular policy advisers, it therebyexaggerates the possibility of policy alternatives that would result from simplyovertuming the political hegemony of a certain sort of economics (see Bryan &Rafferty 1999: chs 4 & 5). Hen ce gov em m en t intervention as such is presented as thealternative to econo mic rationalism , in the belief that intervention is inherently socialdemocratic.^ As I argue below, there is indeed a renewed 'interventionism' but of aparticular kind that is definitely not social democratic. I therefore prefer to avoid theconfusions that would arise by use of the term 'economic rationalism' to depict theprevailing policy agenda.

As for the concept of 'neo-liberalism'. my misgivings are more fundamental. Forwhile the term is of critical importance in understanding current policy, it is widelymisused as a synonym for free markets or economic rationalism. I contend that weare indeed seeing neo-liberal policies in Australia but not simply those of freemarkets or econo mic rationalism . N eo-liberalism is mo re than a free market p rogram .It rests critically on two elements that are not always consistent: a belief in marketsand individual responsibility but also a social conservatism (see Overbeek & van derPilj 1993). This latter is inherently 'interv entio nist' and regulatory, but the regulatoryagenda invo lves consolidating social structures that might be over-run by the anarchyof market processes. Within this tension between the anarchy of markets and thecodes of conservatism there is a range of forms, but the important general point isthat the neo-liberal agenda is to be explained by its political purpose, not its systemof economic calculation.Policy, of course , is formed by com plex and often ch aotic processes process es thatgenerate policy inconsistencies and compromise. The Howard Govemment, whileusing freely the language of 'free markets', has nonetheless maintained, and in manyareas even strengthened, the system of state regulation. If critics of current eco nom icand social policy remain preoccupied with critiques of the 'free market' (as in thedebates about economic rationalism), the regulatory shift towards a more substantial


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'neo-liberalism', asserting the prerogatives of capital, will be missed, or even beinterpreted as an interventionist slide to the political centre. It is this broader agendaon behalf of capital, not the temporary flirtation with 'free markets', that needs to bethe focus of critical evaluation.What, then, does the 'rush to regulate' mean?The Howard Government's philosophical shiftTo identify and explain the broader agenda of its recent policy shifts, it is necessaryfirst to locate the earlier affinity of the Howa rd G ove rnm ent with the ideology of freemarke ts. Its initial adv ocacy of deregulation, privatisation and corporatisation of publicsector activities, along with the eradication of fiscal deficits, demonstrated a firmcommitment to the language and framework of the free market. Yet a basic socialphilosophy, not just an opportunistic mech anism for econom ic regulation, underlaythis policy agenda. This was the philosophy of individual responsibility articulatedparticularly at the level of the family unit self-reliance and the primacy ofentrepreneurship as the dynamic social force, with the state enforcing the (selectively)libertarian v alues unde rlying each of these aspects. That ph ilosophy has not cha nged ,although, with changing circumstances, the policies required to support it certainlyhave.In this context, Howard's views on 'Politics and Patriotism' (the title of one of his1995 'Headland' speeches as opposition leader [Howard 1995]) are critical. Theseviews were set against the former Keating Government's ' intrusive' nation-buildingagenda, arguing opposition to the state's role in building national identity. Alongsideits own 'free market' program, the Keating Government presented an agenda of nation-building via republicanism. Aboriginal reconcil iat ion and mult icultural ism (seeJohnson 1996). Ho wa rd's essential argument, in response to this nationalist p rogram ,was that the state should have no role in nation-building. National identity is not thestuff of government action it grows up spontaneously, from historical experience.Clearly, he expressed here not just a particular stand on racial and republican issues(which later came to haunt him), but a deep social belief in an abstract notion ofindividual responsibility and the inappropriateness of state-imposed agendas aboutthe 'good soc iety'. Conserv ative individualism, m ore than the technique s of free marketeconomics, was at the core of Howard's social vision. In certain policy areas, freemarkets were thought to be the economic mechanism to articulate that philosophy,but they were never ends in themselves.

The Government's shift away from free market rhetoric has been neither rapid noruniform, but it has been consistent. In this shift, H ow ard 's personal political difficulties


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early in his first term, and the backlash resulting from them, played a profound part:in particular his hostile anti-Aboriginal stance, his refusal to engage openly in therepublican debate, and his failure to denounce Pauline Hanson's alleged racism (fordetails see Abbott et al. 1998). In social policy, it appeared, the agenda of theunobtrusive state left no means for the government to manage social division.The same problem has arisen in economic policy, particularly in a context of generallyhigh domestic unemployment and international economic volatility, especially infinancial markets. The nub of the problem is straightforward. The popular socialresponse to such difficulties is to look to govem me nt policy to 'fix things u p' . Wh erethe free market does not deliver stable (and in some sense socially legitimate)outcomes, governments advocating 'free markets' are left without effective policytools. Free marke t ideology is based on the assumption that mark ets work efficiently;proble ms are self-rectifying via price adjustm ents, only requiring minim al sup ervisionby the state. When, in reality, markets fail to deliver that outcome, the free marketpolicy direction is to further lift restrictions on market participants to facilitate therequired price adjustments. This policy framework has frequently (and predictably)failed to generate socially accepted solutions. The effect, however, is that the state ispopularly seen to be retreating from the problem. Politically, there has to be a changeof policy: a change of regulatory practices.

The policy retreat from free marketsIn Australian economic policy there has been a notable move from reliance on freemark ets as the rationale for policy deve lopm ent. This mo ve can be traced from 1997,accentuated since the re-election of the Howard Govem ment in October 1998. Considerthe following specific changes since 1997: Th e appo intme nt of a com mittee to review state assistance to industry (M ortimer

1997), inquiring into the need for a system atic program of incentive s to encourag einvestment and grow th. This com mittee, chaired by a representative of strugglingbig busine ss,' predictably presented a broad package of subsidies and regulationsto aid business.The Howard Government 's response was the Plan for Australian Industry,released in December 1997. By the standards of European social democracies,the level of expenditure in this program is trivial. But in the culture of 1990sAustralia it signalled a significant shift in policy priorities. The industry policy,though far from constituting a 'plan' in any serious sense, announced a programof expenditure of $1.4 billion over four years including:t subsidies for research and deve lopm ent;


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t subsidies to attract foreign investme nt to Aus tralia and the appo intme nt of aStrategic Investment Coordinator to negotiate specific packages of incentiveswith particular potential investors;

t the continua tion of existing subsid ies to exp orters;t taxation incentive s to attract global financial institutions to locate theirregional headquarters in Australia;

t assistance to TN Cs that impo rt to and then re-export from Australia.Although the program rejects 'highly interventionist strategies' (Commonwealthof Au s t ra l ia 1997b: ix ) , the Pr im e Min is te r none the less a f f i rmed h i sGovernment's 'preparedness to strategically intervene in industry to offsetdistortions and remove impediments to expansion' (Howard 1997b: 5). Thecriteria of 'distortions' and 'impediments' provide the preconditions for ad hocpolicy, contrary to 'free markets', and rationalised by the 'national interest'.The appointment of an information industries task force (Goldsworthy 1997) toconsider tax and other incentives to encourage the development of informationindustries in Australia. Like the Mortimer Report, the Goldsworthy Reportrecommended extensive subsidies to promote the development of informationtechnology.The decision in June and September 1997 not to cut tariffs in the automotiveand textile industries, contrary to the advice of the Industry Commission. Inrationalising these decisions, the Prime Minister said (Howard 1997a): 'I willreduce protection and open up trade opportunities where it is in Australia'sinterest. W here it is not in Au stralia's interest I w on 't do so. ' W hile that rationalealso permits ad hoc policy, it has not stopped the Prime Minister's staunchadvo cacy of free trade at international forum s such as AP EC (H ow ard 1998c).The provision by the Federal Government, in combination with the NSW StateGovernment, of adjustment assistance in response to the closure of BHP'sNew castle steel works. This policy was extended to address the wage entitlementsof workers formerly em ployed in compa nies in liquidation through the Em ployeeEntitlement Support Scheme, established in early 2000 with an estimated budgetof $100 million (Reith 2000).^The goods and services tax, introduced in July 2000, which included an across-the-board 10% subsidy to exporters, by dint of their exclusion from the tax.After all the battles against tariffs on some imports on the free-market rationalethat they distort trade, it is significant that the Government considered that theprice of all exports from Australia would be 'distorted' by this tax exemption.Indeed, the exclusion of exports from the GST is often not seen as an industry


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policy. Yet the Govemment itself has consistently described the exclusion as astimulus to Australian exports (e.g. Howard 2000c).The Government's forthright advocacy of tighter prudential supervision offinancial institutions. In response to a recom me ndation of the Wallis C om mittee(1996) the Go vem me nt introduced in July 1998 a 'super regulator' of the financialsector the Australian Prudential Reg ulation Authority, described by T reasurerCostello (1998) as a 'world leader with best practice financial sector regulation'.(There are now more people employed in Australia's new financial regulatoryinstitutions than there were before 'financial sector deregulation' in 1983.)Associated w ith this image the Gov em me nt has been actively prom oting Australiaas a prospective centre for Asian finance.

The Corporate Law Econo mic Reform Program (CLE RP). The objective of thisprogram, which commenced in March 1997, is to regulate corporate practices,especially in the area of financing of investment and takeovers. The CorporateLaw E cono mic Reform P rogram B ill (1998) covers arrangem ents for fundraising,takeovers, the setting of Australian accounting standards, directors' duties andcorporate gov em ance (Austral ian Treasury 1999). A key component of C LE RPis the Corporations and Securities Panel, operating from 2000. The Panel is a'peer review body, with members appointed from the active members ofAustralia's takeovers and business com mu nities', i ts job to resolve disputes aboutcorporate takeover bids (Corporations and Securities Panel 2000). Note herethe role of the state in securing the 'self regulation' of capital.

The above are illustrations of a departure from free market ideology. It could, ofcourse, be argued that they are simply a case of moderation in the context of realworld complexities. That may well be the case; but it is also possible that there is adee per agen da: a systematic pattern of regulation that prom otes the long-term interestsof capital a process that constitutes 'neo-liberalism'. I shall illustrate this secondpossibility by looking at two related phenomena that may be said to comprise a shiftto a culture of 'rule by ca pit al': the cases of mutual obliga tion in social welfare policy,and general employment and wages policy.Case One: Welfare and mutual obligationIn a speech to the ACOSS National Congress in Adelaide in November 1998, PrimeMinister Howard addressed corporate donations to cultural and charitable causes.The speech was tightly scripted (recall that Howard's election policy launch wasdelivered without notes), and so must be understood as a position statement ofsignificance and precision. On the surface, it represented a significant departure froma free market agenda, constructing the notions of community and mutual obligationas central pillars of social and economic order:


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It is only through a partnership between individuals, business,government and the community with each one playing their properrole that a free, fair and united society can be strengthened andmaintained ... Robust communities, cohesive families and responsibleindividuals are fundamental for building a strong economy. Andwithout a strong economy a caring community becomes much harderto achieve. (Howard 1998b.)

Although it is difficult here to unscram ble the relationship between 'strong e con om ies','proper roles' and 'caring communities', there is a clear sense that the market is notthe independent arbiter of all three. 'Mutual obligation' and 'the moral obligation andduty of citizens' inherently non-free-market notions feature prominently. Butthis is not the sort of regulation associated with social democracy: it is 'real' neo-liberalism.In particular, How ard spoke of the principle of mutual obligation between the businesssector and the community, even castigating large companies for their lack ofphilanthrop y, and going so far as to say that 'th e spirit of corpo rate citizensh ip sugg eststhat a company that derives profits from the community has an obligation to contributeto its development'. Some commentators saw this as an attack on 'the big end ofto w n', qu estioning , subtly, the legitimacy of profits as a right of successful busin ess.Howard was depicting profits not as a return to entrepreneurial skill, but in somesense as booty extracted from society, for which there must be a reciprocal socialcontribution . The free m arket, wh ich generated in Australia an increase in profit sh areof national income from 12% in the early 1980s to 19% in the late 1990s, was beingcontested. Indeed, Howard could even have been seen as contesting the 'free market'itself, but from a conservative, not a social democratic perspective. Three issues areimportant in interpreting this apparent attack on capital.First, the context. There was no mention by the Prime Minister of three issues ofcontext: Go vern me nts in Au stralia already give com panie s over $20 billion per year in'business welfare'. (The figure is for 1994/5, the most recent financial year forwhich there is com plete calculation, including budget outlays and tax exem ptionsfrom federal, state and local gov ernm ents [Bryan & Rafferty 1999: 72-74].) Th e Go ver nm ent's inquiry into business taxation, chaired by John Ralph (199 9),

was expected to (and did) recommend a cut in corporate tax rates from 36% to30% when it reported in June 1999. (Can ada, F rance, Germ any, Italy, Japan andthe United States have corporate tax rates at or above 40% [KPMG 2000].)


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Just a week before the Prim e M inis ter's speech the Federal Cou rt had rejectedthe Australian Taxation Office claim of $260 million against Kerry Packer andhis Consolidated Press group, affirming Packer's 'right' to pay no taxationbetween 1990 and 1993 {Australian Financial Review 1.11.98: 1).Second, the 'interven tion'. The policy proposed by How ard in his AC OS S speechwas not a means to expand the p rovision of social we lfare, but a regulatory attack onthe established welfare system. H ow ard's agen da was not one of encouraging noblesseoblige to supplemen t the state's welfare budget but of pushing an argum ent for capitalto facilitate a withdrawal of the state from responsibility for welfare: in effect, toassert a cultural rule for capital itself. Naturally, the ACOSS address was immediatelyrejected by the captains of industry as an attack on their viability; the argument beingthat dona tions w ould only increase if funded by tax concession s {Australian FinancialReview 6.11.98: 1). And within three months, their call was met by the announcementof a package of taxation incentives, estimated to be worth $51 million, to encouragebusiness do nation s to cultural and charitab le causes (Ho ward 1999). Th e culture ofobligation was to be extended by the state's creation of new Community BusinessPartnership Board. Announcing the initiative, Mr How ard contended that:Companies and industries that are trusted and respected in the community for doingthe right thing are likely to find them selves less constrained by governm ent pressuresor regulatory intervention or pressure from interest groups and the communitygenerally. (Howard 1999.)Third, the outcome. Despite the apparent meaning of the Prime Minister's ACOSSspeech, the agenda of 'mutual obligation' has emerged as a major policy frameworkwithout any significant obligations on business. Instead, the obligations involved in'mutual obligation' have been imposed exclusively on unem ployed labour, exemplifiedby the Work for the Dole scheme and work for welfare proposals found in the McClureReport on social welfare (McClure 2000).The reference group that produced the McClure Report adopted the s logan,'Community, business and government working together'; and the report itself wasentitled Participation Support for a Mo te Equitable Society. But the report containsno proposals for obligations on business. These were diverted to a separate reportunder the auspices of the Prime Minister's Community Business Partnership Boardand funded, like the McClure Report, by the Department of Family and CommunityServices. This report. Corporate C ommtm iry Involvement (Centre for Corporate PublicAffairs 2000) was prepared by the Allen Consulting Group and the Business Councilof Australia, both recognised voices of the business community. Comprising a surveyof Australia's 115 largest corporations, it did little more than extol the virtues and


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benefits of these comp anies' expenditure on community projects, while recomm endingno formal obliga tions on the corporate sector for expend iture or jo b creation to parallelthe employment obligations recommended for welfare recipients in the McClureReport .In other wo rds, what app arently started in the address to AC OS S as a challeng e tocorporate greed under free markets has given way to a range of state interventions,the effect of which is to assert the cultural rule of capital and further subordinatelabour to the state.Case Two: Employment and wagesAlongside these ideasof community responsibility has come a renewed argument forstate intervention in the labour market to cut wages and increase profits as a means ofjob creation. Despite the fact that there is widespread reference to 'deregulation' ofthe labour market, for which the Government claims great credit, there is in fact asystematic regulatory program. Industrial relations legislation on youth wages, workfor the dole, unfair dismissal, allowable matters in enterprise agreements and unionrights have all seen the state involved in regulation of the labour ma rket. But regulatorydevelopments in the labour market are not about simply bringing political realismand 'ba lan ce '. Th ere is a systema tic agenda of reforming labour market regulation tothe advantage of capital.Central to this agenda has been the Reserve Bank of Australia. The Reserve Bankmaintains as one of its monetary policy objectives the pursuit of full employment. Assuch, it has taken an increasingly strong po sition in deb ates over lab our m arket policy.Virtually every speech by the Governor of the Reserve Bank on the topic of theAustralian econom y men tions the benefits of ' labour market deregu lation'. B ut neitherthe Reserve Bank nor the Go vernm ent is indifferent to the ou tcom es of 'free ma rket 'labour market negotiations both want wages to stay low. For example, the Bankcontends:

There are limits to the extent to which growth alone can permanentlyreduce the unem ploym ent rate. Une mp loym ent in Australia currentlyhas a sizable structural co m p o n e n t. . . Specific policies are needed toreduce this s tructural co m po n en t. . . Research by Debelle and Vickery[two Reserv e Bank econ om ists] suggests that moderate, but sustained,wage res t raint can del iver s izable reduct ions in the s t ructuralunemployment rate. (Reserve Bank of Australia 1998: 9.)

W hile that sounds a som ew hat vague proposition about the state regulation of wa ges.


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at the University of Sydney, was unequivocal in arguing the case for targeting awardwages. His proposal was to hold the rate of growth in award wages below the rate ofinfiation in the hope that this intervention would flow through to enterprise bargains.Such an employment strategy might itself be cause for concem, but the point here isthat the Bank is advo cating direct governm ent intervention in the labour m arket (notf ree ma rket s or ' econ om ic ra t ion al i sm ' ) as a me ans of ach ieving acceptedmacroeconomic objectives.Indeed, the Bank could be said to be more adamant than the Government on thispoint. Contrast the following two statements made six weeks apart; the first by thePrime Minister, the second by the Reserve Bank Govemor:

The industrial relations reforms, which have played such a cmcialrole in bringing about higher productivity, have provided the basis forsignificant income gains by so many millions of Australian workers.(Howard 2000b.)A big increase in productivity growth has a beneficial effect on manyareas of the economy. A lot of it is passed through to consumers and,in the process, this makes it easier to maintain low inflation. Some ofit can also make business more profitable which is, after all, theincentive that drives much of the efforts [sic] towards improvingproductivity in the first place. (Macfarlane 2000.)

The operative point here is not so much the emphasis Howard's on the gains tolabour, Macfarlane's on higher profits and lower infiation as the fact that growingproductivity results not from the operation of 'free markets' as from a sequence oflabour and industrial relations policies that constitute intervention to assert thedominance of capital.

ImplicationsTwo important issues associated with this overall policy shift warrant consideration.First, in many of the changes outlined above, the state has only a minimal capacity tolegally regulate the 'interventionist' policy changes it desires. In the labour market,for example, cutting low wages depends entirely on a residual of workers reliant onawards; if all employment had followed the shift to enterprise bargaining, there wouldbe no mechanism for the state to intervene directly in wage determination. Even inthe broader industrial relations agenda the Govemment lacks capacities. In the 1998waterfront dispute, for example, the Government 's agenda of taking on unionmonopolies had to be implemented via a private sector company, Patricks, with the


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A similar case applies in relation to the social obligations of large corporations. ThePrime Minister 's ACOSS speech was a moral exhortation to companies, but, as thestudy by the Centre for Corporate Public Affairs demonstrates, it was given with nopowers of enforcement. The Government offers taxation incentives and makesreference to nebulous 'government pressures or regulatory intervention' againstcorporations that do not show social responsibility. But there are no legal mechanismsto ensure that companies (or the rich generally) pay taxation in proportion to therevenues they acquire, or that welfare expenditure be increasingly funded out ofcorporate profits.In relation to finance, the same problem applies. While international institutions,national governments and financial market participants may be talking about measuresto restrict so-called specu lative fiows (especially the 'Tobin tax'),^ there is no calculusby which 'speculative' can be disentangled from 'purposeful ' flows, and there is nomechanism to ensure that any such tax would be implemented on an internationalscale. Global state capacity sim ply does not exist. Domestically, prudential supervisionmay impose legal mechanisms to regulate financial institutions and even financialfiows, but insofar as all the major institutions have substantial international operations,beyon d the scrutiny of Australian prudential regulations, there are no me chanism s toprevent any of those institutions suffering crises of viability emanating from theiroperations offshore, but nonetheless generating insolvency within Australia.A second issue relating to the observed policy shift is that some of the policies thatostensibly countervail free market agendas are serving effectively to save capitalfrom itself. Th is is mo st obviously seen in relation to finance, both on an interna tionalscale and within Australia. The increased focus on prudential supervision, andaspirations to control short-term capital flows, are designed to shift capital from ashort-run, beggar-thy-neighbour approach to profitability (based on guessing pricemovements) to a long-term focus on profitability based on the production of newvalue.On a more ideological level, the objective of getting companies to return some part oftheir profits to the community, of seeking to take some of the infighting and marketvolatility out of corpo rate takeov ers, and even of requesting ba nks to reconsider bran chclosures, represents an attempt to secure a social legitimacy to the pursuit of profitsin the context of high unem ploym ent and increasing incom e inequality. Indeed, manyof these initiatives involve the representatives of large companies acting as agents ofstate regulation, thus illustrating the notion of the 'rule of capital'. It was businessrepresentatives who led the review of the finance system (Wallis 1996), industrypolicy (Mortimer 1997), business taxation (Ralph 1999) and business' contributionto 'mutual obligation' (Centre for Corporate Public Affairs 2000). It is business


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The critique of economic rationalism though it has become the centrepiece of aleft, social democratic agenda entirely misses this point, amounting only to atechnical argum ent against the free market age nda, p redicated on the notion that stateintervention in the market is required for a mo re moral and econo mically sustainablesociety. What we observ e in recent policy ch ange s is that there are all the eleme nts ofan emerging retreat from econo mic rationalism, but that this has nothing to do with asocial dem ocratic ag enda indeed, it represe nts, m ore articulately than the sanitisedvision of free markets, an explicit agenda to enforce the power of capital. This is thetrue emerging neo-liberalism. It will no doubt be dressed up as being in the nationalinterest, but what appear from the perspective of 'economic rationalism' as a seriesof ad hoc market interventions will be seen to have a broadly consistent theme. TheWorkplace Relations Act is directly consistent with industry planning and subsidiesto health insurance companies are directly consistent with declining welfare services.For a time, we may expect p opular supp ort for such po licies both becau se the stateis seen to be doing something (rather than looking to the market to fix itself), andbecause the ideology of the gains of efficiency (that the free market is the best way toallocate resources) will slide into the gains of profitability (that more profitablecompanies are beneficial for everyone). Such popular support can be expected todim inish , and is more likely to do so if there is an effectively articulated opp osition .If there is going to be an effective opposition to any shift from the rule of markets tothe rule of capital, there is a need for the opponents of 'economic rationalism' to re-think their stand and adopt a more profound analysis.AcknowledgmentsVarious drafts of this paper have benefited from comments by Scott MacWilliam,Evan Jones, Shaun Wilson, Rick Kuhn, Gabrielle Meagher and Tim Anderson.Endnotes1. In a brief paper, a certain concision is inevitable. The notion of 'need s of capital'is both contentious and shorthand. Clearly, different companies have different

expectations of government policy, over which they may come into confiict.Never theless , there are broad agendas to secure ongoing condi t ions ofprofitability: and that is what I mean by the phrase here. Specific policies willalways be disputed. My focus here is more on the rhetoric of policy direction.

2. I have argued elsew here (Bryan & Rafferty 1999: ch. 5) that there has not been'deregulation' but, rather, regulatory reform, making capital accumulation moreinternationally oriented. That argument complements this one.


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Executive Officer of TNT, a large international transport company of Australianorigin which had been purchased by the Dutch-based postal firm KPN, withmany of its assets sold off. WithTNT's likely future, it is perhaps not surprisingthat M r M ortimer wou ld see merit in state regulation of competition and subsidiesto investment.

4. Because of the involvement of Mr H ow ard's brother, Stan, as M anaging Directorof National Textiles, in the original ad hoc initiative, the media focus was onissues of political propriety rather than the substantial regulatory agenda thatwas thereby initiated.

5. The Tobin Tax is the popular name for a measure proposed in 1984 by NobelPrize winning economist James Tobin for a tiny tax on turnover in foreignexchange markets as a disincentive for speculative trading.References

Abbott, T. et al. (1998) Two Nations: The Causes an d Effects of the Rise of the OneNation Party, Melbourne, Bookman Press.

Australian Treasury (1999) Annual Report 1998-99, Canberra, Australian Treasury.Australian Treasury (2000) 'Unit labour costs ' , http://www.treasury.gov.au.Bryan, D. & Rafferty, M. (1999) The Global Econom y in Australia, Sydney, Allen &Unwin.Centre for Corporate Public Affairs (2000) Corporate Com munity Involvement:

Establishing a Business Case, Melbourne, Centre for Corporate Public Affairs.Commonwealth of Australia (1997) Investing for Grow th: The How ard Government's

Plan for A ustralian Industry, Canberra, AGPS .Corporations and Securities Panel (2000) http://www.takeovers.gov.au.Costello, P (1998) Press release 017, 17 March.Goldsworthy, A. (1997) The Global Information Econom y: The WayAhead, A report

from the Information Industries Taskforce (A. Goldsworthy, Chairperson) tothe Minister for Industry, Science and Tourism, Canberra, AGPS.

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