As Kevin Rudd announces his retirement today it makes sense to review his economic legacy. I see three lasting impacts of his reign.
The first is that he entrenched counter-cyclical Keynesian policy as an Australian economic management creed in a way that no other contemporary Prime Minister has done. His GFC stimulus was very effective, almost too good politically, and floated the Australian economy through 2009 in a way that few envisioned as possible early in that year.
The staged stimulus also worked very well. Although many observers have a philsophical objection to giving away cash, households spent it with abandon, which is what was required. The second phase kicked in as the first faded with construction incentives of various kinds. And again, even though politics went against the Government, both the pink bats and school halls did their job.
The fiscal retrenchment that followed waited too long and forced more of the post GFC mining boom adjustment onto the RBA and the dollar but when it came it was intense. That it didn’t work was a more reflection of the times – deleveraging and global struggles – than it was the action of doing it.
Rudd’s business cycle and Budget management, then, is a template that is likely to be followed again in the future, though with a modulated magnitude and with a different mix of spending targets.
Rudd’s stimulus package had one other dimension that will also be lasting. Like the Liberal Government before it, it privileged housing markets as a protected asset class, and used it as mechanism for economic reflation. This involved deepening giveaways for prospective buyers and guaranteeing banks and non-banks in ways that threw aside decades of financial sector architecture.
This touches the second of Kevin Rudd’s legacies. He has entrenched even further than the Howard/Costello years a politico-housing complex that warps good policy in favour of supporting the unsupportable. We see the outcome of this today as the RBA aims to rebalance the economy from mining to other sources of growth but is stymied by a rush to property speculation which prevents it from lowering interest rates enough to bring down the dollar.
Rather than allow malinvestment to be cleansed and to repair competitiveness to drive new growth forward, Kevin Rudd inculcated a certainty that asset speculation pays.
This bailout mentality has an even more lasting consequence on the production side of the economy and it is here that Kevin Rudd’s third and most lasting impact will be felt. The bank bailouts of the GFC were only the first in a policy approach that was well intentioned but doomed by poor execution.
Following his GFC bank bailouts, Kevin Rudd pursued his climate change agenda with the original CPRS legislation. But he did this by announcing the policy as a complete package up front and then spending months negotiating it away with a cavalcade of sectional interests that marched to Canberra. In short, he created a policy process with a bailout structure built into it. That it was ultimately dumped altogether was even worse.
He then made the same mistake with his well-intentioned and much needed mining tax reform package. Rather than take the time to soften up and win over the polity, as well consult with those on the receiving end of the changes, he plucked it from a much wider agenda in the Henry Review and announced it as policy fait accompli. This time the sectional interests didn’t march to Canberra, they marched to the people with an incredible advertising and public relations campaign that resulted in the Gillard coup.
This is Kevin Rudd’s most enduring legacy. The rise and rise of vested interests. Which has now made it nigh on impossible to favourably reform policy that is in the national interest but not in certain sectional interests. That will weigh on the economy a very long time.
What drove these policies is difficult to fathom. A psychologist might see a pattern of narcissism. After all Rudd’s process puts the government (and the PM) at the centre of the economy rather than what it should be, as a maker of the rules that protect functional markets in service the people.
My own view is that it is more a case of state politics gone wrong. Kevin Rudd’s policy and political apprenticeships were at the state level where the job really is all about managing stakeholder interests. But in Federal government it is all about subordinating those stakeholders to the national interest.
Regardless, Kevin Rudd’s imprint on the Australian economy is to have created a kind of three-pronged Keynesian Nanny State in which nobody ever loses and so, over time, we all do. Very egalitarian that.
