Privatised, corporatised Labor has lost touch with its core values

Published in The Australian , 20 November 2010

Julia Gillard's refusal to consider regulating the banks highlights the reason for Labor's malaise

THE fate of the Rudd government and Labor's dismal election results have reignited a long-running debate about the beliefs and principles that underlie Labor's policy and public statements.

Labor's dilemma is starkly illustrated by the banking debate, which began when Julia Gillard accused opposition treasury spokesman Joe Hockey of economic Hansonism. Hockey's crime was to advocate that the government should make it harder for Australia's extraordinarily profitable banks to raise interest rates.

The Prime Minister was joined by ANZ chief Michael Smith, who wailed about bank bashing and compared Hockey with the president of Venezuela Hugo Chavez. Along the way, Smith's bank announced a profit of $4.5 billion.

No doubt Gillard's comments were prompted partly by a belief that Hockey was an opportunist posing as the people's friend. But essentially she damned Hockey for supporting the regulation of banks. Two weeks after Hockey's call and Gillard's riposte, the debate swung in favour of Hockey. This holds a lesson for Labor.

You do not have to be a radical socialist (or even a Hansonist) to realise that banks, like many institutions in corporate Australia, wield enormous power. Australia's banking oligopoly can jack up interest rates for home owners and small businesses and the government has little recourse. Once it would have been elementary that Labor would try to formulate a policy to rein in the banks.

Rather than this, voters see Labor accusing the Coalition of the political equivalent of blasphemy for suggesting the government intervene to regulate banks. Astoundingly, this accusation comes after the lightly regulated global banks nearly dragged the world into a second Depression.

The other barb in Gillard's speech was an expression of horror at the return of populism. Both sides of politics now use this as a swear word to describe the opportunistic seizure of shallow but popular fads. But populism actually describes a political philosophy that takes the side of the little people against the powerful. It's a force that propelled Labor for many decades. And it was a resurgence of community-based populism in 2006-07 that defeated laws that favoured employers and helped elect Labor.

Rather than abhorring populism, Labor needs to revive populism, especially among blue-collar workers, based on Labor values. The absence of such a populist element meant Labor was unable lead a community campaign to defend its mining tax. The usual strategic play of seizing the middle ground and acting responsibly meant Labor was incapable of badly needed tax reform. When the obscenely wealthy launch a campaign of lies, there is no option but to fight back in populist terms.

But it is Labor's infatuation with the market that is the central problem. Twenty-five years after the arrival of the privatisation and free-market agenda a significant part of the community remains sceptical. And for good reason. Common sense and life experience have made most people suspicious of elevating self-interest to a supreme governing principle. On the other hand, appeals to the common good can strike a resonance, if carefully packaged. This sentiment is a basis for reviving Labor's popular support and giving it renewed purpose.

Yet the Labor leadership embraces a philosophy that idealises market mechanism. Some verge on free-market zealotry.

The evidence for this can be seen by its first-term plans to deliver vital public services by setting up what are called quasi-markets. These government-sponsored markets for services (education, health, aged care) will replace or modify services that put the emphasis on the common good. It's a policy revolution that is barely remarked on because the opposition agrees with its direction.

Labor's schools policy is an example of this. The MySchool website makes each school's achievements public for the purpose of creating a competitive mechanism whereby parents choose schools as part of the laws of supply and demand. Its critics argue this will produce league tables of best and worst schools and will be a form of public shaming that will undermine attempts at improvement in many public schools.

Labor's schools policy reveals a naive faith in the superiority of markets to deal not just with economics transactions but all kinds of human relationships. The great fantasy is that parents' competitive choice of itself will somehow drive quality upwards and all schools will benefit. I expand on all of this in my chapter in the recent book co-edited with Robert Manne, Goodbye to All That?.

The government is determined to apply such market-based policies much further, in health insurance, education, aged care, child care and beyond.

For example, the government's inquiry last year into health services recommends a new health insurance termed Medicare Select. Medicare Select, it says, will involve greater consumer choice of doctors and of health insurance plans, and greater competition between them. The report claims the threat of consumers switching plans would place pressure on health and hospital plans to perform. But like switching banks, it is a clumsy and impractical mechanism. It also would place enormous responsibility on ordinary people to choose the right health insurance plan as well as opening the road for a future government to abandon genuinely universal health insurance.

In the universities, Labor has endorsed a demand-driven model so universities can enrol any number of students they like. Such a voucher system will drive institutional diversity, it claims. But diversity is code for inequality. Such a marketised system will strengthen the bigger players and threaten the viability of outer-suburban and regional universities. The only thing missing to make this a full voucher system is that universities cannot set their fees, but this will inevitably come.

Vocational training is another area where a voucher and privatisation model is being implemented.

Labor's backroom policy wonks show little awareness that real-world market models have unintended consequences. One is market failure.

This was the case with ABC Learning, which became the biggest publicly listed childcare corporation in the world. In 2008 ABC Learning collapsed, causing chaos for the parents of 120,000 children enrolled in their centres and the 16,000 staff who cared for them. Its meteoric rise and fall holds many lessons for Labor's plans to extend the market.

For a start, its expansion did not necessarily mean more choice. Childcare expert Deborah Brennan points out ABC became so big that sometimes it was the only centre in a particular region. Sometimes, ABC Learning deliberately operated childcare centres unprofitably to drive non-profit centres out of business. Nor did parental choice drive higher quality or diversity; rather the opposite. ABC Learning standardised its curriculum and met only the minimal requirements for staffing. Naturally, it lobbied government to lower these standards.

Labor's answer to this criticism is that better regulation will fix things. But better regulation may not be enough. Models that rely on user choice to improve standards have a crucial flaw. They assume users can recognise quality.

Researchers have found, for example, that a large number of parents cannot distinguish higher quality services from those of lower quality. Early childhood academics Jennifer Sumsion and Joy Goodfellow say parents have difficulties in discerning quality for many reasons. They may not have purchased long-day care before and may not know what constitutes high quality. By the time they become experienced their children are likely to have grown up, they say. Even parents who are knowledgeable actually spend little time in centres and struggle to monitor quality.

There are also emotional complications: research has found that in convincing themselves that they have acted in the child's best interests, parents may overestimate the quality of the long-day care they have purchased.

Supporters of marketised public services often paint a picture of old-style public services that are bureaucratic and inflexible, in which one size fits all.

But for decades Australia had a significant private sector in child care largely composed of community non-profit groups along with mum and dad private enterprises. Market models foster large corporations that seek to eliminate competitors.

All this has ominous lessons for the aged-care sector, which is still dominated by not-for-profit and religious providers. It's next in line to be taken over by giant care corporations with their inherent conflict between the goals of profit and care. In their recent book Paid Care, Debra King and Gabrielle Meagher reviewed the research on the quality of for-profit and not-for-profit services in Canada, the US, Britain and Australia. Their conclusions are disturbing.

In aged care, the research shows that, with few exceptions, the for-profit sector delivers inferior care. Studies of nursing homes in the US and Canada show, respectively, less staff and less contact between staff and clients. In Australia the for-profit sector has fewer aged-care workers per bed than non-profits. Similar studies of the childcare sector in Canada and the US (where for-profit care is most extensive) show a considerable body of evidence to support the argument that for-profit organisations are likelier to provide services of inferior quality, they say.

All this suggests Labor's rethinking on health, education and government services is not only wrong in principle but will degrade services and probably end up damaging it politically. Labor's reputation relies on delivering reliable government services.

At issue is not the use of economic markets in themselves, since no one, not even Marxists today, believe they can or should be banished or abolished.

The bigger issue that emerges is whether Labor has the capacity to think outside the knee-jerk paradigm of privatisation and the free market. Labor needs to identify the common interests that all Australians share and on this basis develop an overarching narrative and set of policies. This inevitably will require pitting ordinary people's interests against the priorities and interests of big corporate players, such as the banks and global mining companies.

Improving bank regulation and taxing mining profits each deserve a more serious strategy than quick quips about economic Hansonism.

David McKnight is the co-editor of Goodbye To All That?, a book on the failure of neo-liberalism, and works as a senior research fellow at the University of NSW.