Paul Dibley-Maher Thesis (PDF 1MB)

Friend or Foe? The Impact of the Hawke/Keating Neoliberal Reforms on Australian Workers and the Australian Public Sector

Paul Dibley-Maher Bachelor of Arts (ANU) Master of Legal Studies (ANU)

Research Students Centre Division of Research and Commercialisation Queensland University of Technology

Thesis submitted to fulfil the requirements for the degree of Master of Arts (Research)

2012

Key Words

Prices and Income Accord, capital, capitalism, class, deregulation, economy, Global Financial Crisis (GFC), Keynesianism, labour, Marxism, Marxist, neoliberal, neoliberalism, privatisation, public sector, reform, unions.

Abstract

Over the last three decades neoliberalism has transitioned from occupying the margins of economic policy debate to becoming the dominant approach by governments and their economic advisers, a process that has accelerated with the collapse of the former Stalinist states in Eastern Europe and the Soviet Union. This thesis adopts a Marxist framework for understanding this process, beginning as it did in the realm of relatively abstract philosophical and ideological debate to the permeation of neoliberal values throughout all capitalist institutions, including the state bureaucracy. This necessarily means a focus on the dialectical relationship between the rise of neoliberalism and the shifting balance of class forces that accompanied the success of the neoliberal project in transforming the dominant economic policy paradigm. The extent to which neoliberal reforms impacted on workers and public sector institutions, along with the success or otherwise of traditional working class institutions in defending the material interests of workers will therefore be a recurring theme throughout this body of work. The evidence borne from this research and analysis suggests a major shift in the dialectic of class struggle in favour of the power of capital over labour during the period covered, with the neoliberal age being one of defeat for a labour movement that largely failed to adopt successful strategies for defending itself.

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Table of Contents Key Words ...... ii Abstract ...... iii List of Tables and Figures...... vi Glossary of Terms ...... vii Statement of Original Authorship ...... viii Acknowledgements ...... ix Introduction ...... 1 Chapter 1: The Battle of Ideas ...... 11 The Historical and Philosophical Context ...... 15 The Cold War and Rational Theory ...... 17 Hayek and the Mont Pelerin Society ...... 19 A Marxist Response ...... 24 Friedman’s Intervention ...... 27 Keynesianism’s ‘Grand Failure’ ...... 29 Neoliberalism Arrives ...... 32 Chapter 2: Neoliberalism on the World Stage ...... 35 Third World Origins ...... 36 The Thatcher Revolution ...... 39 Taking on the Unions ...... 40 The Miners’ Strike ...... 42 Murdoch and the Print Workers ...... 43 Privatisation ...... 45 Welfare Meets the Market ...... 46 Reaganomics ...... 49 Reagan and Organised Labour ...... 52 Neoliberalism and the Third World ...... 55 Latin America ...... 56 Victory to Neoliberalsim? ...... 58 Chapter 3: Neoliberalism Comes to Australia ...... 60 The Keynesian Consensus in Australia...... 63 The Collapse of the Keynesian Consensus ...... 64 The Industrial Relations Landscape ...... 67 Disciplining the Unions ...... 69 The Uneasy Truce ...... 71 Economic Reform ...... 73 The Impact on Wages ...... 79 Wage Fixing Mechanisms ...... 83 Chapter 4: Neoliberalism and the Australian Public Sector ...... 87 The Traditional Public Service ...... 88 The APS and the end of Keynesianism...... 89 Labor Takes Power ...... 91

New Public Management ...... 93 Working Conditions Under the NPM ...... 96 NPM and the Public Sector Unions ...... 101 Wages ...... 102 Agency Bargaining...... 104 Privatisation ...... 109 Impact of Reforms on Union Density ...... 111 Conclusion ...... 113 Bibliography ...... 119 Primary Sources ...... 119 Secondary Sources ...... 126

List of Tables and Figures

Tables

Table 1: Trade Union Membership in Britain 1979-1990 ...... 41 Table 2: Trade Union Membership in the US 1981-1989 ...... 53 Table 3: Percentage of Men & Women in the Labour Force ...... 82 Table 4: Gini Coefficient & Theil Index for Private Sector 1983-1993 ...... 82 Table 5: Gini Coefficient & Theil Index for Public Sector 1983 - 1993 ...... 108 Table 6: Union Density in the Commonwealth Public Sector ...... 111

Figures

Figure 1: Gini Coefficient for Great Britain 1979 – 2005/2006 ...... 48 Figure 2: Gini Coefficient for the United States 1947 - 1998...... 54 Figure 3: Unemployment Rate 1966 - 2008 ...... 65 Figure 4: Inflation Over the Long Run 1966-1991 ...... 66 Figure 5: Manufacturing & Agricultural Tariffs 1970 -71 to 2006-07 ...... 75 Figure 6: Profits Share of National Income ...... 79 Figure 7: Wages Share of National Income ...... 80 Figure 8: Men Aged 18-64 in Gross Personal Income Quintiles ...... 81 Figure 9: Women Aged 18-64 in Gross Personal Income Quintiles ...... 81 Figure 10: APS Pay Increases 1996 -2009 ...... 108

Glossary of Terms

ABS Australian Bureau of Statistics ACOA Administrative and Clerical Officers Association ACTU Australian Council of Trade Unions ALP Australian Labor Party APEC Asia-Pacific Economic Cooperation APS Australian Public Service APSA Australian Public Service Association APSC Australian Public Service Commission BLF Builders Labourers Federation BT British Telecom CAPSC Campaign Against Public Sector Cuts CPA Communist Party of Australia CPI Consumer Price Index CPSU Community & Public Sector Union EEO Equal Employment Opportunity FCU (TOB) Federated Clerks Union (Tax Office Branch) GATT General Agreement on Tariffs & Trade GBE Government Business Enterprise GFC Global Financial Crisis IMF International Monetary Fund NE National Executive NPM New Public Management NHS Nation Health Service POA Professional Officers Association RAND Research and Development Corporation RBA Reserve Bank of Australia SES Senior Executive Service TCF Textiles Clothing & Footwear TNC Transnational Corporation WEF World Economic Forum

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Statement of Original Authorship

The work contained in this thesis has not been previously submitted to meet requirements for an award at this or any other higher education institution. To the best of my knowledge and belief, the thesis contains no material previously published or written by another person except where due reference is made.

Paul Dibley-Maher September 2012

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Acknowledgements

There are several people I need to thank, beginning with my supervisors past and present. Firstly Associate Professor Howard Guille, who in the initial stages assisted me with scoping out the topic for this thesis. Secondly, Dr Paul Harrison, who met regularly with me to discuss my ideas as I developed an understanding of the sources I would use and how I would apply them to my research. Finally, I would like to thank Professor Clive Bean who provided valuable feedback once I began submitting written work for review. I would also like to thank support staff at QUT, particularly Melody McIntosh, who assisted with a range of administrative matters.

I would like to acknowledge the tremendous support and understanding I received from colleagues at work, who allowed me the time I needed to devote to my research. I would further like to thank the staff in the Queensland Department of Communities library, who were able to quickly source original pieces of old legislation whenever I had trouble finding them. I would particularly like to acknowledge the assistance of staff at the Noel Butlin Archives in Canberra, where I was able to source a large amount of primary material on Commonwealth public sector unions, without which I would have been unable to complete the final chapter of this thesis. Finally I would like acknowledge and thank the family and friends who have been a part of this journey with me.

Introduction

Neoliberalism, neo-classicalism, neo-classical economics, economic rationalism, globalisation……. There are many words to describe what essentially amounts to the same revolution in economic policy that has increasingly dominated the globe over the last three decades since the collapse of the Keynesian consensus in the early 1970s. Whatever the terms used to describe this process the reality of neoliberal economics is essentially the same. Modern economies dominated by neoliberal policy makers have deregulated and liberalised their economies, removing government intervention as much as possible from economic activity within their domestic economies and relaxing barriers to foreign investment and trade at the global level. Utilities traditionally owned and operated by the state sectors have increasingly been sold off to private interests and those that have remained in government hands have increasingly been corporatised and expected to operate in a commercial manner. Labour markets have likewise been liberalised in order to increase the flexibility of the domestic workforce and workers have been placed under increasing pressure to continually improve productivity. Many of the safety nets that developed nations offered to varying degrees to assist workers and their families in times of sickness or unemployment have likewise been removed or handed over to private sector interests. The neoliberal epoch has therefore had a profound effect on the way modern economies are managed, with the flow on effects of these reforms likewise having a profound effect on those living within these economies.

This thesis attempts to make a contribution to contemporary scholarship on the neoliberal experience by structuring existing evidence, analysis and interpretations towards a specific consideration of the experience of the Australian public service, public servants and their unions. It further attempts to do so from a Marxist perspective than focuses on class struggle and the dialectical relationship between the relative power of labour and capital to provide a context to the consideration of the subject matter. I believe that doing so adds to the level of maturity in relation to applying such an approach to the subject matter, particularly in relation to the Australian public sector and in doing so makes a substantial and original

1 contribution to existing scholarship in this field. There is a plethora of material available critically analysing global political economy from an explicitly Marxist perspective. So too is there a great deal of Marxist material available looking at Australian political economy. But while much has been written about the experience of public sector reform in Australia, some of which is highly critical of the reform process, the selling off of government assets and the associated erosion of public servants’ jobs and conditions and so forth, the latter tends to be written from a traditional left social democratic position and while useful, leaves a space for a Marxist analysis that I have attempted to fill. An important exception is a recent PhD thesis that looks at the Jobs, Education and Training (JET) program within the Department of Social Security (Banks, 2011) from an explicitly Marxist perspective and will be considered in Chapter 4, which focusses on the Australian Public Service.

My central focus in applying a Marxist analysis will be to examine the role of the state in creating the policy and infrastructure environment for the neoliberal revolution, how the state dealt with working class institutions in implementing this agenda, how the latter responded, and finally what the net result of the reform process amounted to in terms of its impact on the balance of class forces and the distribution of both wealth and power. I will consider the state as a vital institution in acting in the class interests of capital and within this context will examine the means by which the state acted to eradicate impediments to the deregulating of the economy, in relation to existing economic policy that ‘protected’ domestic capital, such as trade barriers, or tariffs, and the removal of regulation that acted as fetters on domestic capital and its institutions, for example the floating of the Australian dollar and the deregulation of the financial industry.

Most importantly, however, a Marxist analysis must place all such developments in the context of class struggle and the relationship between the class struggle and these developments. This thesis will therefore concentrate heavily on the organic relationship between the trajectory of the capitalist system and the rise of neoliberalism and the relationship between this dynamic and the balance of class forces, the nature of the class struggle throughout this process and the net effect of the interplay between all of these factors on class power and class interests. I will

2 not seek to develop such an understanding using a vulgar deterministic approach that sees each development in the trajectory of the historical development of capitalism as leading inevitably and necessarily to a particular outcome vis-à-vis contending class interests. Rather I shall seek to understand the way in which all contending interests reacted to the challenges presented and how, in particular, the working class and their institutions responded to these challenges and how any shortcomings in the way they responded translated into success for capital and the state. This is not an economics thesis and does not pretend to be so. I will not attempt an in depth analysis of the capitalist system, its historical development and its internal contradictions. I will not consider or critique mainstream economics at an academic level or attempt to mount in depth economic arguments about capitalism and the way it should be managed, particularly in light of the current crisis and its impact on workers. What I will do however is to examine key economic developments that are relevant to the thesis topic and the analysis applied by both mainstream and Marxist economists in order to develop my own arguments and conclusions within the framework of a class based Marxist analysis. I will also consider important economic indicators, both anecdotal and statistical, to underpin the analysis and conclusions I come to, both in relation to developments in the economy under both the Keynesian consensus and its neoliberal usurper and the impact that these developments have had on respective class interests.

Despite the above I will of course need to consider, at a level sufficient to develop a working understanding of the subject matter, the observations of mainstream economists, especially those who devoted themselves to developing a theoretical approach to the workings of capitalism that underpinned neoliberal orthodoxy. This will include the ‘giants’ of the neoliberal revolution such as Hayek and Friedman, and the policy makers, academics and columnists that remain overwhelmingly proponents of the neoliberal revolution, even in the face of the ongoing Global Financial Crisis, which to date shows no signs of disappearing. These figures, and the historical trajectory of capitalism with which they have intertwined themselves, will be an important reference point for both critiquing and understanding the way neoliberalism rose to prominence among both conservative and traditional social democratic administrations and the success its proponents had in arguing that the

3 shift in class power that neoliberalism would engender was indispensable in rescuing economies from the return of crisis to the capitalist system following the long boom years after the Second World War.

In developing a Marxist framework I will rely heavily on key contemporary Marxists, most notably those associated with the International Socialism, a quarterly journal of theoretical Marxism published by the Socialist Workers Party in Britain. In particular I will cite the work of the late Chris Harman, who edited this journal until his untimely death in November 2009, somewhat ironically on the anniversary of the Russian Revolution. I shall also draw upon contributions from Marxists associated with this tradition in both Australia and the United States, predominantly those around Socialist Alternative/Marxist Left Review in Australia and Socialist Worker/ International Socialist Review in the United States. My rationale for bias towards this tendency is twofold. Firstly, unlike much of the nominally Marxist left during and following the cold war years their analysis of the development of the global capitalist system was equally critical of the Stalinist camp in whom they saw no basis for a legitimate alternative to the Western camp. This, I believe, left these groups in a much more credible position when attempting to analyse the rise of neoliberalism as an alternative to the ‘socialism’ of both traditional social democracy and the ‘actually existing socialism’ of the former Eastern bloc.1

My second reason, and flowing directly from the first, is that in rejecting the notion that the Stalinist current had anything to do with the genuine Marxist tradition, the International Socialist tendency has been able to apply a Marxist analysis to global political economy unfettered by the need to conform to an ‘official’ Marxist political economy that takes as its starting point the need to justify the dynamics of existing Stalinist economies. This means that despite any flaws, errors or disagreements among members of the tendency, their overall contribution is, I believe, a useful starting point in analysing the neoliberal revolution from a Marxist perspective that is not overly dogmatic or deterministic. Having said that, however, in the interest of a balanced assessment of the subject matter I will not draw exclusively from the above but will also reference other important contemporary Marxists, for example

1 Or for that matter China, Vietnam, Cuba etc.

4 the American David Harvey, whose A brief history of neoliberalism I found to be indispensable in gaining an understanding of the roots of neoliberalism from an explicitly Marxist perspective.

The specific research methods I adopted began with collecting articles from key publications and thinkers relevant to my topic using internet search engines. Firstly, I searched Marxist publications such as International Socialism Journal, International Socialist Review, Monthly Review, Historical Materialism and Socialist Worker (both UK and US versions) for articles that might prove useful in developing a Marxist understanding of the subject matter. From there I searched against the names of key Marxists such as Harman and Harvey as well as the important names associated with the resurgence of liberalism, namely von Hayek and Milton Friedman. I also examined the web sites of key institutions of both capital (IMF, World Bank etc.) and labour (ACTU, key Australian unions, Public Sector International etc.). From there I searched more broadly using key words to locate articles that might be relevant. From this I was able to sort through a range of local and international sources that I believed would be of use and began working through the material gathered to begin developing a framework for the thesis along with an understanding of the way I would structure the thesis, including the focus of individual chapters.

I then began looking for data and key economic indicators that would demonstrate patterns resulting from the rise of neoliberalism. I was not concerned so much with demonstrating at any length the dynamics of either the domestic or global economy but rather the position of labour and capital within this dynamic as impacted upon by the neoliberal paradigm. I chose, therefore, to concentrate largely on data that would demonstrate any shifts in the share of national wealth going to labour and capital respectively and the impact on the labour movement, with the latter focussing on any shifts in trade union density during the period examined. My preference was for using primary sources wherever possible and I therefore used as my starting point government bodies responsible for the collection of economic data, such as the Australian Bureau of Statistics in Australia and similar bodies in the UK and the US that collected data on economic trends and/or the labour force. Where I came across such data in secondary materials I would trace the data back to

5 these bodies in order to ensure the authenticity of the data.

The methods described thus far were sufficient for producing the first three chapters of this thesis. However, for the final chapter, which focusses on the impact of neoliberalism on the Australian public sector I wanted to rely as much as possible on primary materials. I began therefore by sourcing the key legislation that regulates the Australian public sector both in the present day and historically since federation in 1901. These documents were located partly through my own searching and partly with the assistance of library staff, with the aid of the greater resources available to them, As a result I was able to quite quickly source for example a copy of the first Commonwealth Public Service Act, which was invaluable in giving me an insight into the original workings and culture of the Australian public sector, providing a reference point to compare this culture against the Public Service Reform Act 1984, under which the Commonwealth public service was reformed to provide a new form of bureaucracy aligned to the deregulating of the domestic economy under the neoliberal reform agenda of the new Hawke Labor government. Finally, I wanted to gather primary materials from Commonwealth public sector unions in their various guises to understand and demonstrate a thorough perspective of the way in which they responded to the challenges presented by the new order. To do so I undertook a research trip to the Noel Butlin Archives in Canberra, which houses an extensive collection of primary documents submitted by sections of the Australian labour movement. This gave me access to a large number of documents donated to the Archives by the Community and Public Sector Union and its various predecessors. This collection included newsletters and other communications to members outlining the union’s position and explaining, for example, the reason it supported the Prices and Incomes Accord with the Hawke government. There were also documents outlining debates that were occurring ‘behind the scenes’ between officials and with other unions or the ACTU, providing some context for the positions the union took vis-à-vis the Labor Party agenda.

Most importantly, from the perspective I was interested in, the collection contained many documents related to the struggles engaged in by the union, including campaign newsletters from rank and file groups formed to defend the public sector and the jobs and conditions of public servants. This included battles with the Fraser

6 government of the late 1970s and early 1980s, which provided some context for the position the union took once Labor came to power. It also, however, provided evidence of campaigns against the incumbent Labor government, where the logic of Labor policy saw tensions arise over the pace of reform and the impact of reform on the union’s members or at times even the logic of the reform agenda itself. I collected around 100 documents during my research trip, many of which are cited in this thesis. Even where such sources are not directly cited, the collection in general provided an indispensable insight into the union most affected by attacks on the public sector implicit in the neoliberal agenda and of the way in which the union and its members responded.

In applying the methods described above, this thesis will be a journey starting from the point in history where those who espoused the ideas that would become known as neoliberalism were in the minority. At that time these ideas were largely abstract, theoretical concerns debated among those at the margins of policy debate within the context of a paradigm dominated by Keynesian principles, which championed government intervention and demand management as the means to prevent economic crises and the unemployment that came with them. The return of economic crisis to the system in the early 1970s and the inability of traditional Keynesian methods to resolve the crisis marked the point at which neoliberalism could begin to make the seismic shift from margins of policy debate into the mainstream and increasingly gain the ear of key policy makers. For many it marks not only a victory of a policy approach rooted deeply in individual liberty over Keynes but over that other grand experiment in an alternative to a market driven economy, namely the communist nemesis of the cold war era.

Chapter 1 will therefore consider this shifting paradigm and examine the way neoliberals were able to gain a hearing after years in the policy wilderness. In doing so I will consider the dialectical relationship between developments and strategies in the global economy and the ideas that interacted with these developments, with particular reference to the dynamics of the cold war. I will examine key figures behind the development of a tangible theoretical opposition to unnecessary state intervention into the economy, most notably those that coalesced around the Mont

Pelerin Society in the post war years, in particular the ‘giants’ already mentioned: Friedrick von Hayek, the founder of the Society, and Milton Friedman. I will further consider the triumphalism of the neoliberals following the collapse of first the Keynesian consensus and of the Eastern Bloc as epitomised in the work of Francis Fukuyama. I shall attempt to provide a Marxist response to the neoliberals’ development of their theoretical position and the centrality of critiquing Marxism in doing so. I shall conclude by examining the shift of neoliberal thought from the margins of economic policy to the mainstream in preparation of considering the practicalities of this shift in the ensuing chapters.

Chapter 2 will consider the next stage of this journey with an examination of the way in which the neoliberal revolution was implemented in key first world economies, specifically in the UK under Margaret Thatcher and under Ronald Reagan in the US during the 1980s. It will begin with a brief look at Chile following the US sponsored Pinochet coup that allowed key neoliberals at the School of Economics at Chicago University a ‘playground’ to test out their ideas before turning to the reform agenda of both Thatcher and Reagan. Consistent with the approach outlined above it will consider the way economic crisis returned to both countries and the way both administrations sought to resolve the crisis with the trademark neoliberal solutions of deregulating and liberalising their respective economies. It will also concentrate on the impact of the reform agenda on workers in both countries and the way both Thatcher and Reagan took on and largely defeated the labour movements in their countries as a necessary precursor to implementing their agendas. That is, it will consider what neoliberalism has meant for the balance of class forces in each country, the respective power of labour versus capital and the impact on wealth distribution that flowed from this changing dynamic. Finally Chapter 2 will return to Latin America to briefly examine examples of the impact of neoliberalism on the Third World.

Chapter 3 of this thesis will then narrow its scope further by concentrating specifically on the introduction of neoliberal reforms to the Australian economy, once again with consideration of what this meant for workers and their institutions. As with the UK and the US, the focus will be on the initial years of the reform agenda, which occurred under Hawke and then Keating in the 1980s and early

1990s, at roughly the same time neoliberalism was being embedded in the economies of two Australia’s key post-war allies under Thatcher and Reagan. However, there will be a further dynamic to consider in examining the Hawke/Keating years in that by contrast to both the UK and the US, where the reforms were delivered under conservative governments hostile to the unions, in Australia the reforms were introduced by the parliamentary wing of the domestic labour movement. This dictated an approach that largely amounted to co-opting Australian workers into accepting the new economic policy approach, primarily in terms of their being no alternative given the economic quagmire in which the ALP found itself on being elected. Where unions refused to toe the line, however, the ALP could also rely on direct confrontation to keep their policy agenda on track, even to the extent of deregistering unions. Chapter 3 will consider how this dynamic played out, once again with reference to the impact on the balance of class forces and the distribution of wealth created under the new industrial, political and economic landscape.

Chapter 4 will complete the journey from the macro level that begins with theoretical and ideological debate by concentrating at a micro level on the impact of neoliberalism on a Commonwealth public sector that was reformed into an institution that could best serve the new economic policy paradigm. This will include an analysis of the public sector as it was constituted historically and the way in which it was transformed during the Hawke/Keating years, giving consideration to both changes in the culture of the public service and the impact on public servants themselves. As with the previous chapters this will mean considering the way that the jobs, wages and conditions of public servants were affected and how their unions responded. It will do so to a large extent in the context of the landscape described in Chapter 3 but also in ways specific to the public service itself. Given the more narrow focus there will be an attempt to concentrate more closely on the industrial relations dynamic between public servants, their unions and the ALP government as both their employer and the manager of the economy and the reform process more generally.

What will connect all four chapters will be the approach, already outlined, that will attempt to examine the dynamics of the neoliberal revolution as representing a shift

9 in the dialectic of the class struggle in favour of the power of capital over labour. In doing so this thesis will draw upon both primary and secondary sources to support this central theme, with secondary sources used to enhance and reinforce conclusions drawn from reference to primary sources wherever possible. Such conclusions will also be reinforced wherever possible using original data and statistics to demonstrate trends, particularly in relation to the economic circumstances that spawned neoliberalism and the impact of neoliberalism on workers and the trade union movement during the years examined. Where secondary sources are relied upon their purpose is to draw upon existing literature to assist in producing an original contribution to the field of study, most importantly in relation to the Australian public sector, which will mark the crescendo of this thesis and the point to which the preceding chapters all work towards. It is hoped that the end result of the journey from the abstract to the specific represented in these four chapters makes an original and worthy contribution to scholarship and debate in a field where, particularly given the present circumstances in which economic crisis has challenged the neoliberal agenda in a similar fashion to that which confronted Keynesians in the early 1970s, there is much debate still to be had.

Chapter 1: The Battle of Ideas

All that is solid melts into air, all that is holy is profaned….... (Marx & Engels, 1989)

Following the collapse of the Soviet bloc Francis Fukuyama pronounced that humanity had arrived at the “end of history” with the final victory of the liberal ideal and of individual liberty over repressive collectivist models of organising societies (Fukuyama, 1989). In a similar vein the following year US President George Bush Sr. declared that the collapse of Stalinism in Eastern Europe was heralding a “new world order” based on the ideals of universal freedom and liberty for all (Bush, 1990). There is a major intellectual and analytical gulf between the two declarations. The former attempts to understand the events described above as part of a historical process that goes back at least to the liberal values of the French revolution and the attempt of France's revolutionary armies to spread these values throughout Europe and ultimately the globe. The latter forms part of a speech that uses relatively abstract references to ideals of liberty and justice and a commitment to preserve and spread these values as justification for going to war against Iraq in defence of Kuwait.

What these declarations do have in common, however, is their reference point in what Fukuyama refers to as “Western liberalism” or the “Western idea” (Fukuyama, 1989). That is, the individual liberty and the open, deregulated market system that has become synonymous with the neoliberal project. Given the confidence with which Fukuyama, Bush and proponents of political and economic liberalism proclaimed its ultimate victory there is more than a little irony in the crisis that beset the neoliberal model as it began to go into free fall in late 2007. The sub-prime crisis that followed the US housing bubble spread throughout the financial system caused a “financial tsunami”, leading to the collapse in September 2008 of Lehman Brothers, one of the US's largest investment banks (Harman, 2009: pp.277-304). The only thing that prevented more victims was the trillions of dollars pumped into bailing out financially insolvent banks. In other words when crisis struck, those who had screamed the loudest for governments to withdraw from the economy were now among those screaming for its intervention in order to stave off the complete collapse of the system. Even this failed to prevent the crisis flowing into the 'real'

11 economy with companies in the US, Europe and elsewhere shedding thousands of jobs and further bail outs required to prevent the collapse of major players such as the US auto industry.

Proponents of the free market system were now challenged by what became known as the Global Financial Crisis, or GFC. Alan Greenspan, the former chairman of the US Federal Reserve lamented that the crises had “exposed flaws in his thinking and in the workings of the free-market system” (Sydney Morning Herald, 24/10/08). He further added that he had been mistaken in believing that the financial system was capable of regulating itself. In France president Sarkozy went a step further, proclaiming that “the ideology of the dictatorship of the market” was dead (Herald Sun, 24/10/08) and went on to describe events as an “intellectual and moral revolution”. Here in Australia, newly elected Prime Minister Kevin Rudd took the opportunity to distance his government from the previous government’s commitment to neoliberal ideals in a 7,000 word essay in the February 2009 issue of The Monthly (Rudd, 2009). In this article he refers to the “demise of neoliberalism” instigated by the Global Financial Crisis and the vital role of the state in the post GFC world. He referred to the “international challenge for social democrats”2 to “save capitalism from itself” to avoid the complete collapse of the existing system.

While Australia survived the worst of the crisis, the same cannot be said for North America and in particular Europe. According to the Sydney Morning Herald, by early 2010 the German economy had “ground to a halt” amid the massive debt crisis in Greece (Sydney Morning Herald, 13/02/10). Alarm among key policy makers even led one commentator among the political and business leaders gathered at the World Economic Forum (WEF) in 2010 to refer to “post-capitalism”(Ignatius, 2010). According to Ignatius, where the WEF had in the past been at the forefront of calling for greater liberalisation of markets and the free movement of capital across borders, even the likes of leading financier George Soros were now calling for further government intervention. Governments world-wide spent trillions pump priming economies and bailing out the banking sector for fear of the total economic collapse of the finance sector. Similar bail outs have been the only thing that

2 That is, left of centre parties that have historically acted as the parliamentary wing of the labour movement.

12 prevented the US automobile industry collapsing completely. All this has been paid for by the kind of deficit spending associated with traditional Keynesian methods of maintaining equilibrium in national economies, methods supposedly anathema to neoliberalism.

A change of tune among business leaders and policy makers is not the same as a retreat from neoliberal ideals among the intellectuals that brought neoliberal economics to the former in the first instance. Nor does it necessarily mean a sustained retreat from neoliberalism by the very policy makers that turned to massive levels of pump priming to stave off economic disaster during the height of the financial crisis. For example, under pressure from the European Union, who fear the flow on effect of a Greek default on sovereign debt, the Greek government announced a series of austerity programs aimed at slicing $US billions from the deficit under the terms of a bail-out package negotiated with the IMF and their fellow EU member states (Ryan, 2010). To address the crisis Greek Prime Minister Papandreou began implementing measures that can be instantly recognised as tried and tested neoliberal tools favoured by policy makers over the last 30 years. The spending cuts, a freeze on public sector wages and state pensions and a lifting of the retirement age are entirely consistent with the approach of neoliberal states concerned more with curbing inflation and public debt than the economic pain such measures may inflict upon its citizenry. This is a clear shift from the Keynesian solutions implemented at the onset of the GFC and ironically this shift back toward neoliberal orthodoxy is accelerated by the cost of implementing those methods.

Here in Australia, there has been a similar, albeit much less severe trajectory in responding to the GFC and to recovering the cost of that response. There were also important differences however. When the GFC hit the then Prime Minister Kevin Rudd saw fit to inject massive amounts of money into the economy to stave off the risk of recession (Sydney Morning Herald, 05/02/09). Spending patterns were quite different, however, to that of other nations in that Rudd was not faced with a collapsing banking sector that needed to be bailed out. He could therefore afford to spend money in ways that would stimulate aggregate demand in the economy, with some $42 billion spent on cash handouts and a major infrastructure program, most notably on schools. Rudd stood firm against Opposition criticisms of the debt being

13 accumulated to fund the spending, consistent with his nominal rejection of neoliberalism in the Monthly article noted above. Once recession had been averted, however, the ALP government, now under Julia Gillard, would once again begin to embrace the free market as the key to taking the Australian economy forward (Franklin, 2010).

Prime Minister Julia Gillard outlined her vision for the future of the Australian economy, in a speech that invoked the reforms of the Hawke-Keating years and championed the virtues of a “stable macroeconomy, creating certainty for economic decision making.” (Gillard, 2011). Labor also committed to quickly recovering the debt accumulated form the GFC spending with a budget surplus to be delivered within three fiscal years (alp.org.au, 2011). The ALP government has cut the public sector in order to achieve the projected surplus, with around $1 billion to be cut from the APS over four years announced in the 2011-2012 budget amid calls for belt tightening that has caused some commentators to refer to the Gillard government’s “razor gang”, a reference to the Liberal government’s attack on the public service in the late 1970s and early 1980s (Harvey, 2011). Meanwhile the opposition promised even greater cuts, with Shadow Treasurer Joe Hockey vowing to lead his own razor gang to cut ‘big government’ to the tune of some $70 billion to service government debt (Franklin, 2011). Renewed fiscal pressures due to a deteriorating global economic outlook may put further pressure on the government to either defer achieving a surplus or make further cuts to achieve one in their given timeline (Stutchbury, 2011).

The point of the above is not simply to consider in the abstract the plight of the neoliberal project at present. Nor is to speculate on whether Neoliberal, Keynesian, or for that matter Marxist economists will come out of the present crisis with the greatest credibility. It is to begin to lay the groundwork for an understanding of the rise of neoliberalism and what neoliberal reforms have meant to different sectional, or in particular class interests. In other words, what has neoliberalism delivered and to whom, particularly given the claim that the free trade, deregulation and privatisation associated with neoliberal reform would act to solve economic crisis and ultimately alleviate poverty and associated insecurity, thereby leading to prosperity and social stability (Lamy, 2007). These questions take on particular

14 significance when posed in the context of economic uncertainty that neoliberalism appears unable to resolve without inflicting further pain on those whom the proponents of neoliberalism claimed their reforms would benefit the most. Such claims can appear more than a little hollow in a climate where the economic future is so uncertain.

The Historical and Philosophical Context

For the purposes of this thesis, therefore, the Global Financial Crisis marks an important reference point from which to look back to the birth of neoliberalism, its nature, and the ideological underpinnings that accompanied its ascendency. This being the case then so too is there a starting point from which we can begin to observe its ascendency. Both proponents and critics of the neoliberal project, or the “Washington Consensus” as it also came to be known (Tabb, 2003) agree that another economic crisis, the so called 'stagflation' of the early to mid 1970s, provided what we would now call neoliberal economists with an opportunity to move from the periphery of policy debate into the mainstream (Harvey, 2007; Harman, 1996; Auty, 2009; Millmow, 2009). Traditional Keynesian methods were failing to address unemployment and inflation, which according to Keynesian orthodoxy could not occur simultaneously, and were therefore increasingly discredited in the eyes of policy makers.

This provided the context for a new era, in which the 'socialist' methods of state intervention into the economy were increasingly abandoned in favour of deregulation, privatisation and, as Chenail argues “industrial capital has been forced to subordinate itself to money capital” (Harman, 2007: p.88). In other words, there has been a rise in the importance of financial capital in relation to the 'real economy' in today's capitalism. According to Harvey, neoliberalism “is in the first instance a theory of political economic practices that proposes that human well-being can best be advanced by liberating entrepreneurial freedoms and skills within an institutional framework appropriate to such practices” (Harvey, 2007: p.2). The role of the state in such an analysis is to provide the corporate world with the infrastructure within which it can operate, free from stifling regulation and government intervention. According to Harman, (Harman, 2007: p.90), neoliberalism literally means “new

15 liberalism” and looks back to the days of laissez faire liberalism that dominated economic policy from the days of Adam Smith until the Great Depression of the 1930s, when there was a shift from free markets toward greater state intervention into the economy.

In other words there is a wealth of philosophical inquiry that modern, or “neo” liberals can draw upon. In fact the ascendency of neoliberalism allows its proponents to celebrate not just the return of laissez faire economics, but its victory on a global scale (Higgins, 2006: p.5). So in considering the historical trajectory of economic liberalism, it is worth returning to Fukuyama and his assertion that this history has come to an end and the enlightenment project has no alternatives with which to compete. Fukuyama attempts to rescue Hegel's dialectic method from its usurpation and perversion at the hands of Marx and his followers (Fukuyama, 1989). According to Fukuyama, Hegel's idealism saw “all human behaviour in the material world, and hence all human history, is rooted in a prior state of consciousness” and that “this realm of consciousness in the long run necessarily becomes manifest in the material world, indeed creates the material world in its own image. Consciousness is cause and not effect and can develop autonomously from the material world.” In this sense we need to consider the historical development of the consciousness of those who pioneered the development of the liberal ideal up to the present day. By contrast, Fukuyama rejects Marx's dialectical materialism, which he describes as “relegating the entire realm of consciousness – religion, art, culture, philosophy itself – to “superstructure'” that was determined entirely by the prevailing material mode of production” (Fukuyama, 1989: p.3). Here Fukuyama ascribes to Marx a highly mechanical materialism and dialectical determinism that sees the development of human consciousness as being entirely predictable and within which individual humans, subject to an iron law of history have no power to develop consciousness independently of their material circumstances. Such an observation may be consistent with Marx's assertion, taken in isolation from the rest of his scholarship, that the internal contradictions of capitalism, centred on the struggle between contending classes for control of the productive forces, “necessarily leads to the dictatorship of the proletariat” (Marx in Padover, 1979: p.80). It is certainly consistent with the economic determinism of the Second International, which reached its logical conclusion in the revisionism of Bernstein, who essentially

16 removed the question of agency and saw the task of Marxists as simply building a parliamentary presence and waiting for the inevitable implosion of capitalism when socialists would peacefully take the helm (Luxemburg, 1989).

However, Fukuyama's critique of Marx is at odds with the importance the latter placed on the development of human consciousness and subsequent activity based not purely on abstract theory but observations of the dialectic at play in the real world. For example, shortly after Napoleon III’s coup d’etat of 1851 Marx remarked in The Eighteenth Brumaire of Louis Bonaparte, that “Men make their own history, but they do not make it under circumstances chosen by themselves, but under circumstances directly encountered, given and transformed from the past ( Marx & Engels, 1989). Less than a decade later, in his Contribution to the Critique of Political Economy, Marx further declared that “In the social production of their existence, men inevitably enter into definite relations, which are independent of their will, namely relations of production appropriate to a given stage in the development of their material forces of production…The mode of production of material life conditions the general process of social, political and intellectual life. It is not the consciousness of men that determines their existence, but their social existence that determines their consciousness” (Marx & Engels, 1989). When these two references are considered together we see that for Marx, the material conditions of our existence shape the human condition but do not preclude us from attempting to change those conditions to our benefit.

The Cold War and Rational Theory

It is worth remembering the above when considering the development of both neoliberal economic policies and the theoretical foundations which underpin it. The tension between the Hegelian idealism invoked by Fukuyama and the historical materialism of Marx will therefore inform the analytical approach to this thesis, with particular sympathy for the latter. Or, perhaps more to the point, this thesis will consider the philosophical liberalism of the neoclassical liberals in the context of their critique of Marxism, or socialism in general, as part of the cold war battle of ideas. So, for example, when Amadae, by no means a Marxist, examines the theoretical underpinning of the modern Western state she asserts that it can only be

17 fully understood in the context of cold war rivalry between the individualist based Western camp and the collectivist Soviet camp (Amadae, 2003). Amadae goes to great lengths to stress the gulf between the mood in the Western camp immediately following the collapse of the Soviet Union and that during and following World War Two when totalitarian regimes, both fascist and communist, challenged the liberal model of democracy.

In this climate, defenders of western capitalism found it necessary to develop a sound theoretical basis upon which liberal democracies, based on the rights of the individual, could challenge the collectivist model that was gaining flavour across the globe at an alarming rate. Defenders of liberalism in the US state machinery did not rely on theoretical superiority alone, however, but determined to ensure military dominance over cold war rivals. This is demonstrated by the fact that by the height of the cold war in the 1960s, defence spending accounted for half the US budget (Zinn, 2005). The cold war also led to the creation of a number of think tanks among western liberal intellectuals, some of which would become central to the adoption of neoliberal economics by key policy makers (Goodman, 2005). For example, immediately following the conclusion of the Second World War, Project RAND (Research and Development) was established by the US Air Force to facilitate research and analysis aimed at ensuring military superiority (Amade, 2003). Although initially formed as a division within the Douglas Aircraft Company by 1948 it was reconstituted as an independent think tank in its own right as the RAND Corporation. From the outset the RAND Corporation concerned itself with adopting a ‘rational’ approach to policy matters, firstly in the US Defence Department and then to public policy generally.

Beginning with game theory, which attempted to predict the behaviour of players within a given scenario on the assumption that they would make rational decisions based on individual self interest, RAND Corporation continued to develop rational choice theories to inform public policy decision making and were soon a leading think-tank on public policy matters. RAND’s theoretical approach centred on the primacy of the individual over the collective and the assumption that free markets were a necessary prerequisite for a healthy democracy. Rational choice analysis spread from the confines of RAND’s initially narrow focus on strategic defence

18 policy to be adopted by other disciplines, in particular the fields of economics and political science (Amadae, 2003: p.75). Rational choice analysis informed a range of theories including social choice theory, public choice theory and positive political theory that all aimed to rationalise the workings of, and more importantly the superiority of the liberal democratic state over collectivist models of the former Soviet bloc. It did so by taking as its starting point the belief that the rational self interest of individuals in a society make it impossible for a state to effectively operate in terms of a public good.

For example, Buchanan comments on public choice theory that “Public choice theory, broadly defined, came along in the 1960s, 1970s, and 1980s to offer intellectual foundations that allowed citizens to understand the political failures they were able to observe at first hand….Once this elementary shift in vision is made…the critical flaw in the idealised model of politics and politicians is exposed. No longer could the romanticised model of the workings of the state be tolerated” (Amadae, 2003). In other words, it is sheer folly to expect the state to deliver services to the public given the flawed nature of the state in that it comprises itself of rational, self-interested players unable to conceive of a public good. This being the case, it only makes sense that the most efficient means of delivering services, or put another way of distributing resources, is by means of free markets made up of the very self-interested players that make up the populous (the notion of community or society fits poorly with this model). As Margaret Thatcher once famously quoted: “There is no such thing as society, only individual men and women and their families” (Clarke, 2004)

Hayek and the Mont Pelerin Society

Amadae therefore provides a useful overview of the importance of rational choice analysis in public policy that underpinned the push to massive liberalisation by the likes of Reagan, Thatcher and for that matter Hawke and Keating in the 1980s. However it does not in itself explain why it was in the 1980s that this gathered steam, when the theoretical foundations itself were available from at least the end of the Second World War. In short, while the dynamics of the Cold War were in no doubt important in shaping public policy developments, they cannot in themselves

19 explain why a fully matured concept of liberalism was able to rise to the ascendency at the precise moment in history that it did. To do so requires further examination of the key players, who alongside the rational choice theorists cited above, continued to develop liberal theory until such time as they were able to convince mainstream policy makers to adopt the methods their theoretical approach demanded. It would seem that despite their initial obscurity there were indeed a number of think tanks developed during the Cold War devoted to furthering the neoliberal agenda, although unlike the Rand Corporation many of these were independent of government sponsorship (Muir, 2003). These included the Institute of Public Affairs founded in the UK. In 1955 and the Mont Pelerin Society founded in Switzerland in 1947.

In terms of prestige and influence, the best starting point is the work of Friedrick von Hayek, the Austrian political philosopher and founder of the founders of the Mont Pelerin Society. The Mont Pelerin Society also included notables such as Ludwig von Mises and Milton Freidman (Harvey, 2007). Like the rational choice theorists that Amadae examined, the Mont Pelerin Society's starting point was a cold war in which totalitarian regimes seemed everywhere to be gaining ground and even potentially threatening individual liberty in the very heart of the liberal beast itself, namely the United States. The Society's original Statement of Aims, developed at its first session from 1-10 April, 1947 states,

The central values of civilisation are in danger. Over large stretches of the Earth's surface the essential conditions of human dignity and freedom have already disappeared. In others they are under constant menace...The position of the individual and the voluntary group are progressively undermined by extensions of arbitrary power...The group holds that these developments have been fostered by the growth of a view of history which denies all absolute moral standards and by the growth of theories which question the desirability of the rule of law. It holds further that they have been fostered by a decline in belief of private property and the competitive market; for without the diffused power and initiative associated with these institutions it is difficult to imagine a society in which freedom may be effectively preserved. (Mont Pelerin Society, 1947).

According to Harman Hayek and his contemporaries considered themselves liberals in the continental European rather than North American sense (Harman, 2007). They looked back to a golden age of free market capitalism and sought the “resurrection of the orthodox “laissez faire” economic ideology that prevailed until the great slump of the 1930s”. In doing so they looked not just back to the 'classical' economists of the late 18th and early 19th century but to the neo-classical or 'marginalist' economists of the 1870s and 1880s (Harman, 1996). Hayek himself acknowledges the difference between the use of the term “liberal” in the traditional European, or more specifically British sense, with its reference to individual liberty and by extension of free markets and the North American expression more commonly used to describe a left of centre politics, or what Hayek describes as “socialism” in the European use of the word (Hayek, 1982: pp. 119-121). Although a marginal force for the following decades, the stated aims of the Mont Pelerin became increasingly associated with the so called “Chicago School”, the economics faculty of the University of Chicago (Harvey, 2007). The most notable member of the faculty Milton Friedman, who joined the faculty in 1947, was elected President of the American Economics Association in 1967 and awarded the Nobel Prize for Economics in 1976, just two years after his mentor, Hayek had also received this award. Clearly the Mont Pelerin Society and the Chicago School, or at least it's most famous dignitaries, were well and truly moving into the mainstream.

As we shall see, this current was eventually to not only gain the respect of their peers in the academic world but were to get the ear of economic policy makers and guide them in the dismantling of the Keynesian orthodoxy that had been the mantra of western policy makers since the Great Depression irrespective of the formal politics to which they ascribed (Labour/Tory; Democrat/Republican etc). To understand such a seismic shift, as already alluded to, requires investigation into both the battle of ideas the neoclassical camp aimed to win and the historical circumstances within which they conducted this debate. As described by Amadae, the context for those whose aim was to develop a sound theoretical basis for the concepts of individual liberty, personified ultimately in economic liberty and the omnipotence of the market, was the 'cold' war that developed out of the ashes of the 'hot' war that was World War Two. However even before the war had begun in

Europe (September 1939 as opposed to December 1941 when the US entered the war) Hayek was arguing against the economic planning that western governments had seen as essential for rescuing national economies from the woes of the Great Depression (Hayek, 1938). In doing so he essentially argues that “the similarity between many of the most characteristic features of the “fascist” and the “communist” regimes becomes steadily more obvious”. He goes on to argue that planning necessarily implies that the planners are “freed from the fetters of democratic procedure” and that “only capitalism makes democracy possible”.

Before the war had ended, Hayek had railed against government control over the economy, which he maintained could only lead to the totalitarianism of fascism or communism. Given the general consensus that massive levels of government intervention were justified, if not completely essential for the war effort, Hayek was swimming against the stream of economic policy. The momentous disruption to all spheres of social, political and economic life that occurred in the years between the onset of the Great Depression and the allied victory in World War Two cannot be understated. Nor can the rejection of laissez faire capitalism in the first decades of the cold war. The challenges that Hayek and his colleague's faced in shifting their perspectives from relative obscurity into the mainstream must have at times have seemed insurmountable. Hayek's gradual journey from not just isolation but complete derision to being awarded the Nobel Prize for Economics in 1974, two years before Freidman received the same recognition, marks a lifetime of commitment to the philosophical and economic theories he espoused. This challenge may well be compared with the isolation of Keynesian economists from the 1970s as policy makers spurned their ideas for the new neoliberal mantra.

Following the victory of the allied powers in World War Two, and the defeat of fascism in Germany and Italy, the prime enemy became 'socialism', or what Hayek and his colleagues meant by socialism (Hayek 1960, 1982). As with the seemingly ascendant Right in the USA (Dionne Jr., 2010), socialism could cover everything from what is termed 'liberal' in the USA to the totalitarian regimes of the former Soviet bloc. In this sense the Right and the Left tended to agree that the former 'communist' states had marked a distinct shift from the capitalist mode of production, although both camps would argue over whether this represented a

22 positive or negative development. There was, of course, debate not just between but within the Left and the Right, particularly within the Left, over the exact nature of these regimes. Large sections of the Left identified with these regimes, some unreservedly, others more critically. Only a small minority rejected outright the notion that these regimes in any way represented a genuine break with capitalism as opposed to a different and far more extreme form of capitalist and imperialist exploitation (Cliff, 1988). The fact that the Stalinist regimes had support among the left in the Western camp made it easier for the Right, including the neoclassical economists, to argue that any trajectory away from individual liberty and freedom of commerce led to the dangers of the gulag and the monolithic totalitarian regimes that suppressed personal freedom.

The neoliberals felt compelled to mount an ideological assault on 'socialism' whatever its guise (Hayek, 1960). In The Intellectuals and Socialism Hayek uses an idealism akin to the approach of Fukuyama and ascribes to an elitist view of history whereby the masses are shaped by intellectuals alone and are incapable of independently developing their own consciousness. He argues that “Socialism has never and nowhere been at first a working class movement...It is a construction of theorists, deriving from certain tendencies of abstract thought with which for a long time only the intellectuals were familiar” (Hayek, 1960: p.371). This is made all the more interesting in that Hayek himself sympathised with a “mild Fabian socialism” in his younger days (Hayek, 1978). Hayek goes on to argue that there “is little that the ordinary man of today learns about events or ideas except through the medium of this (intellectuals) class” (Hayek, 1960: p.372). In relation to the intellectuals and power brokers attracted to socialism he asserts that this may be due to “genuine error which leads the well-meaning and intelligent people who occupy those key positions in our society to spread views which to us appear a threat to our civilisation” (Hayek, 1960: pp.375-376). In effect Hayek is arguing that workers attracted to socialism only develop a socialist consciousness by accepting ideas generated completely outside of themselves as a class. Furthermore, those that inject this consciousness into the “ordinary man” do so independent of any real historical and material roots but completely in “abstract thought”.

A Marxist Response

Marxism can respond to this in (at least) two interrelated ways. Firstly, the life of the “ordinary man” does not occur in abstraction, completely isolated from the real material world. Working life and the material realities this exposes working men and women to generate ideas and responses which belong entirely to the realm of the real, as opposed to the abstract world. Working long hours in lowly paid sweatshops or conversely in well unionised workplaces with vastly superior pay and conditions are hardly abstractions that are irrelevant in considering the extent to which workers adopt socialist, or for that matter, right wing or conservative explanations of their world. In other words, while material conditions do not automatically guarantee this or that consciousness in a deterministic manner, they play an important role in determining responses to developments in the social, political and economic realms that impact upon their lives. Consciousness, whether socialist or otherwise, is a synthesis between the subjective and the objective, with conclusions based on objective conditions and a variety of subjective realities. It might be an abstraction for socialists to call for revolution among well paid workers during an economic boom who feel secure, well paid and in control of their lives. So too might it be considered an abstraction for neoclassical economists to call for a 180 degree turn in economic policy during an economic boom when traditional Keynesian methods appeared to be delivering continued prosperity and an end to the boom/bust cycle of the past. But where material conditions are conducive to such arguments the prospects of them succeeding may be much better.

The other response Marxism may give to Hayek's assertion that socialist consciousness among workers is simply imported from either well intentioned or manipulative intellectuals is the reality of Marxist scholarship itself. Key historical events of importance to Marxists often occurred independently of or even in spite of intervention by socialists. Perhaps the easiest way to express this is with reference to the class societies examined and analysed by Marx in the Communist Manifesto (Marx & Engels, 1989: pp.102-143). Marx did not create the Roman Empire, for example, nor the history of Europe that followed its downfall. What he did do was subject real societies and real historical events to scrutiny, irrespective of what one makes of his analytical methods or conclusions. More important are key historical

24 events with which socialists either attempted to intervene, draw conclusions from, or both. For example Marx saw the Chartist movement among British workers as a key point in the development of a working class movement conscious of its sectional interests (Marx & Engels, 1989). This was particularly important to Marx as the struggle occurred in a country where the bourgeoisie had already successfully established themselves as the ruling class. While socialists took part in the Chartist movement and some of its leading members considered themselves as being socialists, this was not a revolutionary movement in the Marxist sense. Nonetheless, the strategy, tactics and ultimate defeat of Chartism allowed Marx to draw conclusions about the nature of the capitalist state and of the working class fighting as a class to further its own interests. In other words, Chartism was not simply a product of 'intellectuals' but a movement built by workers and their representatives, from which Marx was able to draw important lessons and conclusions.

The Paris Commune of 1871 offered Marx a similar opportunity to develop his ideas (Marx, 1977). The examples of workers democracy that Marx saw in the Commune provided him with concrete examples of how a future socialist society might function. So too did the defeat of the Commune allow him to develop his theory of the bourgeois state and the need for revolutionaries to smash and replace, rather than simply co-opt this state. In other words, Marx the 'intellectual' was not simply the teacher but was also the student. The synthesis of the subjective and the objective already referred to found expression in the dialectic as those who advocated a socialist society drew important lessons from the very real theatre of struggle they looked to in achieving such a society. A final and most striking example that refutes Hayek's assertion that intellectuals alone are responsible for shaping the consciousness of workers occurred in Russia during the revolutionary period of 1905 (M. Thomas, 2005). In January of that year workers in Petrograd had marched to present a petition to the Tsar calling for a number of reforms. The march was attacked by Tsarist troops, resulting in a massacre that became known as 'Bloody Sunday'. What followed was “immense and repeated strike waves., to be followed by mutinies in the army and navy (Russia was at war with Japan at the time), revolts by oppressed national minorities...and growing peasant unrest.” The revolution also led to the creation of the St Petersburg Soviet of Workers' Deputies in 1905. This is worth considering to fully appreciate the relationship between Russian

Marxist 'intellectuals' and Russian workers during the revolutionary process in light of Hayek's thesis. Russians did not rise up against the Tsar because they were instructed to by the intelligentsia. They did not build Soviets under the tutelage of existing Marxist organisations either in Russia or elsewhere. In fact the exact opposite is true. Workers in St Petersburg were generally far ahead of the Marxist groups in a number of ways. Both of the leading Marxist groups in St Petersburg, the Bolsheviks and the Mensheviks, struggled to keep pace with developments. They had generally agreed that any revolution in Russia would be a democratic bourgeois revolution with socialist revolution impossible until Russia had developed into an advanced capitalist economy. Leading Bolsheviks had even demonstrated a sectarian hostility to the creation of the Soviets (Thomas, 2005). As Marx had learned from the Paris Commune of 1871 so too did Russian Marxists 'learn' from the experience of 1905. Trotsky and eventually Lenin came to believe that, based on the actions of Russian workers a democratic bourgeois revolution could become a ‘permanent’ revolution if workers continued to act as a revolutionary class in their own right following the establishment of a democratic state. Furthermore, they saw in the Soviets the very institutions that could replace bourgeois rule and lay the basis for socialism. The role of Marxists was not simply to inject by rote the ABC of Marxism into the consciousness of workers acting as a revolutionary class. Their role was to win arguments as part of that process based on the extent to which objective conditions would allow a revolutionary working class to take power.

The point of the above is not merely to examine history or to engage in a study of Marxist scholarship for its own sake. The point is to understand Hayek's perspective and the historical context within which this took place. For Hayek, this meant defending liberal values of individual liberty and free markets not just as an abstract project. His work was to defend these values against what he saw as a totalitarian threat which had a theoretical basis that was both well developed and increasingly appealed to the academic elite of that he saw himself a part of. Even among this elite that rejected Marxism, most also rejected his application of neoclassical ideals to modern capitalist economies. So long as policy makers accepted the Bretton Woods consensus, including, among other things, fixed exchange rates and where necessary deficit spending to curb unemployment, Hayek remained isolated.

Friedman’s Intervention

Hayek's approach, therefore, was to continue not just defending neoclassical ideals but to try and win the argument, first among the intellectual elite that he saw as shaping the material and conscious world and ultimately among policy makers that clung to 'socialist' principles that undermined individual and commercial freedoms. In this he was assisted by his contemporaries in the Mont Pelerin Society and the Chicago school. The most notable of these was Milton Friedman, based at the University of Chicago and of increasing importance in the dissemination of neoclassical ideals among economists and eventually key policy makers. Originally a Keynesian, Friedman rejected the former following the Second World War and moved quickly to embrace neoclassical ideals. He saw peril in the same 'socialism' that Hayek rejected and eschewed government intervention into the economy in favour of a system of international free trade. Consistent with the basic tenets of Hayek, Friedman and the Chicago school Friedman argued for an international system of free trade.

Friedman went so far as to argue that while economists frequently disagreed, this was not the case when it came to free trade. According to Friedman, “Ever since Adam Smith there has been virtual unanimity among economists, whatever their ideological position on other issues, that international free trade is in the best interest of trading countries and of the world” (Friedman, 1997: para.1). Smith certainly extolled the virtues of international trade and in his seminal work, The Wealth of Nations, described the process by which the free flow of imports and exports would create equilibrium between the production and consumption of each country party to the trade of goods (Smith, 1986: p.472). Friedman might also have mentioned another of the classical British economists David Ricardo, whose theory of comparative advantage in his 1821 Principles of Political Economy and Taxation would provide another important reference point for classical and neoclassical proponents of free trade among nations (Hart-Landsberg, 2006).

Friedman would argue that only unfettered markets are capable of ensuring maximum efficiency in national economies and the opportunity for maximum trade opportunities between countries (Friedman, 1997). He would further argue that

27 barriers to free trade in the form of tariffs did not protect local industries or consumers. Rather this 'protection' propped up inefficient domestic ventures that denied opportunity to potential rivals who possessed the comparative advantage over domestic and international competitors that the former did not. Furthermore they created artificially high prices that hurt consumers who would be best served by allowing market corrections rather than tariff barriers determine which businesses survived and what costs were passed on to consumers in the process. Like Hayek and other advocates of a retreat of the state from the economic sphere, Friedman found himself isolated, even ostracised by policy makers in the first two decades following the end of the Second World War. The battle of ideas that the liberal think tanks engaged in allowed them to hone their philosophical liberalism in order to best defeat the proponents of big government but remained relatively obscure outside of the circle of like minded economists and philosophers within which they discussed and debated their ideas.

In an address delivered at Hillsdale College as part of the Mises Lecture Series, Hayek would lament the ignorance of the masses in understanding the “aim of the market order” and “therefore the object of explanation of the theory of it is to everybody of most of the particular facts which determine this order. By process which men do not understand, their activities have produced an order much more extensive and comprehensive than anything they could have comprehended, but on the functioning of which we have become utterly dependant” (Hayek, 1978). This appears to reinforce the elitism already referred to on the part of the neoliberals. Their role was to generate ideas to be adopted by policy makers, and accepted, or at least unchallenged by a civil society generally incapable of understanding the logic of a market driven economy. It is an approach also described by Goodman, who relates the way in which the key architects (as opposed to theorists) of neoliberal policy turned to neoliberal think tanks for policy advice (Goodman, 2005). However, it was not merely the superiority of neoliberal ideas that would provide policy makers with the impetus to turn to them for advice. It was developments in the global economy, particularly in the economic powerhouses of Britain and the USA that provided the neoliberals with that opportunity.

Keynesianism’s ‘Grand Failure’3

It is important to remember that the neoclassical economists were just that, neo classical economists. They did not simply aim to pursue an entirely new approach to managing an economy but a return to the classical laissez faire orthodoxy that dominated economic policy until the Great Depression of the 1930s and had “fallen into disrepute as an ideology by the end of the Second World War” (Harman, 2007). This classical orthodoxy failed to prevent the global economic collapse of the inter- war years which was seen by many as a major factor in the path to the second period of global conflict in little more than a generation. Thoroughly discredited as a means of preventing such crises, governments turned instead to the interventionist approach of British economist John Maynard Keynes. Consistent with the Keynesian ideals, governments now favoured the use of state power in pursuing economic development (Cohen & Centeno, 2006). This included a highly regulated framework within which markets had to operate, a greater emphasis on the state as a provider of social welfare to its citizens, particularly in the areas of health and education (this would vary from country to country) and high levels of state ownership of key industries (again, this would vary from country to country). The latter in particular was not in many ways a huge step for governments to take. Massive levels of government intervention were required by nation states in mobilising for the war effort. Key industries were often, therefore, already heavily regulated or even taken into government hands.

Keynesianism also “advocated controlled public investment and carefully-timed government expenditure on public works like roads, housing and schools in order to cure unemployment” and had done so since the Great Depression (Hill, 1985: p.265). Governments would use budgets to finance capital works where it was deemed necessary to both provide important infrastructure and keep levels of unemployment in check. A new approach to exchange rates was also implemented following the failure of the gold based system during the First World War and again during the Great Depression (Harman, 1996). Following the Second World War a new international system of fixed exchange rates, the so called “Bretton Woods”

3 This is a reference to Brzezinski’s “The Grand Failure”, which examines the collapse of the Soviet Union. See Brzezinski, 1990.

29 system, pegged currencies to gold and the US dollar in an attempt to maintain global stability within the international currency market with deference to what was now clearly the global economic superpower in the new world order.

It should be remembered that there was a context to capital works and the deficit budgeting required to fund them. Massive reconstruction was required following the devastation of the Second World War. There was some $12 billion dollars pumped into Europe alone under the US Marshall Aid plan to help fund reconstruction (Hill, 1985). Europe in particular, therefore, was a major centre of investment into rebuilding cities, towns and infrastructure such as bridges, railways and the like that had been destroyed during the war. Such huge ventures required not just funding but major planning. In France, for example, a series of national plans oversaw the nationalisation of key industries and a state led modernisation of the economy (Cipolla, 1980: pp.91-100). In the decades following the end of the Second World War, Keynesianism appeared to be working. International trade grew by just under 10% from the 1950s and into the early 1970s, at a much greater rate than in the 'golden age' of classical liberalism where world trade grew “with an average growth rate of about 3.4 per cent a year between 1870 and 1913” (Harman, 1996). World production grew at an average rate of 5 per cent between 1950 and 1970, even higher in Western Europe, which grew at 5.5 per cent (Cipolla, 1980: p.343). Massive levels of investment in reconstruction and the army of workers required to perform the actual work meant that unemployment remained at historic lows in the decades following the end of the war.

As a result, living conditions for western workers tended to rise given that the profitability of the system and low unemployment allowed workers to win concessions fairly easily from bosses who could afford to buy off their acquiescence (Harman, 2007). At the same time, private capital interests were often relatively happy to see governments provide the funding and direction for the reconstruction of post-war economies. Keynesians took credit for the long boom that followed the Second World War, arguing that the positive economic climate was due to governments implementing their recommended economic strategies, some even went so far as to say that they had ended the boom/slump cycle altogether (Harman, 1996). However, just as the laissez faire liberals that had preceded them failed to

30 provide answers, let alone remedies to the economic stagnation of the 1930s, so too would Keynesianism be subjected to a challenge it appeared incapable of meeting. It was this that gave neoliberals the opportunity to leave their relative obscurity and join the mainstream as policy advisers to the heads of the world's most powerful economies.

Even during the boom years of 1945 to 1970, some argued that toward the end of the boom there were signs the international economy was again heading for uncertainty if only one were prepared to look for them (Cipolla, 1980). According to the monetarists who looked to the supply of money into the economy as key to understanding the crisis, the rot had started setting into the global economy from the mid 1960s due to massive US deficits flooding the world with money (Cipolla, 1980). The result was massive pressure on the Bretton Woods system of fixed exchange rates underpinned by gold reserves that had been the mainstay since the end of the Second World War. By contrast, Paul Samuelson, former economic advisor to President Kennedy would state as late as 1970 that “The National Bureau of Economic Research has worked itself out of one of its first jobs, namely business cycles” (Harman, 2009: p.191).

From a Marxist perspective, Harman also argues that that the roots of the economic crisis of the 1970s could be traced back to the late 1960s (Harman, 2010: pp.106- 107). Consistent with Marx's law of the tendency of profits to fall, Harman's emphasis, however, is on the “downward pressure on profitability” that marked the beginning of a shift in the dialectic of the class struggle in favour of capital. Downward pressure on profits meant capitalists could no longer afford the consensus of the initial post-war years where high profit levels allowed them to settle wage claims quickly to ensure industrial peace. This, argues Harman, resulted in an increase in the rate of exploitation of workers in the form of attacks on wages and conditions and an increase of the share of capital vis-a-vis wages. It also marks a distinct break with Keynesianism, whose demand side approach to keeping unemployment in check opposed wage cuts as this would see a decrease in the aggregate demand in an economy due to a reduction in the ability of workers to purchase the goods an economy produced.

Neoliberalism Arrives

In 1969 the International Monetary Fund (IMF) began providing loans to member countries with insufficient reserves to service their deficit under the Special Drawing Rights (SDR) program (Cipolla, 1980). This was often insufficient, however, to avoid liquidity crises and as a result some economies, most notably in what was then Western Europe began to adjust their exchange rates. In 1971 the US dollar itself was devalued against other currencies in an attempt to maintain some degree of parity consistent with the Bretton Woods regime. This failed to stem the tide and that very year the Bretton Woods system was abandoned as the fixed exchange rate system, having failed to maintain parity in the face of growing debt crisis, was replaced by floating exchange rates. It should be noted, however, that floating exchanges rates are not purely market driven give the power of central banks to buy and sell currencies in order to exert influence of their respective currency vis-a-vis international rivals (Harman, 1996). In any case things would go from bad to worse for the international economy and with it the legitimacy of demand side Keynesian economic policy.

Already struggling oil importing nations were increasingly at the mercy of the Organisation of Petroleum Exporting Countries (OPEC) and their relative stranglehold on the world's supply of crude oil (Cipolla, 1980). When OPEC nations colluded to increase the price of oil four fold in 1973 (they would double the price again in 1979-1980) this exacerbated economies already struggling to keep industrial output in the positive (Hill, 1985). The result was the return of full blown recession among the world's leading economies on a scale not seen in the post-war era. By 1975, for example, there were 1 million unemployed in Britain (Hill, 1985) At the same time the US had an official unemployment rate of 8.3 per cent, up from 5.6 per cent the year before, while “the number of people who exhausted their unemployment benefits increased from 2 million in 1974 to 4.3 million in 1975” (Zinn, 2005: pp.557-558). Governments initially tried to remedy rising unemployed using traditional Keynesian methods of using aggregate demand to stimulate growth, and therefore employment (Harman, 2009). As a result budget deficits began to soar but with little impact on rising unemployment figures. What it did do was contribute to levels of inflation that were already out of control. In the UK

32 retail prices rose 25 per cent from mid 1974 to mid 1975 (Hill, 1985). While not as dramatic as in the UK., inflation in the US had nonetheless climbed to just under 10 per cent by the mid 1970s (Harvey, 2007).

Simultaneous inflation and unemployment, the so called 'stagflation' of the economic crisis of the 1970s marked the final ‘death’ of Keynesianism. Keynesian orthodoxy had maintained that these two phenomena were counterposed, i.e. that high unemployment would mean low inflation and vice versa. This, coupled with their insistence that their methods had actually eradicated unemployment and the downturns that caused it, exposed the hitherto infallibility of their methods. Most importantly, it was the failure of Keynesian methods to combat the return of crisis that saw policy makers begin to desperately look elsewhere for alternatives. The neoliberals wasted no time in acting upon their opportunity to join the mainstream at the expense of the now discredited Keynesians. The think tanks referred to above were given a new lease on life as governments desperate to salvage their respective economies turned to them for advice (Muir, 2003: p.57). For example, Margaret Thatcher turned to the Institute of Public Affairs for guidance when reinventing the Conservative Party upon replacing Edward Heath as leader following their disastrous defeat in the 1974 election.

The neoliberals were helped not only by the apparent failures of Keynesianism but by the fact that their own failings in preventing and remedying the Great Depression of the 1930s were a fading memory. In addition, those that had grown up during the post-war boom had never known crisis of the sort now shaking the system and had tended to assume that their future was secure. So when crisis returned they had no reference point other than the system they had grown up under to which they could lay blame. Furthermore, many had taken place in the struggles of the 1960s where demands associated with greater personal freedoms were common (Harvey, 2007: p.5). Neoliberalism’s talk of liberty and freedom of choice could resonate with a generation rejecting the seemingly overbearing state apparatuses that the former aimed to restrain. This factor should not be exaggerated given that many of the so called new left rejected the power of capital in one way or another. However, it can nonetheless be seen as a factor in making the neoliberal agenda a little less abstract given the synthesis between the reality of a system in crisis and critiques that saw

33 the state as being part of the problem and not the solution. Given this factor, along with the uncertainties that had once again returned to the system, there was an opening that had not existed prior to these events occurring. The neoliberals' time had finally come. They were making their own history, not under circumstances of their own making, but in circumstances that finally allowed them to return from isolation and back into the mainstream.

Chapter 2: Neoliberalism on the World Stage

In considering the rise of the Neoliberal project I intend to concentrate on the ascendency of neoliberalism in the context of what Harvey refers to as a restoration of class power, that is, a shift in the balance of class forces in favour of capital over labour (Harvey, 2007: p.82). In particular this will mean considering the extent to which neoliberal reforms constitute an attack on the living conditions of workers, and on the institutions, such as trade unions that workers look to in order to defend these conditions. In other words, I am interested in looking at the relationship between neoliberalism and class struggle and the dynamic of this relationship over the course of neoliberal reforms. This is particularly true given that a key argument of neoliberals is that workers, when creating monopolies in the economy through the collective strength of trade unions place a restraint on job and wealth creation. The removal, they argue, of such monopolies in favour of a more flexible regulatory labour environment is paramount to creating jobs by removing impediments for employers to take on workers. Such a perspective has laid the basis for confrontation with the trade union movement as an intrinsic part of the neoliberal revolution.

In this context, reference to class will accord to the Marxist concept which sees social classes as based on the relationship of individual members of a given society to this society’s means of production, that is the factories, machinery and so on that produce society wealth. Under capitalism today, particularly in the developed nations, this predominantly consists of the owners of capital, the bourgeoisie or capitalist class, and the proletariat, or working class, who own little or no capital and are forced to sell their labour power to the capitalist class to survive. Or as Marx & Engels described in the Communist Manifesto, (by) “bourgeoisie is meant the class of modern Capitalists, owners of the means of social production and employers of wage labour. By proletariat, the class of modern wage-labourers who, having no means of production of their own, are reduced to selling their labour power in order to live” (Marx & Engels, 1989: p. 113). Class struggle in this context can be seen as a set of social relations centred on conflict between workers and the capitalist class over the price of workers’ labour power, or ultimately as a challenge by workers for

35 control of the means of production and the smashing of the capitalist state.4

The notion of the ‘capitalist’ state in this sense is again used with reference to Marxist orthodoxy, with Marx observing the rise of the capitalist class as coinciding with it having “conquered for itself, in the modern representative State, exclusive political sway” and that the “executive of the modern State is but a committee for managing the common affairs of the whole bourgeoisie” (Marx & Engels, 1989: p. 115). In The State and Revolution Lenin takes this analysis further and describes the state as “the product and the manifestation of the irreconcilability5 of class antagonisms. The state arises when, where and to the extent that class antagonisms objectively cannot be reconciled (Lenin, 1973: p. 7). For Marxists, therefore, the state is essentially an expression of capitalist rule and an administrative tool for creating the conditions within which the rule of capital can prevail. Such conditions can vary depending on developments in the economy or the balance of class forces, meaning the state can act in different ways to uphold the rule of capital. This helps to explain the manner in which the capitalist state can take various forms, in most first world scenarios that of a liberal democracy, but can also exist under a military dictatorship, as in the case of Chile, examined below. Similarly, the state can look to differing approaches to managing the capitalist economy, for example as with highly interventionist and regulated economies as opposed to the more liberalised economies of recent years.

Third World Origins

According to Harvey (Harvey, 2007: p.7) the first example of a neoliberal state occurred in Chile following the overthrow of the democratically elected administration of Salvador Allende in a US sponsored military coup in 1973. Such events do not occur in a vacuum but within a specific historical and political context and the events in Chile are no different. Allende considered himself a Marxist and was elected in 1970 in the context of a growing level of class struggle by Chilean workers and peasants who looked to his government to bring socialism to Chile

4 For a more modern interpretation of Marx’s method see Callinicos, 1987, especially pp.105-39 on the dynamics of capitalism and pp. 140-177 for class struggle under capitalism. 5 Italics reproduced from the original.

(Sepúlveda, 2007). This heightened level of class struggle did not abate with the election of Allende, as those who had elected him did not simply sit back and wait for him to bring socialism from on high but saw his election as a signal to escalate the battle. The years that followed Allende’s election saw workers and peasants increasingly flex their muscle, beginning with strikes and demonstrations and followed by workers seizing control of factories and the peasants taking over the land of the rural bourgeoisie. Allende’s government also legislated important reforms, most notably the nationalisation of CODELCO, the world’s largest copper mining operation (Klein, 2010).

Allende’s government didn’t last long, however and was ultimately defeated in a military coup in September 1973. Under US influence the dictatorship under General Augusto Pinochet that followed ushered in a revolution in the way the Chilean economy was managed. In 1975 Pinochet met with Milton Friedman to discuss the latter’s economic theories and ways in which they could be applied to the Chilean economy ((Sepúlveda, 2007). Following this Pinochet appointed Jorge Cauas to head up a team of Chilean economists who had studied under Friedman at the University of Chicago School of economics to oversee restructuring of the Chilean economy. These so-called “Chicago Boys” quickly turned to remodelling the economy along neoliberal lines, negotiating loans from the International Monetary Fund in return for an opening up of the Chilean economy. This process was consistent with what we would now identify as neoliberalism, including the privatisation of public assets and welfare provisions and the encouragement of foreign direct investment through the deregulation and liberalisation of domestic trade laws and reducing workers’ rights to promote labour ‘flexibility’.

Importantly, as the notion of dictatorship referred to above implies, this process did not coincide with or facilitate the maintenance or expansion of key democratic institutions within the Chilean state apparatus. On the contrary, while the economy was 'freed' so as to enable business interests to profit, the social and political spheres of life were subject to increasing levels of repression. Industries that had been nationalised were now opened up for private ownership whereas trade unions were suppressed and its leaders subject to torture and execution, often with loved ones or colleagues having no idea of what had happened to them, with the concept of habeas

37 corpus having no validity under the new regime. In other words, the regime change, along with the economic reforms that followed, resulted in a shift from the power of working class Chileans and their institutions in favour of both domestic and foreign capital. The example of Chile is particularly poignant when considered in Hayek's assertion, alluded to in the previous chapter, of the link between free market capitalism and democracy. It is worth quoting Hayek in full to grasp the tension between his thesis and the reality of neoliberalism under Pinochet:

It is often said that democracy will not tolerate capitalism. But if here “capitalism” means a competitive society based on free disposal over private property, the much more important fact is that only capitalism makes democracy possible. And if a democratic people comes under the sway of an anti-capitalistic creed, this means democracy will inevitable destroy itself (Hayek, 1938).

The reality would appear, rather, not the withdrawal of the state as such but rather a shift in focus of the role of the state. It is still the nation state, for example that legislates the reforms that facilitate deregulation, privatisation etc. and the nation state that enforces those laws, either through the judiciary, or through state sanctioned violence, or the threat of violence. This is true in a state such as Chile in which the military reinforced neoliberal rule with brutality and no regard to the rule of law. It is also true of liberal democracies, which, as we shall see, are prepared to use institutions such as the police and the military, the “special bodies of armed men” to use Lenin's phrase to suppress resistance to the neoliberal agenda. In this sense the state continues to play a seemingly indispensable role in enforcing the neoliberal agenda, suggesting, to quote Lenin yet again, the role of the state as “the manifestation of the irreconcilability of class antagonisms” (Lenin, 1973). The role of the state and the extent to which the neoliberal process either undermines or shifts the focus of the nation state and its sovereign approach to the democratic ideal will be considered in looking at neoliberalism’s rise to ascendency beginning with the Thatcher and Reagan administrations of the late 1970s and early 1980s.

The Thatcher Revolution

When the Thatcher government that came to power in 1979 it inherited an economy not only in crisis, but one in which its predecessors were already drawing conclusions about the failure of existing economic policy. The economy under Callaghan had become so fragile that his administration was forced in 1976 to turn to the IMF for loans to bail out the economy (Rees, 2004: p.19). The conditions for the bail out were austerity measures typically associated with neoliberalism. Callaghan's government was forced to reduce the deficit, raise interest rates and cut government spending. It was further expected to make cuts to wages and welfare provisions. Callaghan's conversion from Keynesian was such that he would justify his government's measures by stating in September, 1976 that “We used to think you could just spend your way out of recession by cutting taxes and boosting government borrowing. I tell you in all candour that that option no longer exists; and insofar as it ever did exist, it worked by injecting inflation into the economy. And each time that has happened, the average level of unemployment has risen” (Harman, 1996: p.33).

Callaghan, therefore, had already begun putting in place measures that Thatcher would apply when the Tories took power. Furthermore, as the above quote suggests, her famous declaration that there was no alternative had already been enunciated by her predecessors. Thatcher's approach was first and foremost to check inflation, even at the cost of persistent high levels of unemployment (Hill, 1985: pp.295-96). This was achieved by a combination of measures including cuts to public spending and the lowering of tax rates to encourage business investment. Taxation in particular was subject to nothing short of a revolution with “a shift in the burden of taxation on income...to taxes on consumption...VAT (Value Added Tax) rose from 8 to 15 per cent” and further to this there was “an end to subsidies for heavy industry and the process of privatisation began” (Heffer, 2008). The Thatcher revolution was above all intended to create a market driven economy favourable to capital investment and the pursuit of profits, a policy approach that was argued would lead to job creation and tackle persistent unemployment. The business environment created by the Thatcher revolution was particularly favourable to the rise of finance capital, which has grown in importance within the British economy at the expense of

39 the traditional productive sector.

However, it's not just the City of London, the heart of the UK financial system that has grown in importance alongside the rise of neoliberalism. Harman argues that the “stock market valuation of US financial companies was 29 per cent of the value of non-financials in 2004, a fourfold increase over the previous 25 years” and that “global financial assets were equal to 316 per cent of annual world output in 2005, as against only 109 per cent in 1980” (Harman, 2009: p.278). To give life to her economic revolution Thatcher created a regulatory framework with “limited regulation of business practices and even more limited enforcement of those regulations” (Lent, 2008: p.14). Capital was invited, even implored, to take advantage of the low tax, low regulation economy that Thatcher insisted was the only alternative to the failure of the Keynesian approach. This certainly suited multinational, or transnational corporation (TNC) interests who viewed the new economic environment as an opportunity to buy former state owned utilities (PSI, 1997).

Taking on the Unions

Thatcher's pro-business environment was therefore accompanied by a regulatory framework within which the position of workers was increasingly precarious. This applied not only in terms of recourse to protection from the state against employers who increasingly held the balance of power in relation to their employees due to the disciplining effect of high levels of unemployment. It applied also in terms of the state itself seeming to openly take the side of capital and in the process undermine the ability of trade unions to defend the interests of their members. This is important given that workers and their unions were blamed by Thatcher for persistent high levels of both unemployment and particularly of inflation. The 1970s in Britain had seen a massive level of class struggle (Heffer, 2008). Striking miners in state owned coal mines had enjoyed victories against Heath's Conservative government in both 1972 and 1974. The 1974 strike had prompted Heath to call an election seeking a mandate to smash the miner's union, the National Union of Miners. His defeat in this election was a legacy that the Tories, and in particular Thatcher would never forget. The Callaghan Labour government that replaced

Heath proved equally incapable of containing the unions, culminating in the bitter “Winter of Discontent” of 1978-79 that ultimately saw a backlash against Labour and a victory to the Tories under Thatcher.

For Thatcher, economic reform and undermining the power of the unions were part of the same process. When Thatcher came to power 58 per cent of the British labour force was members of trade unions (Hill, 1985: p.296). Thatcher immediately set herself the goal of reversing the upward trend of union density that leads to the kind of 'monopoly' that neoliberals see as threatening the productivity of the national economy. So for Thatcher, opening up the public sector of the economy to privatisation was an end in itself but also a means of destroying an important base of union power in Britain. For example, between 1979 and 1994 some 2 million public sector jobs, accounting for almost one third of the public sector workforce disappeared in the UK, with the bulk of them being unionised jobs (George, 1999: para.19). With jobs in sectors with a high union density disappearing this naturally had an impact on union density across the workforce more generally. The decline of trade union membership during Thatcher’s administration can be seen in Table 1 below.

Table 1: Trade Union Membership in Britain 1979 – 19906

Year Members 1979 13,212,000 1980 12,636,000 1981 12,311,000 1982 11,744,000 1983 11,300,000 1984 10,744,000 1985 10,819,000 1986 10,598,000 1987 10,480,000 1988 10,387,000 1989 10,044,000 1990 9,810,000

6 UK Department for Business Innovation and Skills, 2009. Figures are for Great Britain only and do not include Northern Ireland or other parts of the United Kingdom.

Thatcher's approach was not to launch an all out assault on the trade union movement but rather to engage in “set piece battles” with individual unions or industries (Kimber, 2009: p.41). For example, one of Thatcher's first acts upon taking government was to start slashing jobs in the civil service, a sector traditionally associated with high union density (Bowers, 2009). She even went to the extent of abolishing a number of key departments, including the Civil Service Department itself (House of Lords, 1998: para.71). Over the following years Thatcher continued to anger civil servants and their unions as traditional means of pay settlement were abolished, following a strike settlement in 1981. She further alienated public sector union members as unions affiliated to the Trade Union Congress, Britain’s peak trade union body, were banned from employment in certain public sector agencies, most notably the Government Communications Headquarters (GCHQ).

The Miners' Strike

When Thatcher was satisfied with her reforms of the civil service she turned to other sectors, where bitter disputes, most notably with the miners in 1984-85 and with print workers in 1986-87 ended in defeat for the unions (Kimber, 2009: p.41). The miners' strike in particular was a bitter and drawn out affair, with the stakes high for both sides. Commentators on both the left and right have argued that this dispute was a conscious part of Thatcher's resolve to break the back of the British unions (Jenkins, 2009) (Adeney & Lloyd, 1988: p.70). In any case, Thatcher would have been fully aware that her announcement of pit closures would likely be met with stiff resistance. Arguing that the nationalised industry was a drain on public coffers and it was cheaper to import coal (Harvey, 2007: p.59) Thatcher announced the closure of twenty pits during 1984-85 on top of another twenty pits that had been closed during the previous twelve months (Adeney & Lloyd, 1988: p.70). This had a major impact on the livelihoods of workers at the core of the British labour movement and precipitated a battle that would have far reaching consequences. For Thatcher, victory meant breaking the back of resistance to her neoliberal agenda with the added bonus of expunging memories of the Tories' defeat at the hands of British miners in 1974. For the miners, defeat could mean not just the loss of individual jobs but the decimation of entire communities that had for generations

42 relied on the pits for their livelihoods. In such towns an entire generation could potentially be lost to unemployment with jobless figures in some communities already up to 15 per cent even before the pits were closed (Adeney & Lloyd, 1988: p.25).

Given the high stakes involved, it is no surprise therefore of the bitterness of the struggle nor the intensity of the methods used to win. Both sides relied above all on the brute strength of numbers, on the miners’ part to maintain picket lines and on the government side with the use of police to physically attack picketing workers to allow scab labour to reach the pits (Adeney & Lloyd, 1988: p.92). In the end it was the forces of the state, the “bodies of armed men”, that were to prove victorious. It was a battle that would reinforce Thatcher's moniker as the 'Iron Lady' and demonstrate clearly that describing neoliberal reform in terms of a retreat of the state was too simplistic a description. Given her willingness to use the full force of the state to secure victory it was clear that the state was as important as ever in disciplining workers who acted to protect their interests when those interests diverged from those of capital. In fact Thatcher herself rejected the laissez faire label generally associated with neoliberalism by declaring “Never accuse me of that ghastly French word. I believe government should be strong in what it does” (Jenkins, 2009). Thatcher's anti-union agenda certainly emboldened capitalists to use both the threat of unemployment and the new industrial relations climate to push through attacks on their workforce.

Murdoch and the Print Workers

An example of this is another bitter dispute, commencing not long after the defeat of the miners, this time at Rupert Murdoch's News International facility at Wapping in London. Murdoch had been buying up rivals in the print and electronic media, including acquiring News International in Britain, publishers of The Sun, The News of the World, The Times and The Sunday Times, making him the biggest player in the global media market (Oatridge, 2003: para.2). Murdoch's intention was to move production of two of these newspapers, The Sun and The News of the World to Wapping while other publications were to remain in Fleet Street (Nash, 2000: p.212). In the process he hoped to reduce the workforce at the new Wapping facility

43 by as much as two thirds, provoking a dispute with the unions representing print workers with whom he had been negotiating with as early as 1981. Murdoch sought a fresh start at the new facility to ensure that any 'privileges' hitherto enjoyed by his workforce at his Fleet Street facilities would not apply at the Wapping plant (Nash, 2000: p.214-15).

In September 1985 he declared certain prerequisites must be met in order for the unions to be included in any collective agreement to cover the new facility. These included an end to the closed shop and the inclusion of a no strike clause, conditions which the unions described as a 'serf's charter'. When the arbitrary Christmas deadline Murdoch had imposed for an agreement to his conditions had expired, he declared that he would subject the terms of the 'serf's charter' on both his Wapping and Fleet Street publications, adding that he would also reduce his existing workforce across both plants from 5,500 to 1,500 (Nash, 2000: p.216). Despite offers to continue negotiations from the unions, Murdoch kept to his position. In response to stalled negotiations and Murdoch's insistence that job shedding would proceed, some 6,000 staff across both facilities walked of the job on 24 January 1986 (Oatridge, 2003: para.9). Murdoch responded by announcing the dismissal of all striking workers and threatened journalists with dismissal unless they agreed to move to the Wapping site, resulting in 1,000 journalists joining their colleagues in strike action. Murdoch further offered financial incentives to journalists aimed at undermining the industrial action.

What ensued was industrial action where print workers attempted to prevent the printing and distribution of Murdoch's titles, with mixed results (Nash, 2000: p.219). Despite negotiations between Murdoch and the unions, striking workers voted in two separate ballots to continue industrial action and picket lines grew in number, at times numbering in the thousands (Nash, 2000: pp.221-22). This culminated in police action against a march to mark the one year anniversary of the initial walkout with mass arrests and injuries on both sides (Nash, 2000: pp.224-25). Murdoch used the violence to further demonise striking workers in his press and to gain further sympathy from the courts that had already granted injunctions against picketing. Under threat of contempt of court proceedings which could have potentially cost the unions millions, the unions capitulated, effectively 'abandoning' their members

(Taylor, 2009: para.6). A strike fought with the bitterness of the miners’ strike, with similar threats to workers and fought for a similar length of time, had once more resulted in defeat for the working class and it’s institutions.

Privatisation

While victory over the unions allowed Thatcher to accelerate the pace of privatisation and deregulation, steps were already underway well before this. In 1981 Thatcher embarked upon the process of privatising the state owned telecommunications industry (British Telecom, 2006). Under the guise of eliminating “waste and inefficiency” the British Telecommunications Act 1981 separated the telecommunications sector from the Post Office with the creation of British Telecom (BT) as a public corporation, thereby ending a state owned monopoly that had existed since its nationalisation in 1928. The new corporation was expected to operate as a commercial player in the new economic environment, with competitors granted licences to use the existing British Telecom network to create competition for customers (British Telecom, 2006: p.1). Determined to push on with not just the corporatisation of British Telecom but its full privatisation, the Conservatives made the public versus private debate part of the 1983 general election (British Telecom, 2006: p.2). After winning the election with an increased majority, Thatcher pushed ahead with the sale of 51 per cent of the corporation, the first major privatisation of the Thatcher years. The sale was accompanied by a “massive advertising campaign” arguing that the British people could “share in British Telecom's future” (Larner & Walters, 2000: p.366). This was part of a general campaign arguing that privatisation would allow the ‘mums and dads’ of Britain to become shareholders and enjoy the benefits of a “popular capitalism” (Larner & Walters, 2000: p.366). Following the partial sale in 1984 there were further shares sold in 1991 and again in 1993, by which time the government had relinquished all of its shares save for a “Special Share”, which it retained to block potential takeovers (British Telecom, 2006: p.5).

In the years that followed the initial float of British Telecom there were a number of further privatisations of key state owned industries (Larner & Walters, 2000: p.366). British Gas, British Airways, British Steel, British Rail and the water and electricity

45 boards were all floated. In each case the same campaign around creating a shareholder society and notions of popular capitalism were invoked. So much so that in its 1987 election manifesto the Conservatives stated that

We are determined to make share ownership available to the whole nation. Just as with cars, television sets, washing machines and foreign holidays, it would no longer be the privilege of the few; it would become the expectation of the many (Larner & Walters, 2000: p.367).

Thatcher was essentially arguing then, that the key to a truly egalitarian society came not through the nationalisation or socialisation of the means of production but rather through market forces and the opening up of the economy to the public. This raises of course the question of which members of the public actually did benefit from privatisation and what it did for the British economy. Thatcher's supporters will argue that she was a “radical visionary who rescued Britain” (Heffer, 2008) from the economic mess created by irresponsible unions with far too much power. Others counter, however, that Thatcher's 'reforms' have led to a far more unequal society with those living below the poverty line increasing from one in ten when Thatcher took power to one in four in 1999 as first Major and then New Labour continued along the neoliberal path (George, 1999: para.16).

Welfare Meets the Market

If the chief aim of Thatcher's first two administrations from 1979-87 was “crushing working class organisation”, by its third term the Thatcher government was beginning to look at the potential for bringing the market into the welfare sector (Ferguson & Lavalette, 2009: p.115). This was given the full support of the non- government commercial sector, which saw potential profit in the commercialisation or sale of welfare provision (Aldred, 2008: p.34). Concepts such as 'managerialism' and 'marketisation' were brought into the sector, essentially meaning the sector was now meant to incorporate private sector norms into its operations. This is perhaps best typified by a series of reforms introduced by the Thatcher government aimed at introducing market mechanisms into the National Health Service (NHS). The rationale behind these reforms was the same that had been used to justify reform of

46 the civil service and the communications sector. That is, the NHS was a bloated, inefficient bureaucracy that needed to be subjected to a competitive environment in order to ensure best value for money and thereby a better product for consumers. These reforms were outlined in a 1989 Government White Paper entitled Working for Patients (Munsey, 2000). The most important reforms introduced by the White Paper were the creation of Trust Hospitals, Fund-Holding General Practices and the Purchaser/Provider split. Individual hospitals were permitted to establish themselves as autonomous units able to determine what 'services' they would offer and at what costs, thereby enabling them to generate their own income. In a similar vein General Practitioners were now given a budget and able to act independently as purchasers of health care whereas previously they had been obliged to refer patients to local hospitals, as well as a budget for the provision of prescription drugs from their practice. General Practitioners were now players in the market and could buy and sell services, including via private hospitals, with the added incentive that any residual budget remaining at the end of the year could be directed towards the “benefits of patients” within their own practice (Munsey, 2000). Finally, the Purchaser/Provider split essentially distinguished between those who “purchase” health care, such as hospitals and those who “provide” it, such as the District Health Authorities (Munsey, 2000). Rather than receive a working budget providers were expected to compete with other providers to offer their services in a competitive market. Once more, the rationale behind the split was the superiority of the market over the state run model and the mantra that providing ‘clients’, i.e. patients, with the option to choose their preferred provider will result in better services and an economically viable sector that would no longer be a drain on the state coffers.

Thatcher's adoption of Working for Patients coincided with her rejection of The Black Report, released in 1980, that drew a link between social inequality and poor health (Haynes, 2009: p.138). It is perhaps no surprise that she would reject such conclusions if her economic reforms, tended to concentrate the bulk of this increase into fewer and fewer hands (George, 1999: para.15). Thatcher could hardly acknowledge she might be creating a society more prone to ill health, a fact that would undermine any argument that her prime interest was in improving the lot of users of the NHS. Given the experience of civil servants and miners under her government, it should also come as no surprise that Thatcher's reforms tended to

47 alienate workers in the health sector through the same process of commercialisation, privatisation and associated job cuts that their predecessors had endured. So much so, that by 1995, the Tory government, now under Thatcher's successor John Major, had antagonised health care workers so much that professional bodies whose members had never struck now refused to rule out doing so (Munsey, 2000).

While the above examples are not the entire story of the neoliberal project under Thatcher, they help to demonstrate a pattern that can provide something of an insight into the net effect of these reforms. Under Thatcher,“Britain, as a public-sector culture that tolerated unionism was replaced by a private-sector culture that viewed it as a block to higher profits” and where even “the threat of outsourcing often secured concessions from labour” (Aldred, 2008: p.34). The central dynamic of Thatcher's restructuring of the British economy is the restoration of class power in favour of the power of capital. This was achieved to a large extent through the use of commercialisation and privatisation of the public sector as a means of disciplining the workforce and accommodating the transfer of wealth from labour to capital. This shift in wealth is demonstrated by Figure 1 below, which uses the Gini Coefficient, a calculation that measures the level of inequality based on income distribution. The higher the number, the greater the level of inequality.

Figure 1: Gini Coefficient for Great Britain 1979 – 2005/20067

7 Brewer, Goodman, Muriel, Sibieta, 2007: p.19.

Reaganomics

Across the Atlantic, President Reagan's embrace of neoliberalism can in a sense be seen as the other side of the same coin. Both leaders faced severe economic crisis and both agreed that a radical approach was required to set their respective economies on the road to recovery. Specifically, both agreed that the Keynesian consensus had failed and needed to be replaced by an approach that saw the power of the market enhanced and the power of organised labour diminished. There were also, however, important differences between the two administrations. Reagan was elected at a time when the status quo had only recently begun to stabilise following massive levels of civil unrest, with one commentator observing that by “the early seventies, the system seemed out of control” (Zinn, 2005: p.541). The 1960s had seen the crystallisation of popular struggles for civil rights with the birth and/or consolidation of 'liberation' movements around race, gender and sexuality. The US was fighting an increasingly unpopular war in Vietnam which was toward the end of US intervention was bringing millions onto the streets calling for the withdrawal of US troops.

Despite these differences, there were, as noted already, important similarities that cause history to see both Thatcher and Reagan as something of a dynamic duo both as cold war warriors and as economic reformers. Firstly, both inherited economies in crisis, with the United States at the time of the 1979 presidential election having seen manufacturing net profit rates, despite periodic recoveries, on a general downward spiral since the late 1960s (Harman, 2009: p.196). As early as 1971, President Nixon had seen fit to combat rising inflation with a cut to arms expenditure and the devaluation of the US dollar (Harman, 2009: p.199). The latter move effectively marked the death knell of the Bretton Woods agreement that had seen a global system of fixed exchange rates pegged to the US dollar. So Reagan, like Thatcher, inherited an economic malaise that had engulfed much of the world, including the most “wealthy and powerful” nations (Cohen & Centeno, 2006: p.34) and embarked upon the project of stabilising their respective countries both economically and socially. Furthermore, they also inherited economies in which their predecessors appeared to be already accepting the economic reality that a major change in policy was required to counter economies that appeared out of

49 control. Just as the Callaghan administration in the UK. had begun to reject the Keynesian consensus, in the latter stages of the Carter administration, Federal Reserve chairman Paul Volcker embarked upon a radical change to monetary policy that allowed the market to determine the rate (Harvey, 2007: p.23). The “Volcker Shock”, as it became known allowed interest rates to rise dramatically as a means of combatting the stagflation that had crippled the domestic economy. Like his British counterpart, Paul Volcker, as Chair of the US Federal Reserve also defended the policy change by effectively arguing there was simply no alternative. The pain of the recession that ensued was pain that simply had to be endured in order to rescue the economy from disaster. Upon defeating Carter in the 1980 election Reagan endorsed Volcker's approach with gusto, adopting fiscal and budgetary policies that complimented the market approach to interest rates (Albo, 2001: para.6). The Budget and Reconciliation Act 1981 legislated for tax cuts that favoured the rich and for cuts to government spending. Reagan's mantra, has had been Thatcher's was that with regard to the economy “the most important cause of our economic problems has been the government itself” (Albo, 2001: para.6). The answer, therefore, lay in the retreat of the state from economic activity and the creation of a regulatory framework conducive to private interests. The notable exemption from spending cuts was the military, which under Reagan increased to coincide with his zeal for US triumph over the Soviet bloc, which he presented as embodying all that was evil and a genuine military threat to the US and the free world in general (Zinn, 2005: pp.577-84).

The Reagan years to a large extent mirrored and expanded upon the economic revolution already underway in Britain. For just as in Britain, Reagan's revolution also reversed the dominant consensus that had existed for decades. While not a welfare state by any means in the UK sense, the role of the state in managing the economy in the United States prior to Reagan had been based on the New Deal of President Franklin D. Roosevelt. The New Deal was a response to the failure of laissez faire liberalism to prevent the collapse of western financial markets and the devastating economic depression that ensued. It was based on the principle that government needed to play a role in ensuring the well being of its citizens and regulating an economy to prevent recurrence of the meltdown that led to the Depression. In other words the government had to act to save capitalism from itself

(Harman, 2009: p.154).

It's not hard to see how such principles contrast with Reagan's insistence that governments by contrast should not, and in fact could not play such a role without making matters worse. And it was by attacking the principles of the New Deal that Reagan hoped to rein in budget deficits, using a combination of budget cuts, particularly to the welfare sector, and attacks on the wages and conditions of working Americans. So in 1984, for example, just as military spending was being ramped up by a further $181 billion and wealthy Americans were enjoying tax cuts of $190 billion, there was in that same year a cut of $140 billion to social welfare programs (Zinn, 2005: p.577). Reagan specifically targeted Social Security in order to balance his 1981 budget, which, due to the record levels of defence spending referred to above would have seen a massive budget deficit and therefore failed to pass through the Congress (Monthly Review, 2000: para.9). Although a “frontal assault” on Social Security was blocked by the Democrats, Reagan was able to target Social Security in a piecemeal process that rolled back entitlements to recipients. Arguing that Social Security was unsustainable and heading for both short term and long term crisis, Reagan began chipping away at the system, reducing benefits available to recipients. His administration introduced a number of measures, including raising payroll taxes, deferring increases to recipients designed to keep up with the cost of living, and raising the retirement age from 65 to 67.

As with the Thatcher administration, Reagan espoused privatisation as a panacea for curing the nation's economic ills (Brinkley, 1987). There were some notable differences, however, in that many of the functions privatised under Thatcher's administration were already in private hands in the United States, most notably utilities such as power, water and telecommunications. There was nonetheless a privatisation program, with the outsourcing of government functions to private contractors and upwards of 40,000 government positions being lost to the private sector in the first six years of his presidency. There was also the sale of the national freight railway system, which occurred during Reagan’s second term (Brinkley, 1987). In 1987 created a President's Commission on Privatisation, mandated by Reagan to “end unfair Government competition and return Government programs and assets to the American people” (Reagan, 1987).

Reagan and Organised Labour

What Reagan had in common Thatcher was a determination to undermine wherever possible the power of organised labour with an “anti-union stance...expressed in public policy and political appointments” (Farber & Western, 2002: p.385). Having already lost the ear of government following the Republicans wresting control of Congress in the Congressional elections of 1980, labour unions now faced an increasingly hostile environment not just in terms of the political elite but in terms of the bureaucracy that the latter appointed. For example, early in Regan's first term he appointed two members to the five member National Labor Relations Board (NLRB) and followed this with further appointments that made the Board a “solid pro-management” body (Farber & Wester, 2002: para.2). Reagan was also as keen as Thatcher to cut his industrial teeth on a dispute with a key union and was presented with the opportunity to do so much earlier in his administration than was Thatcher. This occurred when simmering tensions between members of the Professional Air Traffic Controllers (PATCO) union and the Federal Aviation Authority (FAA) came to a head in 1981, as negotiations over a new collective agreement came to an impasse (Nash, 2000: p.164). As federal employees, Air Craft Controllers were prohibited under the Federal Service Labor-Management Relations Statute from taking strike action (Meeks, 2009: para.21) and PATCO members were warned that strike action would result in striking workers being dismissed and the union being decertified (Nash, 2000: p.164).

Despite this warning, PATCO members resolved to take strike action in support of a new agreement and walked off the job on 3 August, 1981, apparently dismissing the threat as an empty one (Meeks, 2009: para.26). Not least of all, as a “middle class” craft union (Harvey, 2007: 25) that had supported the Republicans in the 1980 presidential campaign (Nash, 2000: p.165) they believed they had a friend in the president. They miscalculated badly, however, with the response from Reagan being swift and severe. Reagan declared unequivocally that any striking worker who failed to return to work within 48 hours would not only be dismissed from their current position but would never again be eligible for employment with any federal agency (Nash, 2000: p.165). When the vast majority of striking workers refused to return to work Reagan made good this threat, effectively ending the careers of those who

52 ignored his demands (Meeks, 2009: para.31). Furthermore Reagan, acting as strike- breaker, replaced the striking workers with non-union labour, ensuring that business as usual would continue as best as possible.

In doing so, Reagan set in motion a process that set the stage for using non-union staff and/or strike breakers to replace existing staff and effectively restructure workplaces into more 'flexible' units. Or as former Federal Reserve Chairman Alan Greenspan put it, Reagan's breaking of the PATCO strike amounted to “the most important...domestic initiative of his presidency because of its considerable implications for business...with greater freedom to fire, the risks of hiring declined. This increased flexibility contributed to the ability of the economy to operate with both low unemployment and low inflation” (Meeks, 2009: para.34). The result for capital was therefore considered as a measured success. The result for labour was much different, with the defeat of the PATCO workers marking an important point from which the minimum wage began to descend dramatically (Harvey, 2007: p.25). In the US, as in Britain, the defeat of the PATCO workers marked the beginning of a decline in trade union density, from just under 24 per cent when Reagan took office down to 18.6 per cent by the end of his presidency, as per Table 2 below. As with the UK, this is explained in part by the defeat of sections of the workforce with relatively high levels of union density.

Table 2: Trade Union Membership in the USA 1981 – 19898

Year Members 1981 19,123,400 1982 - 1983 17,717,400 1984 17,339,800 1985 16,996,100 1986 16,975,200 1987 16,913,100 1988 17,001,700 1989 16,960,500

In other words the Reagan agenda with regards to American workers echoed that of

8 US Census Bureau, 2010. Data for 1982 not available.

Thatcher in Britain. That is, Reagan was sending a clear message to both labour and capital with regards to the way the dynamic between the two would play out under his presidency. Above all Reagan aimed to discipline the workforce by subduing its organised wing into accepting the 'greater flexibility' required by capital to extract profits from its labour supply. And just as under Thatcher, income distribution in the US saw a dramatic rise in the level of inequality under the Reagan administration as demonstrated by the Gini Coefficient in Figure 2.

Figure 2: Gini Coefficient for the United States 1947 - 19989

Reagan also worked to project US power beyond its borders, both economically, and where necessary, militarily. It is the latter in particular that set the stage for the rise of what we now refer to as 'globalisation', or more specifically, the globalisation of the power of capital, in particular finance capital, and the adoption of neoliberal policies by countries beyond Thatcher's Britain and Reagan's United States. Such reform took places in different nations under different circumstances and with varying results. The final section of this chapter will provide a brief overview of the

9 US Census Bureau, 2000

54 neoliberal process in the 'Third World', with a particular focus on the experience of Latin America.

Neoliberalism and the Third World

To begin to understand the neoliberal process beyond the first world one must begin by understanding the transformation of the global financial institutions set up following World War Two to oversee the global financial system. Specifically, one must understand that “Internationally, the core neoliberal states gave the IMF and the World Bank full authority in 1982 to negotiate debt relief, which meant in effect to protect the world's main financial institutions from the threat of default” (Harvey, 2007: p.73). This process can be seen as the development of a two tier process in relation to the adoption of neoliberal policies. In the “core areas of the world economy” the liberalisation of the economy occurs on a voluntary basis while in “peripheral areas, the discipline of the market is often externally imposed”, a process that gained momentum with the advent of a debt crisis in the third world in the early 1980s (Overbeek, 2002, p.80). The latter is often presented as indicating the demise of the nation state, particularly outside the third world, where sovereignty is undermined as nation states appear to have little choice but to acquiesce to the dictates of externally imposed policy programs.

The above tells us several things right from the very outset. Firstly, that capital operates on an increasingly global scale. Secondly, it tells us that the power of capital is not omnipotent but subject to internal contradictions on a global scale that lead to such potential crises. Thirdly, it suggests that the central role of nation states remain as important as ever. For while the role of a neoliberal state may change given the sale of hitherto state owned assets or questions of sovereignty given apparent acquiescence to external factors, the nation state remains the central actor in providing the industrial and legislative environment in which capital can operate. With regards to the question of sovereignty, usually discussed in terms of First World actors or their institutions (i.e. the IMF etc.) overriding the sovereign rights of their Third World counterparts, it must be remembered that the former too declare their impotence against the dictates of the market. The world's economic powerhouses, along with those considered as basket cases and in need of economic

55 shock therapy to revive them, are seemingly both subject to the same “there is no alternative” mantra.

The reality, of course, is that there are always alternatives, and the determining factor in nation's adopting or rejecting neoliberal is the way in which the power of capital is either ascendant or descendant in relation to the power of labour. This is not to suggest in any way that Third World economies on the verge of defaulting on debt are in the same position as a major economy during an economic boom. What it does suggest, however, is that there is a relationship between the material reality of economic policy based on the needs of capital and the way the organised working class and poorer sections of society respond to these needs. This is evidenced when a nation state, apparently undermined by the dictates of foreign capital is simultaneously undermined in its ability to accept terms imposed upon it due to internal struggles against accepting such terms. These factors must be considered when considering neoliberalism in the context of the global economy's 'periphery'.

Latin America

There can be no doubt that debt to foreign creditors has been a major determinant in shaping developing countries and their adoption of neoliberal practices, with some $US300 billion per year transferring from poorer countries to the developed world by the beginning of this century (Harman, 2009: p.223). The Third World, including Latin American nations, had borrowed heavily to spend their way out of the economic crisis of the 1970s and by the 1980s there was an endless cycle of borrowing just to service existing debt (Harman, 2009: p.279). In responding to the debt crisis both domestic capital and key global financial institutions expected the kind of reform that had typified the neoliberal revolution under Thatcher and Reagan. For example, as already alluded to, when Mexico defaulted on loan repayments in 1982-84, a rescue package put together by the IMF imposed welfare cuts, liberalisation of labour laws and privatisation (Harvey, 2007: p.29).

Privatisation in particular would become a central plank of the reform process in Latin America, given high levels of state ownership of key industries, formed into State Owned Enterprises (SOEs) designed to administer and promote domestic

56 industrial development (de Medeiros, 2009: pp.111-13). The SOEs had their origins in a wave of nationalisations across Latin America dating back as far as the 1930s in Mexico under Cardenas, where oil, electricity and freight were nationalised. In the following decades such nationalisations were common across the region in particular with “public utilities, telecommunications, oil and mineral production” (de Medeiros, 2009: p.112). The neoliberal project aimed to reverse this trend, both ideologically, by winning the battle of ideas at the policy level and practically, with such policies introduced as measures to remedy economic ills blamed on bloated and inefficient public sectors and the massive budgets required to maintain them.

As with the imposition of neoliberal policies in Britain and the U.S, however, the implementation of such policies across Latin America coincided with, in fact it was premised upon, the “defeat and disarming of the left and organised labour” in these countries (Sader, 2008: p.6). The left had a long history of struggle across Latin America that inspired many abroad, ranging from the rebellious youth of the 1960s who looked to Cuba's revolution and its nationalisation of US interests (Harman, 1988: pp.35-36) to those who stood against Reagan's intervention in a popular revolution against a US backed dictator in Nicaragua (Zinn, 2005: p.608). This remains just as true today with many on the left inspired by the “socialism in the 21st century” of Venezuelan president Hugo Chavez (Stobart, 2010: p.19).

We have already seen the example that Chile provided as a precursor to the adoption of neoliberal reform in South America. By the 1990s, however, neoliberalism had become a constant throughout the region among governing parties from all political traditions from the hard right through to social democrats (Sader, 2008: p.7). Mass privatisation took place during the 1990s, with “banks, telecommunications, oil, gas, petrochemicals... water, transport and electricity” sold in “Argentina, Brazil, Mexico, Peru, Bolivia, Venezuela and Paraguay” (De Medeiros, 2009: p.110). However, the roots of neoliberalism on a mass scale in Latin America can be traced back, as noted above, to the debt crisis of the early 1980s, particularly in Mexico during the 1983-88 presidency of de la Madrid where some of the smaller state enterprises were sold off (Sader, 2008: p.119). Furthermore, the push by capital, both foreign and domestic, to open up Latin American markets, must be seen in the context of cold war rivalry and the language of that rivalry as articulated by the likes

57 of Reagan. Starting with Chile a number of US friendly military dictatorships had taken power across the region (Sader, 2008: p.9).

The 1979 leftist Sandinista revolution in Nicaragua against a US backed dictatorship was in particular perceived by Reagan as evidence of a 'communist threat' and a challenge to US influence (Zinn, 2005: p.585). The Sandinista program of wealth distribution and welfare provision was anathema to Reagan's commitment to liberalisation and along with the existence of 'communist' Cuba and the revolution in Grenada appeared to set the scene for a sea change across Latin America intolerable to the U.S commitment to free trade based on the mantra of individual liberty and the removal of impediments to business. As with Cuba, unsuccessfully and Chile, with better results, Reagan's approach was for the backing of a military solution to the crisis, with secret funding provided to 'Contras', anti-communist guerrillas that terrorised the countryside until the ultimate collapse of the Sandinista regime in 1990. This marked the start of a general trend across the region with a decisive shift against the power of labour and the left generally. Where the 1980s had offered hope to the South American left, the 1990s saw the left in retreat and the proponents of neoliberal reform gain the ascendency (Sader, 2008: p.9).

Victory to Neoliberalism?

This took place against the backdrop of the struggle to defeat 'communism', both physically and ideologically, a la the 'end of history' following the Soviet collapse, when the US would claim the end of an alternative to both US hegemony and to liberalism. Following these events the pace of neoliberal reform accelerated, with the same arguments in support of reform being put forward as had been by Thatcher and Reagan. The crux of the argument was that privatisation and trade liberalisation were necessary as the SOEs were highly inefficient and a drain on government coffers (De Medeiros, 2009: p.133). South American economies were increasingly deregulated, privatised and opened up to foreign capital. So for example, the percentage of foreign capital investing in the Brazilian stock exchange went from 6.5 per cent in 1991 to 29.4 per cent in 1995 (Harman, 2009: p.223).

The results of these reforms were contradictory. Few would seriously dispute the capacity that capitalism has to create wealth. However, capitalism has an equally tremendous capacity to sow inequality. This is certainly reflected in the way wealth has been created and distributed by the neoliberal revolution and exaggerated by levels of poverty and inequality already much greater than the developed world. So while Mexico saw a reduction in poverty at the national level in the late 1980s and into the 1990s, there was no such inroads in the poverty stricken south, a phenomenon common throughout the developing world both in Latin America and beyond (Kanbur, 2009: p.34). Such countries were expected, under the tutelage of global institutions such as IMF and the World Bank to reject safety nets such as minimum wages or decent health and safety protection as part of the same process that presented capital, particularly finance capital, with the opportunity to extract an ever increasing percentage of national wealth (Cammack, 2002: p.125).

Despite differences between nations and regions there has been a move toward the dismantling of regulatory regimes that protect working people from unbridled exploitation by capital. Back in Australia, albeit with various idiosyncrasies peculiar to any nation, a similar path took place to that under First World contemporaries in Britain and the US. There was one important difference, however. Whereas the types of reforms introduced were similar, the neoliberal revolutions in those countries began under the guidance of conservative parties, before being continued under social democratic or liberal (in the US sense) governments. In Australia it was the other way around. It was a traditional social democratic party that would begin the 'reform' process with a commitment to implementing its own economic revolution

Chapter 3: Neoliberalism Comes to Australia

Former Australian Prime Minister John Howard demonstrated what neoliberal economic policy meant in practical terms when he stated in 1980 that the Australian economy needed “five great reforms” to lift itself from the economic quagmire to which it had sunk due to the inefficiencies associated with over-regulation of the economy (Wall Street Journal, 27/02/2009). Howard, then Treasurer under former Liberal Prime Minister Malcolm Fraser called for “financial market deregulation, tax reform, freer labour markets, tariff reductions and privatisation of state-owned enterprises”. He would argue 30 years later that the implementation of these reforms had “eliminated government debt”, allowed Australia to enjoy “unemployment at three-decade lows” and to avoid the worst of the Global Financial Crisis. He further added that globally “In the past 30 years, the freer functioning of markets inherently involved in the globalisation process has lifted hundreds of millions of people out of poverty”.

The reforms Howard argued for, particularly reforms in the financial sector, were consistent with the findings of the Australian Financial System Inquiry (Campbell Committee), or Campbell Report, commissioned by Fraser in 1979 and delivering its final report in 1981 (Australian Bankers Association, 2004). The Campbell Report made some 260 recommendations, generally aimed at “increasing the scope for market forces to determine financial market outcomes” (Treasury, 1997: p.586). Among these recommendations was the removal of the Australian dollar from fixed exchange rates, the removal of regulatory barriers to the entry of foreign banks, the privatisation of government owned financial institutions, and a general shift towards deregulation of the Australian financial system. Such reform, together with application of the general pro market focus of the Campbell Report to the Australian economy generally, particularly in the labour market, were precisely what Howard had called for in 1980, as noted above. They were also entirely consistent with the reforms implemented in the UK. and the USA at roughly the same time and easily recognisable as neoliberal economic policy as portrayed in the previous chapter.

However, despite his commitment to economic reform and with his position being reinforced by the recommendations of the Campbell Report, Howard, while Treasurer was unable to implement these reforms. In fact his push for reform was stymied by the very man who had commissioned the Report, the Prime Minister, Malcolm Fraser. Fraser, who had begun his Prime Ministership espousing the virtues of free trade, was inconsistent in responding to the Campbell Report while actually in office, cutting tariffs in some industries but ignoring recommendations for other sectors, for example in the banking sector where Fraser feared alienating important constituents (Kuhn & Bramble, 2010: pp.101-2). It wasn't until he became Prime Minister in 1996 that Howard was able to introduce legislation consistent with his commitment to neoliberal reforms, although by this stage he wasn't so much introducing a reform agenda as continuing and in some cases accelerating a reform process that was already well underway.

It was in fact under the Hawke Labor government, elected in 1983, that Treasurer Paul Keating began implementing the recommendations of the Campbell Report. In his first year as Treasurer, Keating announced the floating of the Australian Dollar, which since 1971 had been pegged to the $US after shifting from its ties to the Sterling. He further abandoned the majority of exchange controls and limits to the entry of foreign banks into the Australian financial system (Treasury, 1997: p.572). Following this the pace of reform gathered steam as the Martin Report, commissioned by the new Labor government and tabled in 1984, endorsed the findings of the Campbell Report (Australian Bankers Association, 2004). The financial system was further deregulated and among other things the '30/20' rule requiring minimum investments in government securities for life companies and superannuation funds was abolished, controls on bank deposits were lifted and the Australian Stock Exchange was deregulated.

The fact that it was a traditional social democratic government with strong ties to the labour movement that introduced neoliberalism to the Australian political and economic landscape raises a number of questions, particularly in comparison to the experience of Britain and the USA as discussed in the previous chapter. Not least of all it raises the question of how a Labor government was able to introduce economic reforms that might be perceived, at least by sections of their constituents as contrary

61 to their material interests as well as the extent to which the trade union movement opposed or was complicit in the implementation of these reforms. It also raises the question of how neoliberalism came to Australia and why the Labor party was converted to neoliberalism, in the process abandoning traditional Keynesian measures to curb unemployment in favour of putting faith in market forces to provide economic growth and the jobs and prosperity they argued would come with this shift in policy. Finally, and related to the question of why Labor introduced economic reform is the question of whether, as argued by Thatcher, Reagan and other champions of neoliberal reform, there was simply no alternative and that the Australian economy needed restructuring to resolve the existing and prevent future economic crisis, particularly in the context of what was at that time the deepest global economic downturn since the 1930s Depression.

In answering these questions it is necessary, as with the previous chapter, to consider the industrial, political and economic context within which the Hawke Labor government came to power. In doing so this chapter will seek to understand the class dynamic in both the pre and post neoliberal eras as well as developments in the material and ideological landscape that led to any shift in the dialectic of both class power and the class composition of Australian society. This means looking at the way in which governments managed the Australian economy prior to the advent of the neoliberal era, why a shift in economic policy occurred, who and what was behind this shift, and finally what impact neoliberalism has had on sectional, particularly class interests. In looking at the actual implementation of neoliberal economic policy my approach will be to concentrate most heavily on the Hawke/Keating era, given the dynamic of a social democratic party introducing such reforms comparative to the Thatcher and Reagan revolutions.10 This chapter will largely limit its focus, therefore, to the reform agenda of the Hawke/Keating era rather than attempt to include an assessment of the way in which the Howard government, elected in 1996, took up the torch so to speak and continued the reform agenda started under Hawke and Keating.

10 Of course the introduction of neoliberal reforms by a traditional social democratic or Labor style party is not totally unique. Most notable, perhaps, from an Australian perspective is the New Zealand experience, where a similar reform process occurred at roughly the same time. See for example, PSI, 1998 or for a comparison with the Australian experience see Diplock, 2004.

The Keynesian Consensus in Australia

The formative years of the new federation saw debate, largely driven by sectional interests, over the extent to which the federal government would act to protect domestic production and the nature of the regulatory framework within which producers would have to conduct their business (Smith & Watson, 1989: pp.110- 115). This was largely resolved in favour of a protectionist approach, as the new nation state set about constructing a national economy out of disparate colonial economies. Inter-colonial tariffs were abolished but there was a steady increase in tariff protection at the national level as well as a high level of intervention into the economy generally. (Attard, 2010: para.12-14). However, as noted above, the regulatory environment and tariff protection were not enough to protect the new national economy from protracted crisis when global production collapsed in the Great Depression of the 1930s. The export led growth that had been Australia's strength was suddenly its Achilles heel as demand for its exports slumped, leading to a collapse in domestic output and a sharp increase in unemployment. It was in this context that Keynes and his General Theory arrived in Australia with its emphasis on “a programme of public works for the reduction of unemployment” and the use of fiscal stimulus to counter the worst excesses of the decline in national output (Markwell, 2009: para.4).

What is striking in the adoption of Keynesian methods by successive Australian governments is in comparing it to the economic history of similar nations in the years leading up to and during the Great Depression. As noted above, the newly formed Australian state adopted a highly regulatory economic policy along with significant tariff protection for both established and developing industries. By contrast, as already outlined in previous chapters, the same period in the rest of the developed world, particularly in Europe and even more so in Britain, is looked back on as something of a golden age of laissez faire liberalism, although by the 1920s protectionism was also growing among these nations (Cipolla, 1980: pp.323-329). So the adoption of Keynesian methods in Australia was less of a policy shift than in other nations faced with the same economic woes and there was far more of a continuum between the inter war years and the beginnings of the post-war Keynesian consensus than is evident in other nations in terms of the economic policy

63 environment (Lloyd, 2002: pp.246-247).

There was little controversy, therefore, in Australia supporting the Bretton Woods system, created out of the ashes of the Second World War by the war's victors with the assistance of Keynes himself ( Markwell, 2009: para.5). Nor was there a decisive shift in economic policy as the era of post war reconstruction began in earnest follow the conclusion of hostilities given that Australian macro-economic policy following the war tended to align with preferred policy approached that preceded the war. Following the war, successive governments, both Labor and Coalition adopted Keynesian demand side strategies built around fiscal policy aimed at averting the boom-bust cycle of previous years even at the expense of inflationary pressures (Western et.al., 2007: p.402). In the context of the Cold War this included a commitment, particularly in the Menzies years, to relatively high levels of military spending and support for US led resistance to the 'red menace', with a focus on South East Asia. The Collapse of the Keynesian Consensus

The conditions described above meant that Australian governments, in economic policy terms at least, had something of a free run during the long boom. Both inflation and unemployment were kept in check and the economy requiring little attention other than the accepted Keynesian orthodoxy built around using fiscal policy to maintaining aggregate demand. Along with other major economies, however, this all began to break down in the mid 1970s as the Australian economy entered into its most severe recession since the Great Depression (Perkins, 1987: p.22). From 1974 industrial output began to decline and unemployment returned to the Australian economy, reaching 5 per cent, perhaps relatively unalarming today, but at the time a level not seen since before the war. Furthermore, increasing unemployment was accompanied for the first time with rising inflation, which according to Keynesian economic orthodoxy was a phenomenon that simply shouldn't happen. As such Australia entered into not just a period of economic crisis but a crisis of ideology as the dominant economic discourse was not only unable to solve the crisis, it was unable to satisfactorily explain to policy makers why it was even occurring in the first place.

Figure 3 below shows unemployment levels, seasonally adjusted, from 1966 when the boom was still keeping unemployment low, through to 2000, demonstrating the effect of the post boom recessions on unemployment levels. In November 1964, at the height of the long boom, aggregate unemployment in Australia stood at just 1.3 per cent and never climbed above 2 per cent until November 1971 when it reached 2.1 per cent (Chapman, Isaac & Niland (eds), 1984: p.673). From that point the unemployment rate increased to 2.8 per cent in November 1972 and after a fall back to 2.1 per cent in November 1973 grew to 5.1 per cent by November 1975 under the Whitlam Labor government, as recession hit the Australian economy (Chapman, Isaac & Niland (eds), 1984: p.673). From there unemployment hovered at around 6 per cent for the rest of the decade, despite the 'resources boom' at the end of the decade, which failed to create sufficient jobs to restore unemployment to its pre- recession levels (Perkins, 1987: pp.40-43). Then in 1981 a much deeper recession, part of a global slump, drove the unemployment rate up to 10 per cent by 1983 (ABS, 2001), with some 200,000 jobs disappearing in the manufacturing industry alone (Frankel, 1997: p.17).

Figure 3: Unemployment Rate 1966 - 200011

Australia was not spared the curse of 'stagflation' that was ravaging other developed economies at the same time. As demonstrated by Figure 4, the inflation rate rose

11 ABS, 2001.

65 dramatically throughout the 1970s, reaching over 15 per cent toward the end of the Whitlam government and still at around 10 per cent when Fraser lost power in 1983. This meant that while inflation had fallen, the Fraser Liberal government, with a young John Howard as treasurer, were still presiding over simultaneous double digit unemployment and double digit inflation, much worse than the levels under their Labor predecessor. Government and employers alike pointed to excessive wage claims that failed to consider productivity improvements as a large contributor to runaway inflation levels, arguing that workers winning wage claims failed to consider the impact on employment creation (Quiggin, 1994: p. 5) (Frankel, 1997: p.17). It was under these conditions, with much of the workforce having no living memory of the Depression years, and only recently experiencing capitalism in crisis in the 1970s, that the Hawke Labor government was elected in March, 1983.

Figure 4 – Inflation Over the Long Run 1961 - 201112

12 RBA, 2011.

The Industrial Relations Landscape

It's important to understand the historical context in industrial relations terms when considering the implementation of neoliberal reforms in the Australian economy. Not least of all because as with the British and American examples, the labour movement in Australia needed to be confronted before any such reform could begin. Or for the fact that, as with their British counterparts, the Australian Labor Party actually grew out of the struggles of the Australian labour movement. In doing so it firmly entrenched itself as the political wing of the labour movement, with the trade unions similarly entrenching themselves as the movement's official industrial wing. The organic and dialectical historic relationship between these two wings of the labour movement must be firmly understood to fully grasp the significance of the relative acquiescence of the industrial wing to the political wing in implementing policies long viewed with suspicion by both. Class struggle arrived in Australia with the coming of the First Fleet in 1788, which brought with it a new form of social organisation based on the subordination of consumption to the accumulation of capital and the exploitation of a subordinate class, or classes, by a ruling elite that owned and/or controlled the means of production (Armstrong in Kuhn & O'Lincoln, 1996: pp.60-61).

From the very beginnings of the new colony, the traits of capitalist society and the social classes it created were present. Furthermore, the weapon of choice of the labouring class was by and large that of the working class of all lands under capitalist social relations, namely collective action, ultimately taking the form of a withdrawal of labour to force the latter into making concessions. The success of such actions were not predetermined but shaped by a number of factors, including the relative strength of workers vis-a-vis their employer and the ability of the latter to concede to demands, itself shaped heavily by developments in the economy and the impact of these developments on the health of their enterprise. The first century of what was at the time separate colonies, and before the creation of an electorally focussed federal labour party, saw some intense, often violent periods of class struggle. Labour won important victories, most notably the eight hour day, won by Melbourne building workers in 1856 and claimed by the Australian labour movement as a world first (ACTU, 2009). By contrast other struggles ended in

67 crushing defeats, most importantly the Maritime Strike of 1890 and the strike among shearers in Queensland the following year (Armstrong, 1998: pp.33-40). The trajectory and outcomes of these struggles went a long way to shaping the attitudes of workers involved in these struggles towards the development of an electorally focussed political wing and the role the labour movement's industrial wing should play.

In the wake of defeat many workers drew the conclusion that struggle on the industrial level was insufficient and that workers needed to control the parliament in order to prevent employers from using the strength of the state against them. This is not a particularly contentious assertion but one shared by Marxists (Armstrong and Bramble, 2007: p.28) and more mainstream labour historians (McDonald, 1991: p.viii). There developed a general acceptance among workers that their task was not to overthrow the existing state apparatus but to capture it through legal means and use it to their own ends. Despite the development of the Communist Party of Australia (CPA) in 1920 among a minority of socialists inspired by the Russian Revolution (O'Lincoln, 1985: p.31), who even at times held positions of power within the trade union movement, the reformist perspective has remained, until this day, the majority view among trade union members and workers more generally. The industrial relations landscape prior to the introduction of neoliberal principles into the Australian economy was therefore already one in which labour had made it's peace, if not at all times with the agenda of capital, then at least with the rule of capital. From its very foundations then, the existence of the Australian Labor Party (ALP) represented something of an “historic compromise between the classes and the leaders of capital and labour, mediated via the state and the institutions created to implement it” (Lloyd, 2002: p.239). The class struggle as it has ebbed and flowed throughout the course of Australian history, while at times having an impact on the relationship between labour and capital, has by and large not challenged the concept of or existence of this relationship. As such, even before the arrival of neoliberalism, capital had already enjoyed over a century of unchallenged rule.

Disciplining the Unions

Despite being essentially two sides of the same coin, there has also been a growing divide between the industrial and parliamentary wings of the labour movement as the parliamentary wing has become more and more disciplined by the parliamentary process (Armstrong & Bramble, 2007: p.65). This has been especially acute when the ALP has been in a position of power and therefore directly responsible for the smooth running of Australian capitalism. As the ALP experienced more and more periods in power, so has the accumulative effect of such discipline grown. As such, the party which began as the political expression of the labour movement has been progressively dragged in two often contradictory directions. On the one hand the party is subjected to the discipline of the labour movement which spawned it and on the other hand by the parliamentary process to which it is committed. Given that the raison d'être of the Labor party was above all else the capture of political power within the existing constitutional framework, the immediate sectional interests of its industrial base must necessarily be subordinate to the party's electoral success.

Importantly, as this trajectory has progressed, and the ALP began to increasingly project itself as a legitimate alternative government, it became “more able to insulate itself from pressure from the party's base” (Armstrong & Bramble, 2007: p.65). It was inevitable then that tensions would exist between industrial and parliamentary labour and that these tensions would at times lead to hostilities between either the labour movement, or at least sections of the labour movement, and the ALP in power. A perfect example of how bitter such disputes could be is the miners' strike of 1949, when miners took on a Chifley Labor government willing to use troops as scab labour to break the miners’ strike (Sheridan, 1989: pp.291-316). This occurred during a period of high strike levels and with the CPA having real influence in sections of the trade unions (O'Lincoln, 1985: pp.53-72). Arguably the determination with which the ALP crushed the strike was aimed at sending a clear message that it would not tolerate attempts to outflank it by a rival political expression of the labour movement, that it could discipline the labour movement when it stepped out of line and above all could be trusted to be a responsible government and a friend of capital while in power.

The process of distancing itself from its radical roots continued throughout the long years in opposition following the conservative victory in the 1949 federal election. In the 1960s future Prime Minister Gough Whitlam began to water down references to the ALP as a 'workers' party by insisting on the term 'employee' rather than worker and by the 1970s the ALP was shedding even rhetorical commitments to nationalisation, let alone the socialisation of key industries (Frankel, 1997: p.6). Having said that there were still nonetheless important differences between the two major parties in the eyes of working class Australia, as typified in the fact that despite the parties rightward trend under Whitlam, he nonetheless implemented important reforms that benefitted workers, such as the creation of Medibank, later abolished by the Fraser Liberal government (Kuhn, 1986: p.2). Despite this, while in opposition from 1975 the ALP continued to move rightwards and embrace the market. It was even turning its back on the traditional protectionist model for domestic industries and accepted the needs for tariff reductions, in direct contrast to the interventionist approach maintained by key manufacturing unions (Lucarelli, 2003: p.79). Furthermore, by 1977 Bob Hawke, as leader of the ACTU and who would take the Labor leadership just before the ALP victory in the 1983 election, was proposing the consensus model that he would aspire to in government when he called for government, union and business leaders to work together in order to address the nation's key economic challenges (Singleton, 1990: p.87). This was during a period of heightened industrial militancy that kept labour's share of national income in the form of wages at record high levels (Fieldes in Kuhn & O'Lincoln, 1996: p.33).

In fact Hawke worked tirelessly in opposition to reach an 'accord' with the labour movement that would reverse this upward trend on wages (Singleton, 1990: pp.120- 154). One of the first acts of the Hawke Labor government that was elected in March 1983 was to hold a summit between the Australian Council of Trade Unions (ACTU), business leaders and government that brought the Prices and Incomes Accord (The Accord) into life (Carew, 1992: p.77). The historical and industrial context within which the Accord was given life must be understood to fully grasp the significance of the way in which Hawke was to achieve such a consensus. Whereas the previous Labor government, under Whitlam had been elected amid a rise in class struggle, with unions “on the offensive” (Armstrong & Bramble, 2007: p.77), the

Hawke government was elected with the labour movement on the defensive, fearful of rising unemployment and with a corresponding fall in confidence to fight (Kuhn, 1986: p.16).

Unemployment was being pushed up by the Fraser government's commitment to curbing inflation, à la Thatcher and Reagan, which accepted high levels of unemployment as a means of disciplining the unions into accepting wage restraint, Unemployment rose from around 5 per cent under Whitlam to just under 10 per cent by the time of the 1983 federal election, as already demonstrated in Figure 3 (page 70). The Hawke government confronted a trade union movement that was now beginning to accept that wage restraint was necessary to allow the government to tackle unemployment. Even the traditionally most militant of the union movement, with its base inside the ALP left and the CPA conceded ground on the question of wage restraint. So much so that in fact that by 1982 the CPA had denounced workers fighting to keep wages from falling in real terms due to inflation by declaring that such claims “foster disunity and competition” among the labour movement (Kuhn, 1986: p.17).

The Uneasy Truce

The push for wage restraint by the Hawke government went hand in hand with a desire to 'modernise' the Australian economy, in particular to open it up to international trade as a means to remedy economic stagnation, an “historic change of direction for the Labor Party” (Fairbrother, Svenson & Teicher,1997: p.2). In implementing such reform, the Labor government called upon the ACTU to commit to more than just wage restraint under the auspices of the Accord. The labour movement was expected to accept a gradual end to tariff protection for domestic industry and the deregulation of the Australian economy. In return, Hawke promised a social wage based on the provision of key social services such as Medicare along with tax reform that would benefit workers (Fairbrother, Svenson & Teicher, 1997: p.3).

Within the ALP itself the Accord was supported by all factions for differing reasons (Frankel, 1997: p.9). The Right supported the Accord believing that disciplining the

71 unions would create an investment friendly economy that would generate the growth necessary to rebuild the economy and fund reforms to Australian workers. From the Left it was supported as a means of creating, inter alia, “a national industry policy, a coordinated interventionist role for workers to transform workplace practices...(and to) ...boost the social wage” (Frankel, 1997: p.9). To the left of the ALP, as already noted, the Communist Party was by the time of the election of the Hawke government among the firmest supporters of the Accord. This position to a large extent reflected the reality of a CPA that had steadily been drifting rightwards and was embracing the politics of conciliation between employers and workers as opposed to traditional antagonism between the two classes (O'Lincoln, 1985: pp.170- 188). The Accord was not entirely without its critics in the union movement, most notably from the militant Builders Labourers Federation (BLF) and some within union officialdom (Bramble in Kuhn & O'Lincoln, 1996; p.53). This largely put the BLF at odds with the ACTU leadership however, with for example, the ACTU refusing to back them when the Hawke government moved to deregister the union’s Victorian and NSW branches in 1986 (Singleton, 1990; p.71).

The logic of the Accord from its inception was premised upon an acceptance by the unions that Australian workers had to “restrain wages, refrain from strikes and work harder to improve business success” (Bramble, 1994: p.8). Both economic and industrial policy flowed from this fact and these factors were intertwined throughout the life of the ALP government. So when the centralised approach to wage fixing under the Accord began to be seen as having outlived its ability to deliver increasingly higher productivity, a shift towards a decentralised approach while constituting a different approach did not constitute a different logic to the reasons behind the Accord. A push to a ‘Second Tier’ wage system and then to enterprise bargaining from 1991 offered above award pay increases and job security on the condition that workers increase productivity, usually through giving up existing conditions or working more flexibly, particularly in relation to hours worked (Bramble, 1994: pp.8-12). In a Marxist sense, therefore, Australian workers were being asked to increase the surplus value being extracted from their labour power as increased profits.13

13 For an explanation of the concept of surplus value see Marx, 1990: pp. 320-29. This concept will

Economic Reform

The importance of building a 'consensus' as a precursor to economic reform cannot be understated given that the unions would have been more likely to resist neoliberal reforms had the Fraser government been re-elected and such reforms were being implemented by a conservative government (Frankel, 1997: p.17). But having successfully implemented an Accord that curbed the industrial militancy that had typified the Fraser years, the Hawke government could now concentrate on the economic reforms it saw as necessary to rescue the battered Australian economy. In doing so the Labor government was able to implement restructuring that at times led to the destruction of thousands of jobs among sections of their traditional support base with from the union movement with little more than the“passage of resolutions at ACTU and Labor Party Congress” (Fairbrother, Svenson & Teicher, 1997: p.5). The neoliberal mantra that there was no alternative and that any job losses associated with restructuring were the result of excessive wage claims in the pre Hawke/Keating era helped contain a trade union movement that lacked the confidence to fight the job losses.

If Hawke was the key figure in negotiating the Accord with the unions it was Keating who as Treasurer was responsible for implementing the key planks of ALP economic policy. He was assisted by the fact that the senior Treasury officials he needed to work with were already influenced by “a neoclassical ascendency in economic thinking” before the Hawke government was elected (Lucarelli, 2003: p.79). Fairbrother, Svenson & Teicher have gone so far as to argue that during the 1980s “Labor Governments were effectively hijacked by a cabal of Ministers, focussed around Keating, supported by senior policy officials in the Treasury and the increasingly independent Reserve Bank” (Fairbrother, Svenson & Teicher 1997: p.2). Such was the gusto with which Keating took to the reform process that he later remarked that the Hawke government took office with an even greater belief in market forces than their conservative counterparts (Lavelle, 2005: p.53). It must be stated that Keating didn't always get his own way, for example when his proposal for a Value Added Tax (VAT) was defeated by the unions at the 1985 tax summit

be expanded upon in the following chapter in relation to the Australian public sector.

(Frankel, 1997: p.20). Nonetheless the major planks of the Labor government's reform agenda were by and large delivered.

As already stated, Keating as Treasurer acted quickly to abandon the system of fixed currency exchange in favour of floating the Australian dollar and liberalising the financial system. His resolve to accelerate trade liberalisation was strengthened after disastrous terms of trade results in 1985-86, following which the Labor government's commitment to tariff reduction intensified, consistent with the “scorched earth” policy of the Garnaut Report, which had recommended zero tariffs by the year 2000 (Lucarelli, 2003: pp.80-81). Tariffs in the manufacturing industry had already been reduced from 36 to 27 per cent under the Whitlam government (Fairbrother, Svenson & Teicher 1997: p.3). In fact Whitlam had legislated an across the board twenty-five per cent tariff cut in July of 1973, which took almost everyone save for a few of his closest confidants by surprise (Leigh, 2002: pp.491-492). The process of tariff reform had been abandoned, however, during the industrially tumultuous years of the Fraser government that followed Whitlam. Hawke’s government looked back not on the defeated conservative government, therefore, but on the previous Labour government for inspiration in the process of ending tariff protection for domestic industry.

Tariffs were therefore still at 26 per cent when Hawke took office in 1983 but his government’s commitment to trade liberalisation meant that, despite union unease, tariffs were reduced to just 9 per cent by 1994/95, not long before the Keating government lost office to Howard in 1996 (Fairbrother Svenson & Teicher, 1997: p.3). Tariff reform began on an industry by industry basis, based on a number of industry restructuring plans, examples being the Steel Plan (1984-88), the Shipbuilding Plan (1984-89), the Passenger Motor Vehicles Plan (1985-92), the Heavy Engineering Adjustment and Development Program (1986-89) and the Textile, Clothing and Footwear Industries Plan (1986-96) (Leigh, 2002: p.495). Figure 5 below shows protection levels for both manufacturing and agricultural producers from the pre-Whitlam era until the end of the Howard administration. It demonstrates that although protection for agriculture seems to have risen during recessionary years the overall trend is nonetheless downward. For manufacturing the picture is far more stark, with a downward trend uninterrupted save for a minor

74 reprieve during the recessionary years of the early 1980s.

Figure 5 – Manufacturing & Agricultural Tariffs 1970-71 to 2006-0714

An example of the impact tariff reduction had on industries with traditionally high levels of tariff protection can be seen in the Textiles, Clothing and Footwear (TCF) industry. Both Governments and unions agreed there was no alternative to the industry 'modernising', that is, opening up to international competition and in the process using the liberalisation process as an opportunity to seek foreign markets to exploit (Greig, 1991: p.7). The 'rationalisation' of the TCF industry facilitated an increase in the use of unregulated and poorly paid, predominantly female sweatshop labour, at the expense of regulated full-time jobs (Frankel, 1997: pp.19-20). The ability of the major players in the industry to increase the rate of exploitation of their workers, whether domestic or foreign, whether 'onshore' or offshore', could only mean an increase in the rate of capital accumulation, at the expense of smaller players forced out of the industry by the loss of tariff protection.

Labor continued with a reform agenda aimed at liberalising the domestic economy to make it friendly to foreign investment while simultaneously pushing for the opening

14 Productivity Commission, 2011: p.42.

75 of foreign markets to Australian markets through the ending of subsidies and tariff protection, with the former aimed at helping to achieve the latter. The push for the liberalisation of foreign economies seen as potential export markets was achieved through bilateral and/or multilateral agreements negotiated through international institutions developed to facilitate the opening up of markets, most notably the General Agreement on Tariffs and Trade (GATT) from September 1986 and following this through the Asia-Pacific Economic Cooperation (APEC) forum (Lucarelli, 2003: p.80). Despite those critical of the 'economic rationalism’ of the Labor government there were also those that saw in the reform process opportunities to increase market share at both a domestic and in particular a global level. For example, despite the fact that “thousands of small farmers were forced out of business” due largely to “market rationalisation” under the Labor government, major players in the agriculture industry saw the potential benefits of opening up EU and US markets that had traditionally been heavily protected (Frankel, 1997: p.15).

This tends to suggest a certain class dynamic, therefore, to be seen in who supported and who benefitted from the reform process under Labor. Capital generally, together with mainstream economists and the publications through which they voiced their approval of the reform process, argued that not only was there no alternative to neoliberal reform but that the reform process would radically restructure the domestic economy in a way that would benefit all through the creation of wealth and jobs that would 'trickle' down to all. In fact they tended to argue collectively that the reform process under Hawke and Keating was just the beginning and that major reform was necessary to create jobs and prosperity for Australian workers. Looking back at the Hawke/Keating years, some argued that the Labor government was still too close to the unions to deliver the complete deregulation of the labour market required to deliver jobs (Shann, 1996: p.46). Mainstream commentators further maintained that wage increases came at the expense of the competitiveness and business profitability required to maintain employment growth (Stammer, 1997: p.15).

There is a certain contradiction in the logic that argues those responsible for unemployment are those whose job security is becoming increasingly precarious as part of a reform process which promises to deliver jobs, if not now, then at some

76 undefined future date so long as those being promised such rewards continue to accept a remedy that in the short term at least delivers the very opposite. Despite the promises of jobs that flowed from the logic of the Accord, and initial employment growth that seemed to vindicate the Accord, the reality was that Labor in power presided over unemployment levels that at best stood at 6.1 per cent and at worst peaked at 11 per cent in 1992, which as Figure 3 (page 70) demonstrates surpassed the highest level recorded under the previous coalition government. Furthermore, as the neoliberal project gathered steam, so too did an acceptance that unemployment, along with underemployment, was a permanent part of the industrial landscape as 'restructuring' replaced full-time jobs with “part-time, seasonal, sessional, on-call, homework, outsourced or false-contracting” took root in industries being restructured (Lipsig-Mummé & McBride, 2007: pp.6-7). Such a process tended to have a disciplining effect on the work-force as the precarious nature of employment dampened the willingness of employees to expect, let alone push for improvements to existing conditions for fear of ending up with no work at all.

At the other end of the spectrum, such conditions gave employers the confidence to squeeze more out of their workforce, confident that the fear of losing one's job was sufficient to keep resistance at bay. This is particularly true given that the changing nature of employment tended to have a corresponding effect on trade union density and therefore the ability of workers to engage in collective resistance. In some cases it even gave employers the confidence to go on the offensive against unions by using the logic of restructuring, now accepted as part of the microeconomic landscape, as a tool for union busting. A n example is the telecommunications industry, where major players sacked tens of thousands of blue collar workers only to rehire a smaller number of them as individual self-employed contractors with no right to organise in unions (Lipsig-Mummé & McBride, 2007: pp.6-7). This represented a significant shift in the dynamic of class power from the years preceding the election of the Labor government, which, as we have seen, saw a confident and combative working class fight successfully for wage rises in an attempt to keep wages in parity with inflation.

This shift in both perceived and real power from labour to capital was a central aspect of the Accord years and had a significant flow on effect on the Australian

77 working class and their institutions. There were several reasons for this. Firstly, restructuring, as described above in the telecommunications industry, had a direct impact on trade union density in sectors with a traditionally strong presence by literally replacing union with non-union labour wherever possible. Secondly, the Accord itself cultivated a certain degree of passivity in the way rank and file union members approached industrial relations. Strikes fell to record lows as a working class now increasingly atomised and lacking confidence was unprepared to challenge the official trade union leadership and act outside the Accord (Armstrong & Bramble, 2007: pp.79-80). Given this process, whereby workers played virtually no role in the process of either defending jobs or fighting for wage increases, it’s unsurprising that a culture developed where workers saw little reason to join unions. This would be true of younger workers who joined the workforce for the first time during the Accord years and had no memory of fighting collectively to either defend or improve wages and conditions.

Whatever the reason, the changing industrial landscape and the shift in relative class power that it fostered, had an important impact on trade union density among Australian workers. When Labor came to power in 1983, some 50 per cent of the workforce belonged to trade unions. Obviously in some industries the figure was much higher and in others much lower, but nonetheless around half the workforce were union members. By the time Labor lost power to Howard in 1996, the overall figure was down to just 28 per cent, a drop of almost half in just over thirteen years (Lipsig-Mummé & McBride, 2007: pp.7). The irony is that it was the policies of the trade union movement, or more precisely of the trade union bureaucracy that opened the way for employers to go on the offensive. In accepting the argument that it was workers themselves that were the cause of the economic woes of the nation they also accepted that a shift in the way they approached serving their members was not only necessary but inevitable and without alternative. In doing so they handed power to employers in respect to determining the nature of the reform process and the industrial relations landscape generally.

The Impact on Wages

If the Accord failed overall to deliver on the jobs front, it did little better in keeping wages in line with the cost of living for most workers, or in keeping wages as a share of national income on parity with that enjoyed prior to the Accord. Under Whitlam, for example, the relative industrial strength of organised labour was demonstrated by the fall of the share of profits in national income from the historic norm of around 13 to 15 per cent to below 10 per cent (Armstrong & Bramble, 2007: p.75). It was this fact, within the context of the return to recession following the long boom that saw capital launch an ideological offensive that would become what we now know as neoliberalism (Armstrong & Bramble, 2007: pp.75-76). Once again, however, it was not the open party of capital, with future Prime Minister Howard as Treasurer that began to shift profitability back in favour of employers. The Accord, as we have seen with employment and industrial power generally, helped to restore the balance in favour of capital. So after falling dramatically during the recession of the early 1970s, profits began to recover later that decade and then accelerated during the Accord years, as per Figure 6. Despite a sharp fall during the recession at the beginning of the 1990s, from which it quickly recovered, the upward trend generally continued. Meanwhile, Labour's share of domestic income saw a corresponding decline, as demonstrated in Figure 7.

Figure 6: Profits Share of National Income15

15 ABS, 2005.

Figure 7: Wages Share of National Income16

The restoration of capital’s share of national income at the expense of the share of labour, in the form of wages, can be seen as part of a steady increase in inequality since the breakdown of the Keynesian consensus in the mid 1970s. This was not, however, a uniform development in relation to labour’s share of the national pie. In other words, there were winners and losers. For example, in the period 1975 to 1995, while the top 25 per cent of income earners saw their income rise steadily as compared to the median wage, the opposite is true of the bottom 25 per cent (Quiggin, 1999: para.48). The data requires a degree of analysis however. Figure 8 shows the movement between income quintiles for male workers between 1982, just before the Hawke government took power and 2005-06, just prior to Rudd’s ALP government. It clearly shows an increase in men in the bottom quintile, with a decrease in the uppermost and second highest quintiles. Figure 9, however, shows that for women during the same period, the reverse is true with a downward shift from the bottom most quintile as an increase in women whose earnings put them in the highest and second highest quintiles.

16 ABS, 2005.

Figure 8: Men Aged 18-64 Years in Gross Personal Income Quintiles17

Figure 9: Women Aged 18-64 Years in Gross Personal Income Quintiles18

The above needs to be considered in context and as also compared with other data. Most notably, much of the movement in women between quintiles is associated with women entering the workforce for the first time, particularly during the Hawke/Keating years, while the percentage of men in paid employment remained fairly static. Table 3 below gives an overview of labour force participation rates for each sex. An increase in the proportion of women drawing salaries, many for the first time, resulted in an increase in their share of national wages income as opposed to necessarily reflecting an increase in levels of income throughout the period in question. Furthermore, other sources suggest that the trend for women continues to be both one of inequality relative to their male counterparts in terms of equal pay (House of Representatives Standing Committee, 2009) and that wage inequality

17 ABS, 2008. 18 ABS, 2008.

81 generally impacted on women as well as men during the 1980s and into the 1990s (ABS, 1994). The trend for lower paid women tended to mirror that of their male counterparts, with downward pressure on wages in real terms during times when such downward pressure is affecting wages more generally. When considered holistically in terms of inequality across genders, the combined effect of downward pressure on wages is also evident in the Gini Coefficient and Theil Index for Australia, shown at Table 4, which again demonstrates a rise in inequality that coincides with the first decade of Labor administration. Like the Gini Coefficient, the Theil Index is a measure “which can be used to monitor the distribution of earnings (or earnings inequality) within a particular sector” (ABS, 1994).

Table 3: Percentage of Men & Women in the Labour Force19

Women Men

1982 1995 2005 1982 1995 2005 % % % % % %

Employed 48.3 61.4 67.0 82.0 80.2 82.0 Full-time 31.1 36.8 38.2 78.4 73.6 72.4 Part-time 17.2 24.6 28.8 3.6 6.6 9.6 Not employed(b) 51.7 38.6 33.0 18.0 19.8 18.0 Total 100.0 100.0 100.0 100.0 100.0 100.0

(a) At December. (b) Includes persons who are unemployed or not in the labour force.

Table 4: Gini Coefficient & Theil Index for Private Sector 1983-199320

Year Gini Coefficient Theil Index 1983 0.189 0.030 1985 0.195 0.029 1986 0.205 0.032 1987 0.208 0.033 1988 0.218 0.036 1989 0.218 0.036 1990 0.221 0.037 1991 0.224 0.039 1992 0.224 0.040 1993 0.228 0.042

19 ABS, 2008. 20 ABS, 1994. Survey not conducted in 1984. Public Sector wages will be considered in the next chapter.

Wage Fixing Mechanisms

While the distribution of income to and within labour throughout the Hawke/Keating years can tell us something about the impact of the reform agenda, the mechanism for administering wage increases also underwent major changes during these years. When elected in 1983 the Hawke government inherited a long standing culture of wage fixing based on the 1907 Harvester Industrial Court judgement that linked wage increases to trends in the cost of living. The Harvester decision was handed down by Justice Higgins in a dispute between The Sunshine Harvester Agricultural Implement Company and unions representing employees at the company (Harris & Robbins, 2007: para.1). Prior to the Harvester decision, wages were effectively determined as part of the common law approach that saw employment as a private rather than social phenomenon which as such was determined using the positivist approach of contract law (Harris & Robbins, 2007: para.4). This approach considered labour as simply another factor of production, the cost of which was determined by the law of supply and demand in the same way that the costs of raw materials or rents were determined. Social factors, including the ability of the employee to support themselves or their family on the wages they received were simply not a factor in determining their income.

With the return of economic crisis during the Whitlam administration, however, Whitlam successfully negotiated with the unions to fix wage increases to the rate of inflation (Armstrong & Bramble, 2007: p.76). This process fell apart during the Fraser years that followed the Whitlam dismissal (Armstrong & Bramble, 2007: p.77), as we have already seen, with an explosion of successful wage claims that convinced Australian capital that Fraser could not be relied up to discipline the unions and rein in wage increases. Under the Accord, there was “a return to a centralized system of wage fixation based on a comprehensive set of principles to deal with claims for pay and conditions” (Australian Conciliation and Arbitration Commission, 1984: para.1). National Wage Claims would determine wage increases twice yearly based on movements in the Consumer Price Index (CPI), unless the Commission was “persuaded to the contrary by those seeking to oppose the adjustment” (Australian Conciliation and Arbitration Commission, 1984: para.2). It was this framework that administered wage increases for Australian

83 workers during the first decade of the Hawke/Keating governments, though ‘full indexation’ quickly gave way to ‘partial indexation’, followed by flat rate or percentage increases that failed to keep pace with inflation (Armstrong & Bramble, 2007: p.78).

Furthermore, with the introduction of the Industrial Relations Act 1988 (Cth), the Accord was revised so that pay increases could no longer be automatically linked to inflation without a corresponding sacrifice in working conditions (Armstrong & Bramble, 2007: p.8). This was part of a process that would eventually lead to the abandoning on centralised wage fixing altogether. From 1991, workers could ‘choose’ to rely on safety net wage increases handed down by the Industrial Relations Commission, which often failed to keep pace with inflation, or they could opt for an Enterprise Agreement which would secure higher wages, but only insofar as workers were prepared to ‘bargain’ away working conditions (Bramble, 1994: p.1). The shift away from automatic centralised wage fixing in favour of linking pay increases to working conditions was aimed at increasing the productivity of Australian workers, a move which was largely successful. From 1987-88, when the Accord was amended to exclude automatic pay rises, to 1991-92 when Enterprise Bargaining was first introduced, productivity in state owned enterprises increased on average by 40 per cent (Bramble, 1994: p.13). A large part of this drive was not just centred on making workers more productive but to achieve results with fewer workers, so that in the corresponding period these same enterprises 59,000 jobs were lost (Bramble, 1994: p.13).

The push away from centralised wage fixing toward a more decentralised approach didn’t end there. In 1993 Keating introduced the Industrial Relations Reform Act 1993 (Cth) which paved the way for localised bargaining that could circumvent award provisions by entering into localised certified agreements, including non- union certified agreements ( van Gellecum, Baxter, Western, 2008: pp.46-47). The latter in particular presented a challenge to wage parity, as despite the existence of a ‘No Disadvantage Test’ aimed ostensibly at protecting the most vulnerable workers from exploitation at the hands of unscrupulous employers, the reality was that workers, particularly women workers, with traditionally lower trade union density than their male counterparts, were at a distinct disadvantage when negotiating

84 certified agreements without the assistance of experienced union negotiators (van Gellecum, Baxter, Western, 2008: pp.46-47). The net effect of this was the continuation of the growing wage disparity already referred to above, with inequality between workers in different industries or in particular in industries dominated by women and/or migrant workers either falling behind or being forced to trade conditions to win decent pay rises.

Despite this, Keating himself would continue to take credit for what he referred to as the second of “two seminal events in wage fixing in Australia” in an article for the Sydney Morning Herald in November 2007 where he attacked the then Howard government (Keating, 2007: para.1). The first of these events was of course the Harvester Judgement and the second being the dismantling of the centralised wage fixing system borne of the Harvester Judgement with the 1993 legislation that “created a decentralised wages system built around enterprise bargaining, with an arbitrated safety net for the low paid” (Keating, 2007: para.3). Keating describes this shift as a necessary response to the changing needs of a modern economy following the dismantling of tariff barriers and the opening up of the economy to international competition (Keating, 2007: para.5). Keating further stressed the importance of the union movement in facilitating the move from the centralised model and rejected Howard’s attacks on the union movement which the former referred to as “the one group in the community that successfully took on the fight against inflation and that co-operated in the dismantling of the centralised wage system to keep that victory in place” (Keating, 2007: para.19).

There is perhaps no better way to sum up the dialectical synthesis between the political and industrial wings of the labour movement that gave birth to the Australian brand of neoliberalism than with the words quoted above. The impact of the reform agenda on the Australian economy and on the jobs, wages and conditions of Australian workers all flow from this partnership. They are consistent with the mantra of Thatcher and Reagan already observed that the prime focus needed to be shifted to fighting inflation, deregulating the economy and opening the latter up to international competition and more importantly that there was no alternative but to do so. They also give a powerful insight, however, into the key difference with the reform process in Australia as compared to both the UK and the US in that the

85 structural changes pushed through were achieved with the acquiescence of the labour movement rather than by attempting to smash the unions to remove obstacles to reform. The net effect, as we have seen, however, had much in common.

As with the reform process under Thatcher and Reagan, an important part of the agenda was the commercialisation or full privatisation of state owned enterprises and services traditionally delivered by the state sector. In the final chapter we shall look at this process in Australia, once again concentrating on the Hawke/Keating years and by considering the push toward commercialisation/privatisation as intrinsically linked to the implementation of the neoliberal project in Australia. In doing so I hope to consider the service delivery models traditionally adopted by state owned providers and the way in which these models changed with the adoption of commercial methods to these models. I also hope consider the impact of this process on both the workers employed by the public sector and the recipients of the services provided. Finally I plan to consider the reform process in the public sector as inseparable from the general process of ‘modernising’ the Australian economy along neoliberal lines.

Chapter 4: Neoliberalism and the Australian Public Sector

This chapter will adopt roughly the same approach as previous chapters in charting the trajectory of the public sector in Australia. That is, I will consider changes to the way government traditionally provided services in the context of developments in both the economy and more importantly the ideological shift from traditionally Keynesian to neoliberal approaches among government and key policy makers. I aim to demonstrate that the changes, or ‘reforms’ that the public sector has undergone in recent decades, flow from the same logic that saw increasing deregulation and removal of trade barriers within the Australian economy. Furthermore, it will be argued that the cultural shift that took place within the public sector was inevitable, indeed essential, for the economic reforms of the Hawke/Keating governments to continue. The institutions that comprise, or in some cases used to comprise the public sector in Australia, are not benign bodies that operate in a vacuum independently of the economy but are intertwined with the workings of the economy and cannot but change when there are major shifts in the managing of said economy, such as has occurred in the era since the neoliberal revolution sounded the death knell of the post war Keynesian consensus.

As with the previous chapter, I shall concentrate on the Hawke/Keating administrations between 1983 and 1996 with some minor reference to the government of John Howard that followed. While the latter is relevant in that during the Howard years the commercialisation and/or privatisation of the public sector continued to gather pace, with reforms such as the Workplace Relations Act 1996 and the introduction of individual contracts (Verspaandonk, 2003; p.11) it was during the Hawke/Keating years that a major shift in approach to the traditional public sector occurred. Public sector reform was an important platform of the Hawke/Keating years and much of the commercial practices common with public sector agencies were given life during these years. It was during these administrations that commercial values were fully introduced to the public sector, with the Howard reforms merely the logical conclusion of this process. Furthermore, to be consistent with the previous chapter, it is necessary to focus on the Hawke/Keating years in order to explore the dialectic between the industrial and political wings of the Australian labour movement during such reforms and the way in which the reform

87 process fostered tensions between the two. This will be an important focus of my final chapter.

The Traditional Public Service

To fully understand the impact of the reform process on the Australian Public Service (APS) it is necessary to first take a cursory look at the history, traditions and culture of the public service prior to the modern era. The Australian Public Service (APS) was born of the federation of the separate colonies into a single nation, and the new Constitution, which came into effect on 1 January, 1901 created the position of Governor-General in Council with the power to appoint and remove “civil servants” or to delegate that power to others (Commonwealth of Australia, 1991: s.67). The Constitution further provided for a number of key State departments to be transferred to the newly created federal public service (Commonwealth of Australia, 1991: s.69). These included departments responsible for telecommunications, defence, maritime affairs and quarantine, with departments responsible for customs and excise to be “transferred to the Commonwealth on its establishment” (Commonwealth of Australia, 1991: s.69). By the time the first Commonwealth Public Service Act was enacted two years following federation there were some 11,374 officers working for the newly created departments (APSC, 2004: p.1)

Appointments to the new federal public service continued to be made under s. 67 of the Constitution until passage of the Public Service Act 1902 (Cth), which received Royal Assent on 5 May, 1902 and came into effect on 1 January, 1903. The inaugural Act was a somewhat rudimentary document, particularly as compared with later Public Service Acts. It comprised a mere 30 pages, roughly three quarters of the size of the Public Service Act 1922 that would replace it two decades later, which by the time it was replaced by the Public Service Act 1999 included amendments that ran some 386 pages. In legislative terms, therefore, the Australian Public Sector had somewhat humble beginnings, with the focus of the original Act seemingly on consolidating the remnants of the existing colonial public services into a single Commonwealth sector. The Act was divided into five parts, dealing with Administration, Divisions of the Public Service and Appointments, Internal

Administration, Life Assurance and a final part dealing with Miscellaneous matters.

Although the original Act survived the war years, by the end of the war there was a mood for change. To facilitate this there were two separate Royal Commissions appointed to review and recommend amendments to the existing Act. The Act that flowed from the Royal Commissions was only a slightly larger piece of legislation by comparison with its predecessor, with 45 pages compared to the 30 pages of the 1902 Act. The new Act looked similar in structure and content to the previous Act, as well as in its intent to regulate and maximise the efficiency of the institutions that formed the Commonwealth Public Service. In many ways it acted merely to flesh out or improve upon existing provisions and practices. Most importantly it did not seek to improve efficiency by introducing private sector principles or by outsourcing/privatising services as is the modern practice. This in itself provides a powerful insight into the culture of the public sector at the time, particularly given the 1922 Act was drafted at a time when commitment to the free market was yet to be challenged by the turmoil of the Depression and war years that led to the rise of the Keynesian consensus. The Public Service and its institutions were still entities that, while providing the regulatory framework within which the market economy operated, in a sense, as compared to the modern era at least, stood above the workings of the contemporary market economy. This culture largely dominated the Public Service until the Keynesian consensus began to be challenged by the return of economic crisis during the Whitlam years.

The APS and the end of Keynesianism

The Whitlam administration of 1972 to 1975 had the dual fortune/ misfortune of being elected at the height of the post-war boom yet also being in power as this boom began to implode. The period leading up to the election of the ALP government in 1972, the first Labor administration since 1949, had been a period of rising social and industrial tensions. On top of what was to become a massive anti- war movement, there were movements around gender and Indigenous issues and a major increase in industrial unrest, with strike days increasing from 705,000 in 1967 to 6,292,000 in 1974 (O’Lincoln, 1985: p.139). Elected on the back of these

89 movements for change, the Whitlam government implemented a number of reforms, including wage increases, equal pay legislation, paid maternity leave for Commonwealth public servants, sole parent pensions, free tertiary education and the introduction of Medibank, the forerunner of the current Medicare system (Armstrong & Bramble, 2007: p.73).

The dynamics of Whitlam’s government, along with the dialectic between his government and the existing balance of class forces needs to be considered to fully appreciate the nature of his reform agenda. Whitlam’s reform agenda was driven both by the struggles referred to above and by the fact that while the boom was still in play the system could afford his reforms (Armstrong & Bramble, 2007: p.74). Furthermore, his government funded reforms not just to workers and the poor but was at pains to demonstrate his government was there for Australian capital as well, with a “host of schemes which channelled government support to business” (Armstrong & Bramble, 2007: p.74). With the return of economic crisis, however, Whitlam felt compelled to review his approach. The public sector was now the subject of cuts and a general ideological shift toward blaming a bloated government sector for the country’s economic woes. Business now turned on Whitlam, helping to bring to an end the short and turbulent administration of a government that failed to keep either labour or capital satisfied when faced with economic crisis. The result was the election of a Fraser coalition government that sought to further reduce the public sector.

Upon being elected Fraser set about trying to reduce the public sector that had expanded under Whitlam. Once in power Fraser abolished dozens of public sector agencies, axing public sector jobs in the process (O’Lincoln, 1993: Ch 4, para.7). Following the 1980 election he set up a committee, led by Sir Philip Lynch to conduct a Review of Commonwealth Functions (RCF) to determine what functions could be cut back, completely abolished or transferred to the private sector (Wanna, Kelly & Forster, 2000: pp.128-132). Tabled in Parliament in April, 1981, the RCF report soon became known as the ‘Razor Gang Report’ due to its focus on dramatically cutting back the public sector in favour of the private sector providing many services traditionally delivered by the state, or in the words of the author, “streamlining and fining down Commonwealth operations by withdrawing from

90 areas more appropriately handled by the States and private enterprise, and rationalising a number of Commonwealth activities” (Lynch, 1982). It was against this backdrop that Labor was re-elected in 1983, promising to breathe life back into a depleted and demoralised public sector.

Labor Takes Power

Upon ascending to power the Hawke government wasted little time in prioritising public sector reform to align the public service with its direction more generally in terms of managing the economy. In the lead up to the 1983 federal election, then opposition leader Hawke and shadow Attorney-General Gareth Evans had released a policy paper entitled Labor and Quality of Government (Hawke & Evans, 1983). This paper savaged the Fraser government’s record in public administration and somewhat ironically, given the direction the ALP would eventually take once in government, attacked Fraser’s “ideological obsession with building up the private sector at the expense of the public” (Hawke & Evans, 1983: p. 1). The policy promised to "restore confidence in the quality of public administration both at the ministerial and public service level" (Hawke & Evans, 1983: p.4). It would do so by, among other measures, “a system of strategy and effectiveness reviews” and “reform of the budgetary system”. It was also a reflection of the fact that economic rationalism was starting to hold sway with key figures in the ALP, who were “no longer prepared to adopt blind ideological commitment to the virtues of public sector growth and government interventionism” (Wanna, Kelly & Forster, 2000: p.149).

In December, 1983 John Dawkins, then Finance Minister in the Labor government elected earlier that year, introduced Reforming the Australian Public Service - A Statement of the Government’s Intent, outlining Labor’s vision for the public service. A large part of the reforms outlined in Dawkins’ document was devoted to the creation and administration of a Senior Executive Service (SES) (Dawkins, 1983: pp.12-21). The new SES replaced the previous ‘Second Division’ and was drawn from the “critical group of senior advisers and managers” that had formed the Second Division of public servants under the Public Service Act 1922 (Cth) (Dawkins, 1983: p.12). The creation of the SES was intended to develop a highly specialised group of leaders within the public service and the document specifically

91 refers to a requirement for “more emphasis on the development of managerial skills” within the new SES (Dawkins, 1983: p.12). Pursuant to this goal the SES was to be highly mobile, with officers to be moved between roles or even between departments as a means of both responding to agency needs and expanding upon the skills and experience of the SES (Dawkins, 1983: pp. 14-15). Furthermore there was increased scope for dealing with underperformance and a requirement for regular staff appraisals (Dawkins, 1983: pp.18-19).

Reforming the Australian Public Service was explicit in its intention to inject the private sector into the APS, both physically and culturally. SES vacancies would be open to applicants from outside the APS with scope to advertise vacancies in the press, “both in Australia and overseas” or with the use of “private sector ‘executive search’ services to bring in people of “top quality” into the SES where internal applicant pools proved to be unsatisfactory (Dawkins, 1983: p.13). Fixed term engagements would also be utilised to “facilitate the entry of talented outsiders” (Dawkins, 1983: p.13). There had in fact always been scope to advertise Second Division vacancies outside the traditional method of listing vacancies in the Commonwealth Government Gazette, but the reality was that this seldom occurred. Opening up what had previously been something of a closed shop addressed government concerns that the elite levels of the service had become stagnant and needed an influx of private sector operatives to modernise itself, necessary to meet the needs of a government that was embarking on a major reform of the country’s entire economic and industrial relations landscape.

The Public Service Reform Act 1984 enshrined these principles in legislation with the creation of the new SES to “undertake higher level policy advice, managerial and professional responsibilities in Departments”, and to “promote the efficiency of the Australian Public Service” (Commonwealth, 1984; s.19). The creation of the SES was an important step for the Hawke government in achieving the “technocratic, ‘managerialist’ state” that was vital “for enhancing and sustaining an internationalised economy” (Fairbrother, Svenson & Teicher, 1997: p.4). The Act also introduced concepts of Equal Employment Opportunity (EEO) (s.11), Industrial Democracy (s.12) as well as legislating for permanent part-time work (s.19) as a means of modernising the public service.

Concepts such as Industrial Democracy no doubt reflected Hawke’s ‘consensus’ approach to industrial relations and managing the economy, as with the Accord and the various consensus building summits that typified the early years of the Hawke government. The Hawke Labor government certainly had some success in consensus building with the trade union movement and concepts of Industrial Democracy could be seen, rather than simply empowering public servants in relation to the decision making process, as a means of replicating this successes. Despite early commitments to Industrial Democracy and inclusion of unions to some degree in consultative processes, this was increasingly subordinate to the government’s commitment to managerialist principles and practices as the driving force behind the new SES (Fairbrother, Svenson & Teicher, 1997: p.4).

It might also be argued that as the union movement’s commitment to keeping Labor in power influenced the former’s willingness to publicly challenge the ALP, the government felt increasingly less compelled to garner their support, thereby having something of a free run in implementing its managerialist agenda. This did not mean that the government abandoned its policy of leveraging off its relationship with the unions, many of whom were of course affiliated with the ALP. But it did mean that the unions, and the public sector unions in particular, having thrown their lot in with the Labor government’s corporatist approach, and accepting that there was no alternative to the ALP’s increasingly pro market policies, had effectively cornered themselves. In other words, the union strategy contributed to the reform process under Hawke and the ability of the Hawke government to install market principles in the public sector, irrespective of any reservations the unions may have had.

New Public Management

The introduction of New Public Management principles into the Australian public sector began a journey that would ultimately lead to the major commitment to privatisation of the Howard government alongside the push to individual contracts for those remaining in public sector employment. In essence, NPM brings the principles of market-based economics into public sector management in place of the traditional bureaucratic culture (Hughes, 2000: p.3). Or put more broadly:

This approach focuses on the introduction of private sector management practices into the public sector, strengthening the prerogatives of managers, measuring performance, increasing competitive pressures and cost-cutting. In terms of labour management, the increased focus on private sector management practices in the Australian public sector has seen the introduction of initiatives such as decentralised wage bargaining, individual employment contracts, total quality management, performance-based pay and downsizing into those sections of the public sector not already privatised or contracted out (O’Donnell, Allan & Peetz, 1999: p.1).

In practice this has meant a great degree of devolution of decision making powers to a departmental level and a major streamlining of processes and structures within the public service that facilitate greater control of managers over their staff and a simplification of job classifications (Anderson, Griffin & Teicher 2002: p.3). There is a greater focus on individual performance at all levels of the public service and more ‘efficient’ means of hiring, firing and managing the performance of staff, including punitive measures where necessary. The shift towards NPM principles has also seen an erosion of the ‘job for life’ culture that permeated the traditional public service with job security now linked to both an ability to perform and government decisions on whether the duties or services provided by individual public servants could be more efficiently provided by other, particularly private sector, means. Above all then, New Public Management principles have meant that the public service must produce results as ‘efficiently’ as possible, that is, it must continue to deliver services with minimal resources and a potentially tightening budgetary environment.

To illustrate this point further, in a document released by the Australian Public Service Commission (APSC) in 2009 to commemorate the 25th anniversary of the creation of the SES, the author’s celebrate the role that the ‘leadership’ within the APS in implementing the macroeconomic policies of the government of the day (APSC, 2009). Furthermore, this leadership, they demonstrate, has driven government policy agendas under administrations with vastly different economic policy platforms. As examples, firstly, as the former Second Division of the public

94 service, the leadership of the APS “implemented the Chifley Government’s social welfare reforms” in the early 1940s which legislated for various pensions and protection against sickness and unemployment (APSC, 2009: p.7). In other words, the leadership of the APS at the time were called upon to implement policies consistent with the Keynesian consensus that favoured government intervention rather than market forces as the preferred means of delivering services and protecting the more vulnerable members of the public. This would appear to be consistent with a public service model that favoured a bureaucratic, administrative approach to the delivery of services by the state sector and sat comfortably with the structures, roles and responsibilities of public servants under the existing Act.

By contrast, in the 1980s, the SES was created to assist in “developing and implementing wide ranging economic reforms that progressively enabled Australia to compete successfully in the global economy – reforms like reducing barriers to trade and foreign investment, commercialisation and some privatisation of government-owned business and increasing labour market flexibility” (APSC, 2009: p.7). That is, the leadership of the APS was restructured along managerial lines in order to allow the APS to facilitate the government’s move to deregulate and open the economy to foreign trade as per the latter’s new found rejection of Keynesianism in favour of the neoliberal agenda that was finding favour among senior legislators and policy makers. A decisive shift from an administrative to a managerial style of leadership ensured the APS was now led along similar lines to the private sector with the SES in many ways having responsibilities similar to the senior staff of private, commercial enterprises. If not exactly required to turn a profit, as with their private sector counterparts, although this would in some instances become the case as certain agencies were commercialised or fully privatised, at the very least the SES were responsible for ensuring that their workforce was ‘exploited’ in much the same way, that is, with efficiency/productivity increases that improved a bottom line in terms of the budgetary investment required to run the agency.

In other words, the role of the SES under the NPM includes a responsibility for ensuring market based principles of efficiency and economy are realised within their respective agencies. The government of the day, via their Ministers and Department Heads requires of the SES that they “ make government work as efficiently as

95 possible for Australia” by “doing more for less, focussing on outcomes and results and managing change better” (Yeatman, 1987: p.341). The SES therefore have an internalised or micro perspective that focusses on the resources available to them and must consider how best to utilise these resources to deliver on their external or macro perspective, the actual legislative and policy deliverables of the government of the day. In implementing these changes to the way the public service was to be led and to how it would conduct its business, the Hawke government created a vastly different employment experience for public servants. Industrial relations policy, as it impacted upon public servants at both a micro and macro level, was to take on a specific flavour under the ALP, with contradictions and outcomes similar in many ways to those in the economy more generally.

Working Conditions Under the NPM

Hughes provides a useful overview of the changes to the working conditions of public servants under the New Public Management paradigm (Hughes, 2000: p.5). In quoting the report of the Coombs Commission, set up to review the APS under the Whitlam government in 1974 and tabled in 1976, he describes conditions under the “career service model” that had typified the APS prior to the NPM era. Among these were recruitment by merit and independent control of recruitment that protected public servants against outsiders, with vacancies above the base grade rarely open to those outside the APS. There was a unified APS, with the Public Service Board overseeing personnel management at a whole of APS level. There was protection against arbitrary dismissal, position classification of salaries that allowed for annual increments and promotion, an appeal mechanism for public servants unsuccessful in recruitment processes and a distinctive retirement and pension system. By contrast, under the NPM regime there is no longer a unified APS, with the Public Service Board abolished in 1987. Outside recruitment for above base grade positions is much more common, position classifications have been replaced with ‘broad band’ levels’ mechanisms for appeals and grievances are far less robust and the superannuation schemes, once the envy of the private sector are far less generous than they were.

There was a push in much of the public sector toward the “multi-skilling” of staff, presented as an opportunity for staff to learn new skills and therefore enhance their

96 career prospects and personal job satisfaction (O’Donnell, Allan & Peetz, 1999: p.8). This occurred in the context of the rationalisation of the classification structure into the broad band levels noted above, which allowed for more generic duty statements, enabling workers to perform duties across a range of areas that would previously be performed as separate roles. It was also at a time when Information & Communications Technology (ICT), was revolutionising the way tasks were performed, both in the private and public spheres. It is certainly true that new technologies and broad-banding of the classification scheme allowed many to pursue career paths hitherto unavailable to them. But in the context of the NPM, where such changes were driven by the pursuit of increased efficiency and productivity in pure economic terms, it also meant a conscious move to continually extract more and more from your labour source. As an example O’Donnell et.al. describe the impact of multi-skilling on service workers in a public hospital setting, where workers were performing additional tasks to those they had traditionally performed, not in terms of promotion to better paid positions, but as increased output under the same remuneration packages (O’Donnell, Allan & Peetz 1999: p.8).

Consistent with the new NPM even the language used to describe public sector agencies began to change to reflect the new market driven ethos that was now shaping the state sector. According to Fairbrother et.al. the “changes in nomenclature that accompanied these shifts in policy were imbued with the discourse of economic rationalism and the market. What were previously ‘utilities’ and ‘public services’ became ‘government business enterprises’ or ‘GBEs’” (Fairbrother, Svenson, Teicher, 1997: p.6). The word ‘business’ is now commonly used to describe the inner workings of modern state owned agencies and a search of the APS Gazette will see positions advertised as ‘Business Managers’, ‘Business Analysts’, ‘Business Support Officers’ and so on (http://www.apsjobs.gov.au/searchresults.aspx?mn=JobSearch). Work units are now often referred to as ‘business units’ rather than branches or sections and at a strategic level ‘business plans’ are developed to implement and measure strategic and operational objectives in much the same way as a private sector entity needs to ensure its business activities are conducted in the most efficient and profitable way possible.

Further to this, agencies, especially those that would eventually be commercialised or fully privatised, were subjected to private sector methods of rationalising the workforce, the most direct impact on public servants in these agencies being cuts to staff numbers (Frankel, 1997: p.19). A case in point is the former public communications utility Telecom, where management adopted a “lean and mean” approach to its workforce and government legislated to repeal protection of workers’ conditions that had been enshrined in the Telecommunications Act of 1975 (POA, 1988: p.2). The former Commonwealth Employment Service (CES) was ultimately abolished by the Howard government in favour of a network of private providers. At the height of the 1991-1992 recession, while still in public hands and at time where unions were calling for more staff to cope with increased demand for the services offered by the CES, public sector unions found themselves in dispute with an ALP government proposing to cut staff numbers (Backhouse, 1992). This had a direct impact on workers in these agencies, who had to work more ‘efficiently’ and deliver the same levels of service to the public albeit with less resources. It also had a direct impact on the public that utilised these services, with the reality being that despite computerisation and technological advances, frontline services were compromised.

The citations referred to above help to build an understanding of the impact of the NPM on public sector workers in the context of the drive for increased labour productivity, consistent with the overall direction of economic reform under Labor. For a Marxist analysis, however, they provide insufficient insight into the dynamics of the reform process in the context of the rate of exploitation of the labour power of workers within Australian capital. Doing so means considering the organic composition of capital (see Marx, 1990: p. 762), albeit with the caveat that even though Marx was examining the dynamics of private enterprise, the essence of his approach is nonetheless useful in considering the reform process on public sector employees. This is particularly true as traditional public sector models gave way to commercial models that sought to maximise efficiency through the use of private sector methods or even began operating on a fully commercial basis where capital was invested into a public sector body expected to operate at a profit by selling its services to the public. Marx approached the labour/capital dichotomy by insisting that labour was the source of all value and that the profits realised by capital in the production process

98 were due to an extraction of ‘surplus value’ from the labour they employed (Marx, 1990: pp.320-29).

That is, the employee is compensated for their labour power with wages that are less than the value they create, a surplus value. Labour power is therefore the source of surplus value due to the relationship between what Marx termed ‘constant’ and variable’ capital (Marx, 1990: pp.307-19). By constant capital he referred to the machinery necessary for a given enterprise to produce its goods. In the public sector this might refer to the offices, furniture and increasingly the ICT hardware and software necessary for staff to perform their duties. By variable capital Marx meant the wages the employer was required to spend to secure the necessary labour power. By the organic composition of capital Marx was simply referring to the ratio of constant to variable capital in the total expenditure an employer spent on the goods or services that their business, or in the case of the state, an agency produced.

In the context of the NPM reforms described above, the citations point to a shift in the organic composition of capital whereby increasing amounts of surplus value were extracted from employees as part of the increased efficiency, or the rate of exploitation inherent in making workers produce more for the same pay. This is magnified as new technology allows public servants, along with their private sector counterparts, to produce more with less. This is not in itself problematic and few would argue that labour saving technology should be eschewed, certainly not users of public services who can now, for example, perform tasks on-line that would have previously taken much longer to complete. Increased efficiency in purely objective terms is, however, something of an abstraction in the context of a labour force directly impacted upon by such developments, particularly where they increase the precariousness of job security for those previously performing now automated functions. In terms of the ALP reform process, increased productivity, viewed as an increase in the extraction of surplus value, based on the examples above, tended to be to the detriment of the job security, wages and conditions of many public servants.

To illustrate this further, a recent PhD thesis considers from an explicitly Marxist perspective the impact of the reform process on workers in the Jobs, Education and

Training (JET) program within the Department of Social Security (DSS) (Banks: 2011). The JET program was designed to encourage sole parents, particularly women, to re-enter the paid workforce. In his thesis Banks argues that nation states “intervene to increase the relative surplus value through policies which either raise the average level of skills, capacities and capabilities in the workforce (health, welfare, education, immigration) or by supporting employers increasing the rate of exploitation. Absolute surplus value may be expanded through state interventions which aim to increase the quantum of labour power available” (Banks, 2011: p. 48).21 The description here of the state’s intervention to increase the rate of relative surplus value fits well with the drive to increase productivity in the APS under the Hawke/Keating governments by increasing the “rate of exploitation” through a combination of downward pressure on wages and public sector workers getting the job done with fewer resources.

Banks go on to describe working conditions for the JET Advisers (JAs) who were employed to assist clients with finding employment, with a focus on disputes between DSS case workers and the employer over caseloads (Banks, 2011: pp. 124- 29). Although industrial action had seen some success in resisting increased client to staff ratio numbers in DSS, within the JET program itself high caseload levels led to a diffusion of the attention JAs could offer clients. In some cases individual JAs were forced to forego one-on-one sessions with clients in favour of larger group interviews (Banks, 2011: p. 129). Banks further reveals the shift towards NPM style leadership within the program where commercial imperatives were increasingly used to measure the performance of staff (Banks, 2011: pp. 137-142). Specifically, this meant an increased emphasis on a purely economic measure of ‘outcomes’, i.e. work placements and an associated reduction of government outlay in payments to sole parents. Other activities associated with the program, such as assistance with child care or directing clients on to training courses were consigned to being mere ‘outputs’, and as such could not be used in determining the program’s success.

21 For further examination of the concept of relative vs absolute surplus value see Marx, 1990: pp. 429-39.

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NPM and the Public Sector Unions

The common thread remained the relationship between the ALP government and the public sector unions, irrespective of disagreements over the specifics of policy. Hawke and then Keating continued to foster a relationship with the unions as a means of delivering their NPM reforms, including the latter on a number of consultative committees as part of the reform process (Anderson, Griffin & Teicher, 2002: p.3). Furthermore, as with their approach to the Accord in general, the unions, however uncomfortable with aspects of the reform process, tended to accept the need for reform per se. For example, in calling for a mobilisation to fight cuts by the Labor government on staff levels and the working conditions of public servants, the unions would still assert their commitment to “genuine reform and improvement of Public Sector services and operations (ACTU, 1986: p.4). Furthermore, the Professional Officers Association (POA), while in dispute with Telecom management over the way reforms were being managed, could still proclaim that they were “one of the first staff associations to recognise that Telecom had to change to meet the rapid changes in the economic and social demands of modern Australia (POA, 1988: p.1). There is certainly a contradiction in their approach. Clearly the unions accepted the reform process, which by its very nature could not proceed without threatening the jobs and conditions of its members. Yet they maintained that they needed to be a partner in this process, which they viewed as their only means of softening the impact the reforms may have on their members.

Indeed public sector unions took exception to the ALP government making policy decisions in isolation of a consultative process, particularly when such policy decisions had adverse consequences for their members. When, for example, the government announced the creation of an “Efficiency Scrutiny Unit” to help it implement widespread “arbitrary staffing cuts and other reductions in resources”, the Administrative and Clerical Officers’ Association (ACOA) lamented the fact that these moves had not been “the subject of any discussion with unions” (ACOA, 1986: p.4). Once again, however, the union took a contradictory position. While on the one hand they criticised what they perceived as an “attack” on public service conditions under the Government’s approach, it simultaneously declared that the

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“Prime Minister’s statement on Public Service reforms has some merit” and declared themselves as fighting strongly for “positive reforms” (ACOA, 1986: p.1).

It would appear from such statements that the unions were keen to appear not as an obstructionist force but as one that in cooperation with the government could assist in implementing reforms aimed at increasing efficiency within the public service. This certainly demonstrates a commitment to the Hawke government’s ‘consensus’ approach to governance. Such an approach could also be perceived as being shaped by the dynamics described in the previous chapter, with the labour movement being largely reconciled with the ALP policy agenda, within which their best position was in being part of the reform process as opposed to sitting on the sidelines having no input whatsoever. In other words, no matter what reservations the unions, including the public sector unions, might have had about this or that policy, ensuring that they had a seat at the negotiating table took precedence over mobilising members to fight. Not that the latter did not occur, for it certainly did on occasions, particularly over wages, as we shall see below. The point is that such mobilisations tended to take place within the broader context of the ALP’s reform agenda, not as a specific fight against the entirety of the reform agenda itself.

Wages

This is certainly the position public sector unions took in relation to wages, with the Accord sold to members as a means of securing decent wage increases through a centralised approach to wage fixing. The National Executive Committee of the ACOA, for example, would report that the Accord “provides a framework and program for realisation of a social and economic objectives beneficial to ACOA members and to wage and salary earners generally” (ACOA, 1983: p.1). In June of 1983 the ACOA published a Bulletin for its members selling the virtues of the Accord. It declared that the “maintenance of real wages is a real objective” and that it was agreed (between the unions and the ALP government) that a “centralised system of wage fixing is desirable” (ACOA, 1983: p.2). As a further example of union support for the Accord, in September, 1983 the South Australian Branch Conference of the ACOA would also endorse the Accord, stating that the Conference “is of the opinion that the ACTU/ALP Accord was an important initiative” and that the union supported “the concept of centralised wage fixing” (ACOA: 1983). Clearly

102 public sector unions by and large welcomed the Accord as a step forward from the tumultuous Fraser years and saw in it a means of advancing the interests of their members through cooperation and industrial harmony.

The honeymoon period didn’t last for long, however. In early 1984 the Hawke government proposed a wage freeze or at the most a minimal increase to help profits recover from the recent recession, a throwback to the Fraser years and the very thing unions had hoped the Accord would remove (Malone, 1984). From this point on there would be a tension between the pay increases proposed by the public sector unions and those handed down by the Arbitration Commission under the centralised wage fixing model of the Accord. So, for example, by January 1985 the unions were considering industrial action in favour of an 8.3 per cent pay increase designed to make up for wages lost in real terms due to inflation under Fraser and to put public servants’ wages on par with their state public sector counterparts, the so called ‘anomalies’ claims (ACOA, APSA, FCU (TOB) 1985). Such disputes over the level of pay increases would continue as long as the centralised wage fixing model remained in place (ACOA, 1986, 1987 & PSU, 1989, 1990). Tensions were magnified with the introduction of the “Second Tier” system of wage increases in 1987 which allowed public servants to trade away conditions to gain wage increases beyond that offered by the Arbitration Commission or for pay rises to be linked to productivity increases or job cuts (Rank and File Action, 1990).

Not that this frustration or anger automatically led to outright rejection of the Accord itself. There was certainly rejection of the Accord from some sections of the public sector unions, who argued that the Accord had led to a cut in real wages and called upon the union leadership to mount a fight back (Rank and File Alternative, 1990). However, by and large the leadership of the public sector unions did not see the battles over wage increases as flowing from the Accord itself but rather as a result of the government not meeting its obligations under the Accord. In calling its members to mass meetings over the 8.3 per cent pay claim in 1985 the unions recommended members support a motion that “deplores the actions of the Government and employers in their minimal and conditional support for the unions’ claims and requires the Government to fulfil its responsibilities under the Prices and Income Accord to ensure fair comparability in wages for Australian Government employees”

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(ACOA, APSA, FCU (TOB) 1985). Clearly union leaders saw the Accord as a vehicle for increasing, or at least maintaining wages in real terms as opposed to a means of keeping wages in check. Any disputes, therefore, were largely over differing interpretations of the Accord rather than a challenge to its existence. The role of the unions would be to hold the employer accountable to what it saw as the latter’s commitments under the existing industrial relations paradigm rather than act to seek to act outside of it.

Furthermore, when the original Accord expired in 1985, public sector unions were willing partners in the ACTU’s negotiations for further agreements. In a pamphlet selling the virtues of the new Accord to its members, the ACOA, speaking on behalf of the ACTU “acknowledged the benefits that have flowed through to workers and the community generally through the development and implementation of the Prices and Incomes Accord through, among other things, “substantially reduced unemployment and inflation”, linked notably, to “improved international competitiveness” and supported through the “ACOA’s own academic study of movements in the social wage” (ACOA, 1985). So here the ACOA is not just asserting the benefits of the Accord, but the virtues of the neoliberal reform process itself by linking improvements in the standard of living of Australian workers to their ability to compete against the productivity of workers in other countries. In accepting this logic, the unions accepted the limits of what they could achieve for their members, effectively arguing the “there is no alternative” neoliberal mantra. It further meant that as the Accord began to outlive its usefulness as a tool for the government to continue raising the level of productivity, or surplus value of the labour force, the unions were in a weakened position by virtue of their own acceptance of the logic behind the reform process when Hawke began to dismantle the centralised system in favour of one linked purely to productivity increases.

Agency Bargaining

To a large extent enterprise bargaining, or agency bargaining as it would be known in the public service, had its genesis in the Second Tier wage system that began in 1987, where pay increases were “increasingly dependent on enterprise or industry productivity (Bramble, 1994: p.8). Here the context of enterprise bargaining in

104 terms of the prevailing economic conditions and the parallel between the birth of agency bargaining and the conditions that gave rise to the Accord is important. After recovering from the recession of the early 1980s, with high employment growth and growing profits throughout that decade (Russell, 2005), by 1990 crisis had once again returned to the system. According to Bramble, manufacturing fell by 8 per cent and in 1990-1991 there were 940,000 redundancies, with unemployment rising from 6 per cent to 11 per cent, “the worst performance of any western economy” (Bramble, 1994: p. 10). It was in this context that the Hawke government saw the need for raising the productivity levels of Australian workers higher than had been achieved under the Second Tier system. To do so his government would need a strategy for delivering higher productivity levels than were being achieved under the Accord. It must also convince a workforce that had largely accepted the government’s industrial relations agenda, only to be rewarded once again with economic crisis and massive job losses, à la the Fraser years, that they must accept an intensification of the reform process in order to beat the recession.

Under the Enterprise Bargaining Principle introduced in 1992, linking wage increases to cost of living increases was abandoned in favour of a two-tiered approach whereby public servants could negotiate a service wide agreement as well as agency specific agreements, both linked to productivity increases (MacDermott, 2008: pp.94-95). Public sector unions tended to take the same approach to agency bargaining that they had to the Accord. That is, they largely saw little alternative but to work with the government in order to make the new system as beneficial as possible to members. During wage negotiations in 1992 the National Executive Committee (NEC) of the Public Sector Union (PSU)22 called meetings of members to which they put a number of motions on how to proceed, specifically in the context of the government’s push towards agency bargaining. Although there were several motions, including one rejecting negotiations entirely due to the “employers insistence that agency bargaining must be a component of any APS pay agreement”, the NEC itself pushed for a motion that allowed it to consider the option of agency bargaining “as the course of action which is overall likely to achieve the best result for PSU members” (PSU, 1992).

22 By this time the public sector unions previously referred to had coalesced into the PSU.

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There were several caveats included in the NEC’s preferred motion that aimed to soften the likely impact of agency bargaining on its members. However, their approach would seem to suggest that the NEC believed they could operate within the new environment if required to do so. Having already presided over job losses and the trading away of conditions under the Second Tier system, it was not a particularly difficult next step for the NEC to take. The PSU leadership didn’t have it all their own way however, with a fair degree of resistance from rank and file members, many of whom had already been critical of the leadership strategy under the Accord (Taylor: 1992). Many members were open to arguments against a regime further linking pay increases to productivity increases in an environment where such increases could generally only be achieved through job cuts or trading away conditions. Nonetheless, agency bargaining soon became a reality and by 1994 some 73 per cent of public servants were covered by agency level agreements (MacDermott, 2008: p.95).

To win pay rises, or in some cases benefits as well as or in lieu of pay rises, public servants negotiated away a raft of conditions under the agency bargaining process. This included increased commercialisation, thousands of job losses, increases to weekly hours and the loss of traineeships. In essence, the agency bargaining process isolated public servants and especially union members from each other, putting them in a weakened position when it came to the bargaining process. In this respect it was a logical next step for a government looking to raise workforce productivity levels and one hard to resist for a trade union bureaucracy wedded to government strategy since its inception in 1983. It certainly meant that much of the ground work had already been done when Howard took the helm and further decentralised public sector industrial relations (MacDermott, 2008: pp.95-98).

The enterprise wide agreement was not renewed, meaning any pay increases could only come through agency level negotiations or increasingly through individual contracts. Even collective agreements at the agency level were conducted under a new paradigm, when from 1996 the Workplace Relations Act (Cth) allowed for Department Heads to negotiate agreements directly with staff, bypassing the unions altogether. The industrial relations reforms that began with the Public Service Reform Act 1984 had come to its logical conclusion with the new employer now

106 seeking an even more mobile, flexible and atomised public service. A combination of a different approach to dealing with the unions, together with a perception that the unions had in effect outlived their usefulness in terms of the extent to which they could continue to facilitate workplace reform, meant the latter were pushed completely to the margins of the industrial relations landscape.

The impact of the reform process on public sector wages needs to be considered in the context of the trends already described in the previous chapter. Public servants were subject to the same downward pressure on wages as the rest of Australian workers under the Accord. However there is also a certain dynamic to the public sector that needs to be considered to fully understand wages in context. To begin with, Table 5 shows that wages inequality was less pronounced in the public sector as compared with the private sector in the decade from 1983-1993, as can be seen with a comparison to Table 4 (page 104). This can be explained to a large extent in terms of the public sector’s relative autonomy from the market as the driving force for wage setting as opposed to principles of equity that tend to be more pronounced in public sector institutions. As a result of such pressures, however, the relative wage equality in the APS relative to the private sector did begin to break down in the latter years of the ALP administration as is evident with data for years following the introduction of agency bargaining. This began with the introduction of performance based pay for SES and senior officers in 1992 an extension of the trajectory already set in motion under the agency bargaining process which saw a shift towards smaller and smaller bargaining units (O’Donnell & O’Brien, 2000, p.5).

This trajectory continued under the Howard government, elected in 1996, which promoted individual arrangements, including Australian Workplace Agreements (AWAs), statute based contracts between an employer and an employee, with the bulk of the SES being covered under individual arrangements by 2009 (APSC, 2011). By this time, as evidenced in Figure 10, wage inequality within the APS had increased dramatically, suggesting that the negotiating power of individual senior officers was sufficient to have an impact on their remuneration vis-à-vis lower level staff. Furthermore, the salaries of the most senior public servants, such as the Chief of the Defence force or the Reserve Bank Governor, are subject in the modern era to pay increases of several hundreds of thousands dollars in an attempt to match

107 salaries in the corporate sector, much to the chagrin of public sector unions and their members who are being told to make do with increases pegged to current inflation levels (Australian, 27/09/11; Australian, 28/09/11).

Table 5 – Gini Coefficient & Theil Index for the Public Sector 1983 – 199323

Year Gini Coefficient Theil Index 1983 0.176 0.023 1985 0.186 0.025 1986 0.186 0.025 1987 0.178 0.023 1988 0.178 0.023 1989 0.181 0.024 1990 0.179 0.023 1991 0.180 0.024 1992 0.183 0.025 1993 0.186 0.026

Figure 10 - APS Pay Increases 1996 - 200924

23ABS, 1994. Survey not conducted in 1984. 24 APSC, 2011: p. 73. http://www.apsc.gov.au/publications11/reviewofses.htm#chc.3.

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Privatisation

While the Hawke and Keating governments did not approach privatisation with quite the same ideological zeal as the Howard government would, they certainly incorporated it into their agenda, particularly towards the latter part of their administration. So much so, that towards the end of their rule the ALP had reduced employment in the public sector by one third (Frankel, 1997: p.19). The privatisation, or ‘outsourcing’ of government assets went hand in hand with a reform process that introduced managerialism, Second Tier wage agreements and agency bargaining. So too did the rationale behind outsourcing, with the same reference to improving the efficiency of the public sector by allowing more efficient, and therefore less costly private sector interests perform the function. Or as proponents of outsourcing would put it, outsourcing was simply another “tool used to improve public sector efficiency and effectiveness” (APSC, 2003: p.123). Alternatively, those seeking to explain the process in terms of the class dynamics at play under the neoliberal paradigm may describe the process as encompassing “a deepening of the process of commodification, a transfer of power from labour to capital, and a transfer of resources from public to private” (Cahill & Beder, 2005: p.9). In such an analysis privatisation can be seen as a defeat for the working class and of the post-war welfare state that had hitherto provided many social services beyond the means of the ability of workers to pay. In this sense it can be seen as entirely consistent with the neoliberal agenda more generally in terms of the struggle of capital against labour.

Full scale privatisation did not initially form a major plank of the ALP platform, although it is arguable that this might have been the case had they not been defeated in the 1996 election, which was followed by an acceleration of the process under Howard. In fact, both parties presented similar privatisation policies to the electorate in the lead up to the 1996 election, with the ALP only distancing itself from the Coalition’s approach by promising to keep Telstra in government hands whereas Howard favoured partial privatisation (Fairbrother, Svenson & Teicher, 1997: p.6). Both Labor and the Coalition were driven by a logic that argued smaller government was better government, achievable by firstly cutting back existing public sector jobs, which as we have seen occurred under Labor, and then by the passing off of

109 remaining functions to the private sector wherever possible (Van Gramberg & Bassett, 2005). Furthermore, the ALP did engage in the privatisation process, albeit slowly at first, with relatively small scale sell offs that provoked minimal outcry and no serious fight back from the unions (Fairbrother, Svenson & Teicher, 1997: p.5). The process accelerated, however, with several examples worth considering, in terms of their own merits and as evidence that Hawke/Keating began the process of privatisation accelerated under Howard.

Firstly, beginning in 1991, the government began the process, in stages or ‘tranches’ of selling off the Commonwealth Bank, which had already been commercialised in anticipation of being sold off and by which time some $2 Billion worth of government owned assets had already been sold (RBA, 1997: p.8). This represented a major commitment by the government to the privatisation of large government owned assets that in the public psyche were seen as a natural part of the state owned sector. Three further tranches were released over the next several years with the full privatisation of the bank completed under the Howard government in the 97/98 financial year. The sale was partly justified in terms of the revenue it raised as well as the argument that the private sector was the natural home for such an institution but the fact it was sold off by public float also allowed the government to argue that it was on offer to the ‘mums and dads’ of Australia, allowing ‘ordinary’ Australians an opportunity to invest in the wealth that would be generated by the sale. In any case, it provides a good example of the Labor government’s commitment to privatisation, a position that meant Howard merely inherited the privatisation process, meaning any ideological commitment to furthering the process had already overcome the first hurdle in terms of convincing, or at least resigning the public to the process.

There are other examples to consider. Part of Qantas, the state owned airline, was privatised in the 92/93 financial year, with the remainder being sold by public float in 95/96 (RBA, 1997: p.10). In 1994 then minister for Transport, Laurie Brereton began arguing for the privatisation of the national airport network, a move resisted by the public sector unions (Davies, 1994). While this was not achieved under Labor, the groundwork had been done so that the Howard government could waste little time continuing the process and the airports were sold off shortly into its first

110 term in 1997 (RBA, 1997: p.9). Further sales of public assets under Labor include Australian Airlines in 92/93, Commonwealth Serum Laboratories in 93/94, the Moomba-Sydney pipeline in 93/94 and Aerospace Technologies of Australia in 94/95 (RBA, 1997: p.14). Each sale represented a withdrawal by the state from its hitherto commitment to a given function or service and a shift towards a minimalist approach in terms of any perceived responsibility to its citizens to provide said function or service. Such a withdrawal, facilitated by the passing off of its assets and responsibilities to private sector interests, only possible where the latter could see a material benefit, i.e. profit, in taking on these services give ultimate testament to the commitment of the Hawke-Keating administrations to the neoliberal project.

Impact of Reforms on Union Density

Table 6 shows the trajectory of union membership in the public sector once agency bargaining and privatisation had begun to take hold within the sector and gives an insight into the impact of the Hawke/Keating years on membership levels. Union density in the public sector had historically been comparatively high, with membership rising from 165,172 in 1949 to 435,600 in 1971 and then increasing rapidly in the industrially turbulent years of the 1970s (Anderson, Griffin & Teicher 2002: pp.5-6). In contrast to other parts of the labour movement, membership remained relatively stable throughout the early years of the Labor administration, with the ACOA’s total membership increasing from around 48,000 in 1983 to 53,000 in 1986 although other public sector unions did experience a small decline (Fairbrother, Svenson & Teicher, 1997: p.8).

Table 6 – Union Density in the Commonwealth Public Sector25

Year Union Members (‘000) Union Density (%) 1990 1,184.2 66.8 1992 1,151.5 67.1 1994 1,006.1 62.3 1996 883.6 55.4

25 ABS, 1997.

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However by the end of the 1980s things began to change. Membership density would inevitably be affected by job cuts and privatisation as union members who lost their jobs were lost to the public sector unions. However, declining membership can also be considered in the context of the impact of the Accord years in general, as the militancy of the 1970s was replaced with a largely non-confrontational approach to industrial relations. This process was true of the union movement in general, and as has been demonstrated in this chapter, despite any reservations they may have had, the public sector unions also largely adopted the same approach. Any approach that replaces an emphasis on workplace combativeness with a relatively passive and centralised approach to industrial relations is arguably destined to shed members, given the possibility of this changing dynamic to alienate members. Moving from there to a new dynamic again in which your union presides over cuts to jobs, pay and conditions would again seem a recipe for shedding rather than attracting members. The net effect of public sector union strategy during the Hawke/Keating years was therefore a fall in membership and a reduced ability to successfully fight for its members. As a result, public sector unions, while keen to be part of the wider labour movement’s fight against the Howard agenda, were in a far weaker position to do so than they had been the last time they faced a conservative government.

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Conclusion

The focus of this thesis has been on the experience of workers and their institutions under the neoliberal paradigm and the way working class institutions, specifically trade unions, have responded to the challenges thrown up by the new policy agenda. I have adopted a Marxist approach which considers these questions in terms of the balance of class forces and what the neoliberal agenda has meant for this balance and the general power dichotomy between labour and capital. My approach, in this context, has been to examine the extent to which the material conditions of workers have suffered due to the implementation of neoliberal reforms. An initial examination revealed that neoliberal theory had its roots in global political economy prior to the Great Depression of the 1930s and that its historical trajectory following this period was based in the material reality of economic and geopolitical developments following the end of the Depression, namely the long boom and cold war that followed the end of the Second World War. It was the return of crisis to the global economy in the early 1970s that saw governments and key policy makers turn to neoliberalism at the expense of the Keynesian approach that had dominated the post war era.

The net effect of the neoliberal agenda was a restoration of class power in favour of capital at the expense of labour, both in terms of relative class power and the share of national wealth. In the international context both Thatcher and Reagan epitomised this policy shift. In both cases there was a withdrawal of the state from the economic sphere alongside an increased use of the state to discipline the workforce as where necessary to ensure the new economic paradigm could progress. Thatcher was relatively successful in her agenda with union membership down from just over 13 million when she took power in 1979 to under 10 million a decade later. The same period saw a shift in wealth from the bottom of society upwards with the Gini Coefficient rising from 0.25 to 0.35. The US under Reagan saw a similar pattern played out. Reagan too saw the need to discipline labour as an essential part of delivering his program, attacking labour unions, most notably the pilots union in the early days of his administration. Similar methods saw similar results, with attacks on the unions resulting in a drop in union density from just over 19 million when he

113 took office in 1981 to less than 17 million at the end of his administration in 1989. Reagan was even more successful at redistributing wealth as part of his program with the Gini Coefficient rising from 2.5 to a staggering 11 when he left office. In Australia there were similarities with the experience in Britain and the US but there were also important differences. Economic crisis had returned to Australia in the 1970s marking an end to the Keynesian consensus and bringing with it double digit unemployment and inflation. However unlike Britain and the US, it was a traditional social democratic party that was to begin implementing neoliberal reforms in the Australian economy as a means to fight the crisis. Upon taking power in 1983 the Hawke government acted quickly to deregulate the economy, float the Australia dollar and begin dismantling tariff barriers. However it did so not in the context of an all out assault on labour but by using its organic links to the labour movement to make the latter part of the process, most notably through the Prices and Income Accord that centralised wage fixing and limited pay increases. This approach saw a major reduction in industrial unrest and strikes as the trade union bureaucracy were able, with notable exceptions, to dampen down struggle and reduce strike activity in the name of consensus and a common cause with government in salvaging the ailing economy in the hope of creating desperately needed jobs.

The net effect on labour of this process was less than favourable, however. Despite accepting wage restraint in the ‘national interest’ and the process of jobs and a social wage, Labor’s success in moving forward from the economic mess it had inherited was relatively short lived. Although unemployment fell throughout the initial years of the Hawke government the “recession we had to have” at the beginning of the 1990s saw a return to high unemployment due to a new period of economic crisis and stagnation. Other measurements also bear testimony to the negative impact of the logic of the Accord on Australian workers, with the latter’s share of national income steadily eroded under the Labor administration, down from 60 per cent in 1983 to 53 per cent in 1989. Likewise there was a steady rise in inequality with the Gini Coefficient in the private sector rising from 0.189 in 1983 to 0.228 in 1993. In order to try to keep up workers were forced into productivity based Second Tier wage agreements that often saw them trade off conditions for extra pay increases. The process of productivity trade offs was further entrenched with the introduction of enterprise bargaining towards the end of the Labor administration as the logical

114 conclusion of a process that began with accepting wage restraint for the national interest and the hope of jobs and a social wage.

More importantly, the logic of the Accord, with its emphasis on cooperation rather than struggle undermined the ability of the Australian labour movement to reverse this process. The union movement suffered as a result. Through a combination of job losses in key industries traditionally associated with high union density and an undermining of the perceived value of joining unions by the logic of an Accord which told workers their interests would be managed on their behalf, union density in Australia fell from 50 per cent at the beginning of the first Labor administration to just 28 per cent by the time they lost power in 1996. This meant that Australian workers were in many ways worse off by the time Howard took power than during the ‘best’ years of the Hawke/Keating period and were simultaneously in a far worse position to resist any attacks that would follow. Thirteen years under ‘their’ government took its toll on both the material conditions of Australian workers and the ‘soul’ of the traditional collective means by which they had historically acted to defend their collective interests.

In many ways the experience of the public sector in Australia under neoliberalism was a microcosm of the experience elsewhere. However there are also important dynamics that make examining the public sector independently worthwhile, not least of all because the public sector was reformed to accommodate and facilitate the legislative and policy framework within which the new economic paradigm could exist. The creation of the Senior Executive Service is an important example of the shift in the modus operandi of the public service and an illustration of the way in which the Labor government understood the importance of the machinery of the state in pushing their reform agenda. So too is the injection of commercial values into a sector that had traditionally been largely protected from the ravages of market forces.

In other ways, however, public servants were impacted upon in a similar way to the rest of the Australian workforce. Public sector unions, although at times with reservations, by and large signed on to the Accord and declared it a positive development for their members. Public servants therefore saw their wages fall in real terms as with the trend for workers generally under the Accord and were

115 likewise forced to bargain for Second Tier wage increases to keep ahead. For public servants enterprise bargaining translated into agency bargaining with individual agencies forced to win pay increases based on productivity increases, usually in the shape of a trade off in conditions. Public servants were further impacted when the pace of commercialisation and then privatisation gathered steam, with thousands ultimately losing their jobs or ending up working for private ventures with reduced entitlements. The impact of all this on public servants and their unions also mirrored their counterparts in the private sector. While not as severe as the private sector, there was an increase in the Gini Coefficient, which rose from 0.176 in 1983 up to 0.186 in 1993. Union density fell from 66.8 per cent in 1990 to 55.4 per cent in 1996, reflecting a similar downwards trend in the private sector and eroding the forces able to collectively defend the jobs and conditions of public servants.

Based on the evidence presented in this thesis and paraphrased above, the scorecard suggests a definitive shift in the dialectic of the power dichotomy in the favour of capital and its institutions, both private and those of the machinery of the state, including the state bureaucracy. This necessarily suggests a weakening of the power of labour in the same context. More importantly, it suggests that the historical challenges presented to labour in this period have proven too great for not one but two, separate but intertwined reasons. Firstly, organised labour has by and large been unable to withstand the attacks on jobs, wages and conditions that have formed the core of the industrial relations landscape under neoliberalism. Secondly, the forces driving the neoliberal project were able to do so in the context of either relative cooperation, however begrudging, on the part of the labour movement, as was the case in Australia, or by direct confrontation, as was the case in the UK and the US.

This throws up an additional two factors to consider. Firstly, in the Australian case, the labour movement was hamstrung by a general acceptance of, and in effect agreement with, the arguments put forth by Thatcher and Reagan abroad and by the ALP here that there was simply no alternative to deregulating and liberalising the economy to combat the return of economic crisis to the system. Secondly, even where there were murmurings of opposition here in Australia, or open and sometimes violent class struggle in the UK and the US, the forces opposing the

116 neoliberal agenda were nonetheless effectively hamstrung by their own acceptance of the capitalist system that had generated both the economic crises that gave rise to neoliberalism and the neoliberal measures intended to overcome these crises. In other words, when the neoliberals cried “there is no alternative” the forces attempting to resist the neoliberal agenda were unable to match the neoliberal mantra with just such an alternative in a coherent way that could underpin a fight back against modern capitalist methods.

The end result, therefore, was that at the end of the periods studied in this thesis, the labour movements in each respective country were in a weakened position both numerically as well as in terms of ideological capital and strategies for defending their interests. The economic crisis that saw the spectacular collapse of the Keynesian consensus also presented a major challenge to the labour movement to adapt to the new climate in order to successfully engage with a resurgent capital. Just as traditional Keynesian methods proved wanting when faced with such a challenge so too were trade unions unable to adapt ideologically, structurally and strategically when presented with a new era of crisis. In a sense the labour movement appeared shell shocked when presented with conditions within which the industrial muscle sufficient to win concessions during the post war boom no longer sufficed. Failure to recognise and successfully adapt to the new terrain goes a long way to explaining the ability of the neoliberals to implement their reform agenda and in the process, or as a precursor, to undermine the power of the unions to resist.

The above is of particular interest when considered in the context of developments at a global level since the onset of the Global Financial Crisis. The neoliberal experiment is on far shakier grounds given that it has been since rising from the ashes of the implosion of the Keynesian consensus, with even the latter returning for a brief cameo at the height of the GFC. So too have the neoliberal austerity measures introduced to deal with a global debt crisis fuelled largely by attempts to resolve the GFC sparked resistance and even calls for a completely new paradigm. Such conditions can lend themselves to a potential resurgence of the labour movement in the same way the death of Keynesianism allowed the neoliberals to enter the world stage. While it remains to be seen whether a sustained recovery of the labour movement will eventuate, there are certainly some encouraging signs. As

117 already alluded to, there have been major mobilisations by workers against austerity measures across Europe and North America.

The hottest flashpoint has been Greece which has witnessed several general strikes, at times accompanied by bitter street battles with police, most recently with a 48 hour general strike which also saw hundreds of thousands take to the streets (Garganas, 2011). In Britain, many on the left are arguing that the general strike against austerity on 30 November, 2011, the first in a generation, can mark the rebirth of a united, fighting union movement that can resist and even defeat the Tory government’s agenda (Vernell, 2011). In the US, the Occupy Wall Street movement quickly spread to cities across the US and then throughout the world, with the US movement in particular having some success in making links with organised labour (Sustar, 2011). Perhaps most spectacularly, the Arab Spring has unleashed a wave of workers’ struggles in Egypt, with the Arab world’s largest working class, which despite ongoing repression has managed to build independent unions and a workers’ party within which revolutionary socialists are playing an important role (Gaber, 2011).

Here in Australia the industrial relations landscape has been far less volatile, although there have been some important struggles, most notably perhaps the Victorian nurses fight against the premier Baillieu’s cuts to the public health system (Le Roy, 2011). Furthermore the ACTU campaign against the Howard government’s Work Choices legislation in the lead up to the 2007 federal election does demonstrate that the union movement still has the ability to mobilise large numbers of workers when they provide a lead (Wilson & Spies-Butcher, 2011). Although the focus of the campaign was on electing a Labor government and was abandoned once that goal was achieved, it does show the willingness of large numbers of workers to mobilise when given a lead. In any case, the labour movement, both here and abroad will undoubtedly face further challenges given the current economic climate. It remains to be seen whether it is up to the challenge and can learn from the defeats it suffered under the neoliberal agenda.

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