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What Do Economic Believe?

There is more diversity of opinion among economic liberals than terms like ‘free-’ suggest, writes Andrew Norton

ast February, Kevin Rudd wrote an essay of ‘followers’ are more important than those in The Monthly magazine blaming the of intellectual leaders, who may be personally global on doctrines he entirely absent from specific policy debates (Hayek variously called , economic visited Australia but did not actively participate in , economic fundamentalism, Australian politics). Another approach is to survey Lfree-market fundamentalism, , and ideologically-engaged people. This can reach the Washington consensus.1 These economic beyond those directly involved in policymaking liberals—I’ll use the term critics and supporters and policy debate, and let us see whether the ‘policy share—sound in Rudd’s essay like a doctrinaire influentials’ speak for a larger group of people. group who subjected the world to a reckless, and In late March and early April 2009, I conducted ultimately failed, ideological experiment. the first Australian survey of those identifying with Like much academic and other commentary ideological political labels. A low budget meant on , Rudd’s essay seemed like that I relied exclusively on free online caricature to economic liberal ‘insiders’: the people to recruit respondents. Ideally, another survey who would describe themselves as economic should be carried out which uses other media to liberals or support at least some economically reach people not easily located by this method. liberal policies. But how do we know what The main problem in the overall sample is under- economic liberals actually believe? representation of women and those aged over 65. One way of determining ideological beliefs is Though we would not expect participation from to look to the ideology’s leading thinkers. Rudd these groups at the same level as their share of the cites the Austrian economists and nation’s population, due to the general under- , whose arguments influence representation of women in political activity and some advocates of market reforms. Though tracing retirement of the over-65s, online respondent ideas back to their most important exponents can recruitment pushes their numbers below the levels help us understand ideological politics, leaders are I would expect.2 not always reliable guides to followers. Not all the Ideological self-identification people who call themselves economic liberals have read Hayek or other liberal thinkers. Ideology In the survey, respondents were given three pro- affects policy views, but so do other beliefs, market ideological identifications along with history, evidence, and personal experience. There ‘conservative,’ ‘social democrat,’ ‘green,’ and ‘other’ is a distinction between a and alternatives. Two hundred and fifty-six respondents regarded themselves as ‘classical liberal,’ 184 a political movement. as ‘libertarian,’ and 94 as ‘social conservative Understanding economic liberalism as a and economic liberal,’ giving a total of 534 political movement needs methodologies that can capture more of the messiness of real-world politics than is typically found in academic political philosophy. In characterising the beliefs Andrew Norton is Editor of Policy. of a political movement, the words and actions

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respondents choosing the pro-market ideological of economic liberals favour a rapid reduction in identifications. I will call this combined group by industry assistance. the consensus term ‘economic liberals.’ There were In other policy contexts, there is more also a range of responses in the ‘other’ category disagreement between ideological groups over the that suggested a pro-market orientation, including role and control of price signals. About 85 percent social as well as economic liberalism, other types of economic liberals accept that minimum wage of , and , the philosophy laws price some workers out of the labour market, of libertarian writer . Despite the ‘other’ compared to just under half of social . option, none of the 1,201 respondents overall However, only the slimmest majority of economic self-described as any kind of ‘fundamentalist’ or liberals, by half of one percent, believe that ‘neoliberal.’ Depending on the label, between 43 minimum wage laws should be repealed.5 A third and 52 percent of economic liberal respondents of economic liberals share the social democratic regarded themselves as ‘strong supporters’ of belief that though minimum wage laws may cause their ideology, with most of the others calling some , the overall social benefits themselves ‘moderate supporters.’ There were also outweigh the social costs. small numbers of ‘weak supporters.’ The results of the political identity survey can help us see how economic liberals see themselves. None of the 1,201 respondents In what follows, I compare the views of economic self-described as any kind of liberals and social democrats. Kevin Rudd expects ‘fundamentalist’ or ‘neoliberal.’ that social will ‘save from itself.’3 Four hundred respondents regarded themselves as social democrats, with most Significant minorities of economic liberals also (54 percent) seeing themselves as ‘moderate support price control in industries with elements supporters’ and 39 percent seeing themselves as of ‘natural monopoly.’ In these industries, it is ‘strong supporters’ of their philosophy. very costly for competitors to enter the market, which allows monopolists to charge high prices. Economic policy More than a third of economic liberals agree that The Rudd government is still anti-protectionist, there could be a case for price control in the water and the political identity survey shows substantial and electricity industries, where the pipe and agreement between economic liberals and social transmission networks are costly to duplicate. democrats on the phasing out of ‘tariffs and More than 85 percent of social democrats think other industry protection.’ To a question phrased that there could be a case for price control in in general terms, strong majorities of all groups these industries.6 Where competitive forces agreed that decreased industry protection lowered can operate, economic liberal support for price prices for consumers and encouraged more control shrinks. Around 70 percent of economic efficient investment. Previous public opinion liberals believe that price control should never or research suggests that voters can see some of the rarely exist for private health insurance. Social advantages of reduced protection but still oppose democrats recognise that the case for price control 4 it because of concerns about jobs. However, a weakens when competitive markets are possible, more specific question about assistance to the car but 50 percent believe that price control is always industry suggests that the social democrats in the or usually needed for private health insurance. survey are not committed to preserving current jobs. Only a quarter favour the Rudd car plan or increased protection, with most preferring to phase out industry assistance and provide workers with retraining. On this topic, as figure 1 (on page 28) shows, economic liberals and social democrats are on the same side of the debate. The main difference is that a large minority (37 percent)

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Figure 1: Assistance to motor vehicle industry

Q: Do you believe that assistance to Australian motor vehicle industry should be: a) retained as according to the recent Rudd car plan b) phased out with retraining for existing workers c) rapidly reduced d) increased? 527 economic liberals and 394 social democrats answered this question.

On a macroeconomic issue, the role of in managing the economic cycle, we again see (in figure 2) majorities of economic liberals and social democrats on the same side of an economic policy debate. Most respondents on both sides see a role for fiscal policy. However, this time only a slim majority (54 percent) of economic liberals side with social democrats. Among social democrats, there is trivial dissent from their macroeconomic orthodoxy.

Figure 2: Managing the economic cycle with fiscal policy

Q. Fiscal policy has a role in managing the economic cycle. a) Strongly agree b) Agree c) neither agree nor disagree d) disagree e) strongly disagree. Strongly and agree/disagree responses combined. 519 economic liberals and 394 social democrats answered this question.

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On the core global financial crisis issue of financial system , a small majority (54 percent) of social democrats believe that prudential regulation of the financial system needs strengthening while a small majority (57 percent) of economic liberals see the Australian status quo as ‘about right’ (figure 3). However, more than 40 percent of social democrats also see the current system as ‘about right.’ There is no overwhelming view among social democrats that previous of the Australian finance industry went too far. The economic liberals believing that current prudential regulation is ‘excessive’ are most likely to identify with the label ‘libertarian.’ Forty percent of libertarians chose the ‘excessive option’ compared to 20 percent of classical liberals and 10 percent of social conservatives and economic liberals.

Figure 3: Prudential regulation of the Australian finance industry

Q: Australia’s system of prudential regulation of the finance industry is: a) excessive b) about right c) needs strengthening d) other. 488 economic liberals and 353 social democrats answered this question.

On economic policy issues, economic liberals and social democrats often find themselves on the same side of a debate. These issues have some shared normative assumptions—finding work for low-skilled people, avoiding the negative effects of monopoly, maintaining macroeconomic stability, and avoiding crises in the financial system—and the political disputes contain substantial empirical elements. While prior ideological beliefs clearly influence the means respondents choose to achieve these goals, evidence and economic theory create some convergence between economic liberals and social democrats on these issues. The size of government While economic liberals can agree to a temporary expansion of government to stimulate the , there is little support for a permanent expansion via a higher tax take. As seen in figure 4, just under half of economic liberals support reducing the size of the tax take, and presumably government spending, by a third or more, with just one in five supporting the status quo or increased government spending. Only a very small minority (9 percent) of social democrats endorse government shrinking in relation to GDP. Compared to economic policy issues, this core ideological issue shows big differences between economic liberals and social democrats.

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Whether the practical policy differences would be this large is harder to say. It is much easier for economic liberals to say as a general principle that taxes should be lower than to specify the government programs that should be cut to free for tax cuts. Unfortunately, only one question in the survey directly asked about a cut to government spending, the car industry assistance question shown in figure 1. Any future survey of economic liberals should explore the issue of cutting government spending in more detail.

Figure 4: Views on scale of tax take

Q: In 2006–07, tax revenues from all levels of government were equivalent to about 30% of GDP. Do you think this is: a) too little, as there are important unfunded social needs b) about right c) too much, reduce to 25–29% of GDP d) too much, reduce to 20–24% of GDP e) too much, reduce to less than 20% of GDP. 506 economic liberals and 376 social democrats answered this question.

Social democrats and classical liberals also clearly diverge in their retrospective judgments of privatisation of government assets. As figure 5 shows, economic liberals overwhelmingly believe (79 percent) that in general privatisation of government assets was good policy, while a comfortable majority (64 percent) of social democrats disagree with this proposition. Although an empirical literature compares the performance of state-owned and private enterprises, ideology strongly influences opinion. Economic liberals start with a strong bias in favour of private ownership, and social democrats typically have strong commitments to publicly-owned and delivered services.

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Figure 5: Support for privatisation

Q: In general, privatisation of government assets has been good policy: f) Strongly agree g) Agree h) neither agree nor disagree i) disagree j) strongly disagree. Strongly and agree/disagree responses combined. 525 economic liberals and 389 social democrats answered this question.

Though neither the taxation or privatisation questions yielded surprising results, they demonstrate how the actions of political leaders can be misleading guides to the views of ideologues on either side. Labor ministers in the Hawke and Keating governments privatised major government assets, and the Liberal Party under John Howard, described by Kevin Rudd as the ‘political home of neo-liberalism,’ significantly increased government spending.

Social policy Social democratic support for more spending is, at just over one-third in figure 4, lower than anticipated. However, other questions in the survey cast doubt on whether this aspiration is consistent with other social democratic policy positions. For example, a clear majority (59 percent) of social democrats believe that the Australian government should redistribute income more than it does (figure 6). Economic liberals were overwhelmingly against (80 percent) greater income redistribution, making this one of the clearest differences between the two groups. Social democrats also strongly favour taxpayer-funded maternity leave (76 percent), compared to 20 percent of economic liberals. Ideology affects answers to these questions, with social democrats supporting greater equality and economic liberals supporting smaller government. The ‘right’ distribution of income is not principally a technical question. The answer to it depends heavily on ideological beliefs.

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Figure 6: Further income redistribution

Q: The Australian government should redistribute income more than it does: a) Strongly agree b) Agree c) neither agree nor disagree d) disagree e) strongly disagree. Strongly and agree/disagree responses combined. 495 economic liberals and 364 social democrats answered this question.

The most surprising economic liberal results in the survey concern school education. Though there are slim economic liberal majorities for the positions that appear most consistent with the application of market ideas to schooling, with 52 percent support for government funding but not delivering school education (figure 7) and 57 percent support for schools choosing their own curriculum instead of a national or state curriculum, the large minorities who disagree suggests that many economic liberals reject their general ideological assumptions on this subject. While ‘strong’ supporters of economic liberalism, supporters who had read leading thinkers such as or Friedrich Hayek, and libertarians—all of whom might be expected to have more coherent or hardline ideological views—were more likely to support markets in school policy, even among these groups significant minorities support the statist position on schools. A second survey of economic liberals should ask further questions to discover why so many economic liberals are not persuaded by their ideology on schools. Social democrats, by contrast, are strongly united in their support for state control and delivery of school education.

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Figure 7: Government should fund but not deliver school education

Q: Government should help fund but not deliver school education: a) Strongly agree b) Agree c) neither agree nor disagree d) disagree e) strongly disagree. Strongly and agree/disagree responses combined. 526 economic liberals and 389 social democrats answered this question.

One general difference between economic liberals and social democrats is over whether industrial relations policy should have a social policy role. In the broader debate, economic liberals tend to argue that the labour market should be based on agreements between employees and employers. Social democrats tend to argue for fixed minimum conditions set by government or a government-appointed tribunal, along with unions being placed in a strong position to promote workers’ interests. As figure 8 suggests, the more radical economic liberal view only just manages a majority on abolishing unfair dismissal laws and repealing minimum wage laws. With just a third of female economic liberal respondents taking the radical view on these issues, a larger female response to the survey could have led to the stereotypical economic liberal positions not being supported by a majority of economic liberals. Only on the issue of penalty rates does an overwhelming majority (85 percent) of economic liberals support the option that their ideology would suggest, in this case that higher rates of pay for working at particular times or on particular days should be negotiated between employers and employees rather than set by government.

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Figure 8: Economic liberal industrial relations opinion

Q: Do You believe that minimum wages laws: a) are necessary to protect workers on low pay b) cause unemployment and should be repealed c) may cause some unemployment but the overall social benefits outweigh the social costs. 510 respondents.

Q: Do you believe that unfair dismissal laws should be: a) abolished completely b) only apply to with more than 20 workers c) apply to all companies d) other. 528 respondents.

Q: Under the Rudd government, trade unions have: a) too little power b) about the right amount of power c) too much power. 494 respondents.

Q: Higher rates of pay for working on particular days or at particular times: a) should be regulated by government b) should be negotiated between employers and employees c) other. 530 respondents.

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Conclusion Endnotes Among his synonyms for economic liberalism, 1 Kevin Rudd, ‘The Global Financial Crisis,’ The Kevin Rudd includes ‘economic fundamentalism’ Monthly, February 2009. and ‘free-market fundamentalism.’ Some 2 Only 14 percent of respondents were women, and economic liberals have the radical only 4 percent of respondents were aged over 65. Overall, 1,201 persons completed at least part of the and rigid beliefs associated with the term survey. In classical liberal circles, a third of active CIS ‘fundamentalism.’ The results of this survey, research staff are women and about a third of those however, suggest that ‘fundamentalist’ is a poor who apply for CIS student programs are women, description of economic liberals as a group. On compared to 15 percent of the 242 persons who the questions asked, there is more diversity of identified as classical liberals and answered the gender opinion among those who self-described with question. 8 percent of the 167 libertarian identifiers pro-market labels than among social democrats. were women. Most people aged over 65 would not On five issues discussed in this article—fiscal be actively involved in policymaking, but we would policy, minimum wage, unfair dismissal, national still expect more than 4 percent of the sample to be in that age group. More details on methodology, curriculum, and school funding—there is not a question wording and results are available through a clear economic liberal majority for the ‘neoliberal’ series of posts at http://andrewnorton.info/category/ position. By contrast, there were no social political-identity-survey/. democratic responses inconsistent with their 3 Kevin Rudd, ‘The Global Financial Crisis,’ The general ideological perspective. Monthly, February 2009, 20. In the context of public opinion research, this 4 Andrew Norton, ‘The Politics of Protection,’ Policy is not a surprising result. In four of the five areas Winter 2004. of economic liberal departure from their ideology, 5 This is an issue in which a larger group of female the long-standing policy status quo is closer economic liberals respondents may have switched the majority view, with only 31 percent support for to than economic liberalism. repealing the minimum wage. Surveys often find strong support for the status 6 Answering ‘always,’ ‘usually,’ or ‘it depends’ to quo when policy options are given, with caution the proposition ‘Price control should exist in the by respondents unsure about change adding to following industries.’ genuine support for current policies. Even among ideologues, it is unrealistic to expect considered views on every issue. On the fifth area of ideological inconsistency, national curriculum, Liberal Party support may have swayed some economic liberal respondents. Among social democrats, there was no conflict between party allegiance and ideology. A third explanation is that some economic liberals understand, but reject, the free-market perspective on these issues. Despite the importance of economically- liberal policies to Australia’s recent economic history, economic is not well-understood. There has been little effort to understand economic liberals in their own terms, to find out what they believe and where they disagree among themselves. Kevin Rudd’s Monthly essay is in that tradition, relying on an impressionistic and simplistic understanding of economic liberalism. There is a more complex and interesting story to be told, through survey evidence and a careful reading of history.

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