FEATURE WHAT DO ECONOMIC LIBERALS BELIEVE? There is more diversity of opinion among economic liberals than terms like ‘free-market fundamentalism’ 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 financial crisis on doctrines he entirely absent from specific policy debates (Hayek variously called neoliberalism, economic visited Australia but did not actively participate in liberalism, economic fundamentalism, Australian politics). Another approach is to survey Lfree-market fundamentalism, Thatcherism, 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 economic liberalism, Rudd’s essay seemed like that I relied exclusively on free online advertising 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 Friedrich Hayek and nation’s population, due to the general under- Ludwig von Mises, 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 political philosophy 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 26 Vol. 25 No. 3 • Spring 2009 • POLICY WHAT DO ECONOMIC LIBERALS BELIEVE? 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 libertarianism, and objectivism, the philosophy laws price some workers out of the labour market, of libertarian writer Ayn Rand. Despite the ‘other’ compared to just under half of social democrats. 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 unemployment, 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 democracy will ‘save capitalism 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) Vol. 25 No. 3 • Spring 2009 • POLICY 27 WHAT DO ECONOMIC LIBERALS BELIEVE? 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 fiscal policy 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. 28 Vol. 25 No. 3 • Spring 2009 • POLICY WHAT DO ECONOMIC LIBERALS BELIEVE? On the core global financial crisis issue of financial system regulation, 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 deregulations 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.’