Wednesday, March 6, 2019


Balmoral Lectures, Queenwood school, Wednesday, March 6, 2019

Some of you may remember Jill Tuffley, who was for many years in charge of economics teaching at Abbotsleigh. In 1988, Jill wrote a textbook to go with the new syllabus in HSC economics, which she asked me to launch. I complimented her on her choice of title, Our Economy, though I noted that, had I written the book, I’d have called it My Economy.

But Jill was right, of course. It is our economy, it belongs to all of us because we are the economy. It disturbs me to find people who feel alienated from The Economy, as though it belongs to other people – the rich and powerful, I suppose – who impose their will on us without us having any influence over what it does to us. In truth, though there may well be powerful people who have more influence than we do as individuals, it is our economy for two reasons. The first is that if, as they say, the Church of England is the Tory party at prayer, the economy is all of us at work and play. Or, as the first great economics textbook writer, Alfred Marshall, famously put it, economics is the study of humankind in “the ordinary business of life”. The second reason it’s our economy is that we live in a democracy, we each have a vote, and governments know that, if we get too dissatisfied with how the economy is working, we’re perfectly capable of tossing them out of office – as we’ve done many times before.

This is the point of my title, An Economy Fit for Humans. Ordinary people in the economy far outnumber the “1 per cent” of rich and powerful people, so it’s the job of governments to ensure the economy is run for the benefit of the ordinary people. The needs and preferences of the business class can’t be disregarded – it is a market economy, after all, which leaves most of us reliant on the private sector for our employment and our consumption – but business should be seen as just a means to an end. Its needs and wishes should be catered to only to the extent necessary to ensure the economy satisfies the public’s needs and wishes.

That’s what I mean by saying we should be fashioning an economy that’s fit for humans – for the people who make up the economy, and for whom it exists to serve. To that end, I think we’ve got a fair way to go. Many of us aren’t getting as much satisfaction as we should be. I don’t have any magic answers to all our discontents to offer tonight. Rather, I hope to offer some clarifying observations, drawn from some of the conclusions I’ve reach in more than 40 years of observing, thinking and writing about the economy.

That experience has made me aware there are fashions in economic thinking, and left me a strong believer in the pendulum theory of history. After World War II there was a strong view in Britain that the economy wasn’t working well and that the answer was to nationalise the key industries so governments could ensure good decision-making in the public interest. Even in Australia we nationalised the utilities – electricity and water with, in NSW, a privately-owned gas monopoly whose prices were so tightly regulated that it might as well have been publicly owned.

By the time of Margaret Thatcher in the late 1970s and Ronald Reagan in the early 1980s, the post-war pendulum had begun swinging back the opposite way. There was a strong view that the economy wasn’t working well and the answer was to privatise government-owned businesses, deregulate industries and outsource the provision of government services so market forces could bring about greater competition and efficiency in the economy’s functioning.

Today, with all the dissatisfaction over the way people have been mistreated and over-charged by the deregulated banks, the privatised electricity market, as well as the way “contestability” for vocational education and training was rorted, young people and those on temporary visas have been paid less than their legal entitlements, and much else, I think it’s now clear that, after about 35 years of what its critics now call “neo-liberalism”, the pendulum is now swinging back the other way, towards re-regulation of industries, more government intervention in markets and more vigorous policing of the laws applying to businesses.

Why does the pendulum keep swinging from over-regulation to under-regulation and now back the other way? I think it’s because “the truth is somewhere in the middle”. Trouble is, that’s not an emotionally satisfying position to espouse. It’s too vague and offers little illusion of certainty. We find it much easier and more attractive to gravitate to one extreme or the other. I don’t want to live in a heavily regulated economy and deal with government-owned businesses run like take-it-or-leave-it, get-back-in-the-queue monopolies. But nor do I want to live in an economy so lightly regulated that big businesses feel entitled to mistreat or overcharge their customers and think obeying the law is optional. We learnt from the GFC that market economies can’t be left to their own devices and do need to operate within a set of rules laid down by government. But setting rules that actually achieve their intended objectives without unintended consequences is much harder than many people realise. The truth may be somewhere in the middle, but putting your finger on it – finding the sweet spot - is devilishly hard.

Economics focuses on the material aspects of our lives – the production of goods and services and the consumption of those goods and services; the getting of money and the spending of it. It’s idle to deny the importance of the material aspect of our lives. I’m never impressed by people who claim to have a soul above money and the material. The great danger of our age, however, is falling into the habit of thinking the material is the only aspect of our lives that matters. Of attaching too little importance to all the other aspects: to our family lives, our relationships and social interactions, to the importance of leisure, re-creation, music, culture and spirituality. Over-emphasising the material is an occupational hazard for economists, because it’s their special area of expertise. It’s a great temptation for business people because how much money you make is the great metric of success, the objective measure of how well you’re doing in the comp. And it’s a pitfall for politicians because they mistakenly conclude it’s the main thing we want from them. This means it’s up to us to keep economics in context and stand up to people who want to make us richer at the expense of our relationships and cultural interests.

I think we’ve put too much emphasis on achieving economic growth. It’s stated aim is to raise our material standard of living at a faster rate, but usually offers no guarantee that the proceeds of that growth – the extra income – is distributed reasonably fairly between the bottom, the middle and the top. The business people who urge growth most strongly are probably hoping their income will grow a lot faster than yours. I think we’d do well to put more emphasis on better quality than greater quantity. There’s a tendency for those keenest to see faster growth to ignore the non-monetary costs it brings – the congestion, stress, anxiety and sometimes depression people suffer. If our material standard of living rises at the expense of our quality of life, why is that a good deal?

Politicians on both sides strive for economic growth because they believe a higher material standard of living will make us happier. I think that assumption’s far too narrow as a summary of what we want from governments. Sometimes I think the politicians would do more to increase “aggregate happiness” by trying to reduce un-happiness. The national disability insurance scheme is costing a lot of money, and it’s still got a lot of bugs in it, but it must surely be doing a lot to make the disabled and their families happier than they were. Unemployment – especially among the young – causes a lot of unhappiness and we ought to care more about it. We could be doing better on helping people with mental health problems. And, of course, doing better on eliminating domestic violence.

Before we leave the question of economic growth, however, I do have to remind you that, if we choose to have a growing population then, with a growing number of people needing jobs, we do need growth in the size of the economy to accommodate them.

We do need to accept that, economic activity can do damage to the natural environment – the ecosystem, if you like – especially if we do that activity the way we’ve long been doing it. It would be extremely short-sighted for us to continue practices that are damaging the environment we all live in and depend on. To use a word we use so often it’s lost its punch, such foolhardiness is unsustainable. If we keep doing what we’ve been doing, the time will come when the natural environment is so degraded it stops functioning. Then it will be too late to reverse the damage. I’m thinking of climate change, but much more than that. If we continue taking too much irrigation water out of the Murray-Darling because there are farmers and towns whose present existence depends on that water, eventually the river will dry up and there will be no more water to over-use. So I see our environmental arguments as being about short-sightedness. Our reluctance to pay short-term costs in return for the avoidance of much higher costs at some indeterminate point in the future. People worry about leaving government debt to their grandchildren, but not about leaving them a natural environment that’s stopped working.

If we became less gung-ho about economic growth, one of the potential benefits could be fewer bosses cracking the whip at work. I don’t see why being pressured and mistreated at work is a cheap price to pay for having our real wages grow by 2 per cent a year rather than 1 per cent. Actually, I don’t see that treating your staff unreasonably is the way to get the best out of them. One of the biggest things I care about – though you don’t see me writing about as often as I’d like to – is the need for us to get more satisfaction from our working lives. We spend so much of our lives at work that a big pay packet is poor recompense for doing a job you hate or for putting up with always being given a hard time. As individuals, it’s worth us moving around until we find a job we enjoy and a company we like working for, even if that does involve less pay. There’s much more I could say, but organisational psychologists have long understood the way to structure job responsibilities so as to make them more satisfying. There is some evidence that happy, fulfilled workers lead to higher profits. But, even if that weren’t true, I don’t understand bosses who don’t much care how unhappy their workers are.

But having said all that about governments doing more to reduce unhappiness and bosses doing more to ensure their troops get more satisfaction at work, I don’t want to leave you with the impression I think the economy can be like a Sunday school run by loving and infinitely forgiving mums, where nothing unpleasant ever happens and all is sweetness and light. The main source of pain and unhappiness is change. But we can’t have – and wouldn’t want – an economy where nothing changed. Change is inevitable because we’re affected by changes coming from overseas, which are beyond our control. We can’t build a wall that protects us from all external influences on us. But the greatest source of change is advances in technology, which bring us many benefits but, as we’re seeing with the digital revolution, often involve upending industries, my own among them. Generally speaking, consumers get better products, while producers get turned upside down. Some change is social - for instance, the long campaign to reduce discrimination on the basis of race, ethnicity, religion, sexual preference and, of course, discrimination against women, which has come a long way during my lifetime and has further to go. Yet another important source of change stems from our growing understanding of the damage we’re doing to the natural environment by the fossil fuels we burn, our farming practices, our disposable society and much else. So, while just about all change is disruptive, that doesn’t mean all of it is bad. Much of it is for the best. Similarly with change initiated by governments – invariably labelled “reform” – which often is necessary, but may not always be wise or well done. Certainly, it’s government-initiated change we feel freest to resist. Too often we resist change for selfish, short-sighted, NIMBI reasons. We can’t hope to live in an economy where the industry structure never changes, where old industries decline and new industries expand, where people lose their jobs and suffer a lot until they find new ones. We ought to be giving those people more help than we are to make the transition, but we shouldn’t be attempting to stop progress in its tracks.

However, that’s not to say some change shouldn’t be resisted. It should. Take, for instance, the notion that the rise of the “gig economy” means the end of stable, full-time jobs for our children. I think that notion is wrong and defeatist and must be resisted. It’s wrong because it’s not what most employers would ever want and, in any case, it wouldn’t happen because, under pressure from the electorate, governments won’t allow it to happen. It should be resisted because it would lead us to an economy that wasn’t fit for humans.