The era of neoliberalism is ending and reversing

If there's some trend in the world that we don't much like but has been happening for ages, there's a human tendency to assume it will keep on forever and just get worse. Occasionally, however, this moment signals it won't be long before it starts going away.

I'm a great believer in the pendulum theory of history: trends in human activity go on and on until they reach an unacceptable extreme, and then one day they turn and start going back the way they came.

That's certainly the way fashions in economics and government policy work. Consider the story since the end of World War II, using Britain as our guide.

There was a great reforming spirit after the war, and much that needed fixing. The economy wasn't working well and ordinary people – who'd done their duty so selflessly during the war – weren't getting a fair share of the economic rewards.

So the Brits set about installing the welfare state – comprehensive social security payments and a national health service in which most doctors became government employees – and "nationalising" many troublesome but important industries.

This new trend of nationalisation was copied in other countries including, to an extent, Oz.

But as the years rolled by it became clear that Britain's economy wasn't working well. Eventually, a new Boudica rose up, name of Maggie Thatcher, to set things right.

The problem was obvious: too much of the economy owned and run by the government and all those civil servants. Too many rules and regulations. The economy was inflexible and unresponsive. The unions had too much power and were abusing it, always on strike until they got their way.

The answer was to "privatise" most of the nationalised industries and get the unions back in their box.

We need to unshackle the power of the market, with its much greater ability to respond to changing times, greater desire to satisfy customers' needs and motivation to root out inefficiency.

This new trend of privatisation and deregulation – also pushed by Ronald Reagan in the US – has been copied in many developed economies, not least here.

By the early 1980s our economy wasn't working all that well. In a world of floating currencies, we were still trying to fix our exchange rate, battling speculators who always won.

Our banks were a joke, never able to lend enough for a home loan, so you went to a building society or they fitted you up with an expensive second mortgage from their finance company.

We'd been trying to cut ourselves off from the world with high barriers against imports, but been left with an economy that was highly inflation-prone, with much higher unemployment to boot.

Paul Keating and Bob Hawke set about modernising the economy, opening it up to a rapidly globalising world. They didn't ape Thatcher so much as start listening to the advice Treasury had been giving governments for years.

You've detected history's pendulum at work, I trust. Look at it over the decades and you see the fashion in management of the economy swinging from one extreme to the other.

Why does it swing so far? Because the truth – the happy medium – is somewhere in the middle but, because it's some combination of market forces and government management, is devilishly hard to find.

Much easier and more satisfying to champion one extreme or the other.

Why bring this up now? Because, if you hadn't noticed, this particular pendulum has just started swinging back.

As no less an authority than The Economist magazine has judged, the "neoliberal consensus" has collapsed.

For almost 40 years in the English-speaking economies, both sides of politics have accepted that businesses and individuals should be allowed to go about their affairs with as little restriction as possible.

But now both sides are stepping back from that attitude, doing so under pressure from voters growing increasingly unhappy about the state of the economy – in Oz, low wage growth, high energy costs, a seeming epidemic of business lawlessness and a lengthening list of government outsourcing stuff-ups – and the special treatment accorded to business.

You can see it overseas in the electoral popularity of Bernie Sanders and Jeremy Corbyn, and the anti-establishment revolts in the Brexit vote and the election of Donald Trump.

It didn't do her any good, but you see it in Theresa May's Conservative Party election manifesto: "We do not believe in untrammelled free markets. We reject the cult of selfish individualism. We abhor social division, injustice, unfairness and inequality."

Here, you see it in Malcolm Turnbull's reaction to the failed reform of the national electricity market, with his willingness to impose export restrictions on gas companies, buy Snowy Mountains hydro back from the states and contemplate federal construction of new coal-fired power stations.

You see it in Bill Shorten's policy of curbing negative gearing and the capital gains tax discount, his opposition to cuts in the company tax rate and willingness to legislate to restore and protect weekend penalty rates.

I reckon there's a lot more government assertiveness to come. You don't fancy a lifetime of precarious employment in the "gig economy" for yourself or your kids?

Don't worry, before long governments will legislate to protect employees rights at work – just as they used to in the old days.

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Worsening school performance is everyone’s business

Amid all the uncertainty about where we'll be left by the many pressures bearing on us and our economy – climate change and digital disruption, for starters – there's one truth we can cling to: the more we enhance our natural capital and our human capital, the better placed we're likely to be.

Unfortunately, seeing the sense of this is a lot easier than ensuring it happens.

On natural capital – the preservation of species and physical resources, and the healthy functioning of the ecosystem – we've got one whole side of politics still struggling to get its climate-change deniers back in their box.

Even on human capital – the acquisition of knowledge and know-how – there's plenty of conflict, ranging from economic rationalists who think constraining the growth in government spending and taxation more important than accruing human capital, to people in the education system who think the adequacy of their present performance is no one's business but their own.

On the one hand, we've got the smaller-government brigade saying the performance of, say, school education can be fixed without spending an extra dollar.

On the other, we have teachers – some of them, anyway – arguing there's no problem that having taxpayers hand over a lot more bucks wouldn't fix.

How would the extra money be spent? That's for teachers and education departments to decide, and for everyone who isn't a teacher – and therefore knows nothing about schools – to mind their own beeswax.

The smaller-government brigade closes its eyes to the need to improve the performance of our schools and to the significant economic and social gains we stand to make by improving that performance.

The size of these gains can be demonstrated using the Fairfax-Lateral Economics index of Australia's wellbeing, compiled by Dr Nicholas Gruen and published every quarter upon the release of the national accounts.

The index overcomes the limitations of gross domestic product as a measure of economic progress by starting with the most appropriate modification of GDP – real net national disposable income – and adding to it estimates of the value of human capital, natural capital, the effects of distributional inequality, environmental amenity, health and employment-related satisfaction.

The measure of human capital takes account of early childhood risk, school performance, tertiary education, innovation (multi-factor productivity) and skills atrophy from long-term unemployment.

The indicator used to measure our progress in school education is the change in our score from the regular testing of our 15-year-olds' reading ability under the OECD's Program for International Student Assessment.

Our kids' reading score has fallen almost continually since 2000, from 528 to 503, or 4.7 per cent. By comparison, Canada's score has declined only marginally over the period, from 534 to 527.

The index's estimates suggest that, were we able to lift our score only to Canada's level, this would increase the value of our human capital by almost $17 billion a year.

That's equivalent to about 1 per cent of GDP – far more than promised by almost any other proposed economic reform, including cutting the company tax rate.

Putting it another way, had our 15-year-olds' performance not deteriorated since 2003, the estimated value of the human capital – know-how – in the heads of this year's 15-year-olds would be $17 billion greater than it is.

Our kids' academic performance in each of the areas measured in the PISA tests – reading, maths and science – has been deteriorating, though at differing rates. This is worse than the picture shown by successive NAPLAN test results, summarised as flat to down.

This is why teaching is a problem too important to be left to teachers. The more so because some teachers – a minority, I trust – have become hyper-defensive, refusing to acknowledge there's a problem, telling themselves that, if there is a problem, it's everybody's fault bar their profession's, and branding any non-teacher who dares to offer an opinion a "teacher-basher".

Julia Gillard's attempt to use the measurement (via NAPLAN) and publication (via the My School website) of students' and schools' academic performance to raise standards by fostering competition between schools was misguided – pseudo-economic – and has failed.

But too much of the resistance and criticism of NAPLAN and My School arise from some teachers' desire to continue avoiding public accountability for the quality of their work.

It should go unmeasured (because fault can be found with every form of measurement humans have tried) and, to the extent that performance information exists, it should remain confidential to insiders, because outsiders lack the expertise to interpret it correctly.

Sorry guys, but more money comes at the price of greater accountability to, and scrutiny by, the mug taxpayers who cough it up.

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