Finance Finance News Alan Kohler: The wartime economic policy we need to revive

Alan Kohler: The wartime economic policy we need to revive

To achieve "full employment", the Morrison government should look to the past. Photo: AAP/TND
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The reason the federal government can come up with such a half-arsed policy as subsidising 800,000 flights to random places around the country, it seems to me, is that there is no overall employment policy framework for it to fit into.

JobKeeper is an employment policy, and a pretty good one, but it ends this month.

And although the flight subsidy scheme is supposedly all about jobs, as Prime Minister Scott Morrison, Treasurer Josh Frydenberg, and the Minister for, among other things, Regional Development Michael McCormack, all repeatedly chorused during their doorstop at Sydney Airport on Thursday, it is not an employment policy.

Of course, it’s designed to help places that rely on international tourism by replacing it with domestic tourism, which is fair enough, although why they decided to choose the destinations rather than just provide vouchers and let travellers decide where to go, can only be guessed at.

More broadly, while those three men and other Morrison government ministers often talk about jobs and how much in favour of them they are, they don’t talk about full employment.

A search for the term “full employment” on the Prime Minister’s website yielded nothing.

A similar search of the Treasurer’s website yielded a few results, but nothing much recently and they were all questions rather than expressions of government aspiration, and certainly not substantial policy statements.

Treasury’s website is devoid of the term, and the words do not seem to have ever been uttered by the Employment Minister Michaelia Cash.

I invited Google to find the term “full employment” coming out of the mouth of any PM or treasurer in living memory or as the main purpose of any government policy.

The best I could find was a 1945 white paper entitled Full Employment in Australia, which started with these ringing words: “Full employment is a fundamental aim of the Commonwealth Government.”

The last federal government committed to achieving full employment was John Curtin’s. Photo: AAP

Full employment was actually achieved after that, for nearly 30 years, proving that fundamental aims for government can actually work.

Australia’s unemployment rate averaged 1.9 per cent from 1945 to the 1973 recession.

From there it hit 11 per cent in 1983, and “full employment” wasn’t mentioned as a goal of government policy until the current Treasury secretary Stephen Kennedy put it on the agenda in a speech in 2007, when the unemployment rate was 4.3 per cent and full employment seemed to be just around the corner.

The Reserve Bank, on the other hand, has “the maintenance of full employment” as the clearest of its three mandates (the others are more vague, namely the stability of the currency and “the economic prosperity and welfare of the people of Australia”).

Definition is the problem with the RBA’s otherwise perfectly clear employment mandate.

To those in the Martin Place ivory tower, “full” does not necessarily mean what you and I would regard as full, but rather something called the NAIRU, which stands for the non-accelerating inflation rate of unemployment.

In economic theory, this is the rate of unemployment that doesn’t cause inflation to accelerate – not just increase, but gather pace.

What percentage the NAIRU is, exactly, has always been a matter of academic contention, but RBA research papers suggest that in the 1980s it was 6 per cent, in 1994 it rose to 7 per cent and then gradually fell to 5 per cent in 2017, which is where most economists think it has stayed.

In a speech last week, RBA governor Philip Lowe indicated that it is now close to 4 per cent, which was a momentous announcement, and might even “have a 3 in front of it”. But he’s not sure.

However, the Reserve Bank is also required to keep an eye on the stability of the currency, which is about inflation, so it can be excused for hedging its bets on the matter.

The government operates under no such formal mandate.

Of course, it must be careful about not causing inflation to accelerate, and thereby prompting the RBA to cause a recession by putting up interest rates, but the government could quite easily decide that its mandate (fundamental aim) is to ensure that everyone who wants a job can get one – that is, zero involuntary unemployment, aka full employment.

Come to think of it, why is that not the main task of government all the time, and especially now that the RBA has said it is not worried about inflation and won’t react to it straight away anyway?

Because a pool of unemployed is required to keep downward pressure on wages and ensure that profits keep growing.

Former finance minister Mathias Cormann told Sky News in 2019 that low wages growth was a “deliberate design feature of our economic architecture”. Photo: AAP

The ostensible reason for this is also to do with employment – the proposition being that profits produce investment, which results in employment.

But the evidence suggests otherwise: There has been no real wages growth for 10 years, but business investment has been falling anyway.

As Dr Lowe pointed out in last week’s speech, investment as a share of GDP has averaged 9 per cent compared with 12 per cent over the previous three decades.

So, what does a full employment policy look like?

Well, it’s probably not subsidised airline flights, although that could be included as a voucher system to encourage people to fly anywhere within Australia, particularly at the moment with zero international tourism.

And it’s probably not a loan scheme like the one that’s the other part of the post-JobKeeper replacement policy. A lot of businesses already have plenty of debt and don’t want any more.

It probably can’t be entirely left to the private sector at all any more, since it’s not investing. And when it does, the investment tends to be job-replacing technology.

It comes down to government, and what it regards as important.

Here are a few quotes from the 1945 white paper:

“The maintenance of conditions which will make full employment possible is an obligation owed to the people of Australia by Commonwealth and State Governments.”

“The policy here outlined is briefly that, if spending and employment tend to decline, governments should stimulate spending, both by their own expenditure and through their monetary and commercial policies, to the extent necessary to avoid unemployment and the consequent waste of resources.

“One of the most frequent criticisms of a policy for full employment is that it will fail to provide the necessary incentive to enterprise and efficiency. The government considers this criticism is incorrect …”

Seems pretty straightforward.

What’s more, it worked.

Alan Kohler writes for The New Daily twice a week. He is editor in chief of Eureka Report and finance presenter on ABC News

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