The entry density is the rate of registration of new limited liability companies per thousand adults of working age.

The countries with significantly higher startup rates than the USA are those with stronger, more comprehensive, and more centralised social safety nets, along with correspondingly higher taxation.

How many Americans are locked into jobs they hate by the fear of losing health benefits? No Dane ever has to worry about losing her right to medical care by quitting her job to go it alone. Norwegians could in conservative theory decide that work isn’t worth it and live comfortably off the dole, but in practice they don’t. In New Zealand, the insurance principle has been largely abandoned: most benefits have nothing to do with contribution records.

Wimberley argues via analogy as well as by statistics that safety devices cost money, but they pay off: the range of pursuits/opportunities that people are willing to consider is extended when the worst risks are minimised. See Wimberly’s entire post – Safety Nets: Hammocks or Trampolines? for the rest.

via Sociological Images

I think what we’re seeing now, with Tony Abbott, is that fig leaf being discarded.

We’re back to old fashioned paternalism – faith, country, and trust in your betters. And in the economic sphere, Abbott, who knows nothing much of economics, is happy for the state to sit down and carve up the pie in consultation with his preferred interest groups. All this is really classic National Party stuff.

What’s perhaps astonishing on the surface, at least, is how little we’re hearing from the so-called libertarians and classical liberals about Abbott’s lack of faith in the market. Could it be that they’re mostly more interested in anti-Labor partisanship than their own ostensible creed?

There are some juicy quotes from Hayek in Shaviro’s piece. The market, Hayek wrote, subjects “man” [sic] to “the bitter necessity of submitting himself to rules he does not like in order to maintain himself against competing groups.” We are “force[d] to be free”, according to Hayek.

Shaviro’s is the sort of critique of neo-liberalism Kevin Rudd would never write.

It makes clear the deep continuity between the project of neo-liberals such as Hayek and the Enlightenment urge to control and discipline – to remake new humans who are ‘rational’, and thus ‘free’. It would be interesting to compare the sorts of dispositions and attitudes which underlie this logic of governmentality with those of Soviet Marxism.

The real question here is the one of our relation, as individuals, to the economy as a whole — or to the so-called “free market.” We are told that the market is made of individuals just like us. We are told that it consists in nothing more, and nothing less, than the summation of billions of decisions made by billions of autonomous individuals, each of us making choices for ourselves. And yet, we actually experience the market as a vast, ineluctable force. It feels like something entirely alien to us, over which we have no power, and from which there can be no appeal. This is why economic catastrophe is something invisible, impalpable: it affects every aspect of our lives, yet we are unable to “see” it in itself, to discern it as an actual force, behind its all-too-evident effects.

We bitch at the government all the time, because we can more or less see how it works, and because it gives us specific people to blame when something goes wrong. That is why so many Americans agreed with Ronald Reagan when he said that government was the problem — despite the fact that Reagan himself was the government. The market, in contrast, seems to be something that’s just there — like the weather, perhaps, or like an earthquake. We complain about the economy all the time, of course — but only in the way that we complain about a rainy day. Anything further would be a waste of breath — since we know that we cannot do anything about it. Americans get mad about having to pay taxes; but, even if they grumble, they basically accept the fatality of outrageously high interest rates on their credit cards. This is why there are no riots, and no street protests, in the United States today.

Indeed, the very purpose of the “free market” is to instill this kind of fatalism in people. The market is largely an instrument of discipline and control.

Whether or not what emerges is something of a regulatory dog’s breakfast is probably an easy question to answer, if you treat it as a rhetorical question, but not one of those Kevin Rudd style ones.

In today’s Crikey, Bernard Keane looks at an alternative – a super tax on high incomes – say 50c in the dollar for every dollar earned over a million.

It’s intriguing to contemplate the arguments that might be made against such a proposal. It’s much simpler and neater – and fairer than complex regulatory instruments would be. It doesn’t “distort incentives” between different professions, or different types of firms. It ought to be something that free marketeers and anti-regulation types prefer to capping salaries.

Of course, they probably won’t accept that. It smacks too much of old-fashioned social democracy, in that it restores a greater degree of progressivism to the taxation of income. For that very reason, it’s also unlikely to be taken up by Kevin Rudd. I imagine we’ll see some fiendishly complex regulation instead. That’s the thing about Ruddesque anti-neo-liberalism. Its opposite isn’t really social democracy but rather managerialist policy wonkery.

Just how dire the gap between Liberal obsessions and public opinion is can be discerned from a perusal of Possum’s close reading of the figures in the latest Essential Research poll.

All this raises the question of Joe Hockey’s suitability for the Shadow Treasury. He’s been touted by Malcolm Turnbull as a “great communicator”. Opinions might reasonably differ on that. But if we accept the claim for the sake of argument, what exactly will be communicating?

It hasn’t escaped notice that Hockey’s elevation (and Christopher Pyne’s promotion) leaves a gaggle of “moderates” at the top of the opposition tree. Perhaps there’s a need to pacify the Liberal right by reciting endless mantras about the virtues of free markets (although again, whether the Howard government incarnated such virtues is surely dubious). The problem here is that “free markets” are, in the public mind, the cause of our current woes and pledging one’s faith in their wonderfulness is also coming across as code for… doing nothing. And waiting for the economy to tank.

I’ve always argued that to claim that Malcolm Turnbull has an “economic strategy” is to stretch words beyond the limit of their meanings. Hockey, or someone or other, must have been sending a few signals out to the press aside from the official line about markets. It was suggested in the Fin yesterday that Hockey would be criticising the substance of anti-recessionary measures rather than the need for them, and contrasting the Rudd government’s performance with the Golden Age of the Howard government.

Here, there’s also a problem. The public like what’s being done. If the opposition go down this route, they risk incarnating another political cliche – The Carping Opposition. And talking about the past – and themselves – well, you join the dots.

As always with the Liberal Party post November 2007, the real issue isn’t the messenger. It’s the message.

The world’s economies are not suffering from a lack of demand, and the right policy response is not a demand stimulus. Increased public sector spending will only add to the market confusions that already exist…

There’s been much talk about ideological divides between tax-cutters and infrastructure and bonus spends in the wake of Kevin Rudd’s essay in The Monthly and the debate over the stimulus package. That talk, of course, obscures how close the two parties actually are, and an alternative way of looking at the issues might concentrate on the electoral coalitions which would benefit respectively from tax cuts or the combination of bonus payments that taper out as you go up the income ladder and education spending. Naturally, there’s an argument about which mode of proceeding would provide the greatest multiplier or have the quickest effect. But, in truth, the technical or policy differences are difficult to separate out from the politics. That doesn’t quite mean that ideology is dead, though, because the Quadrant essay by Steven Kates from which the quote above comes does show that there are those around there who are going to make a “private economic activity good, state intervention bad” claim almost regardless of the circumstances.

In a way, Kevin Rudd does have a real target for his claims about “neo-liberalism” even if his story has to exaggerate the influence of the purist form of the ideas underpinning it, and misleadingly imply that they’ve only influenced one side of politics. But most people aren’t aware of the arcana of “Austrian economics” and the sort of “let the market sort it out” line this quote exemplifies is going to stick to the Liberals and Malcolm Turnbull. And at the worst possible time. Turnbull’s low tax, small government rhetoric and his opposition to the level of state stimulus ensure that, even if his message is supposed to be more nuanced. And I’m sure most Australian voters aren’t all that interested in passionate arguments about the role of the New Deal in the Depression. Ideology? You can run, Malcolm, but you may not be able to hide.

In this context, one of the chief architects of the Alternative Economic Strategy of the 1970s and 1980s, which had a significant influence on both British and Australian policy debates, Stuart Holland, has published an interesting article on Keynes in Red Pepper. Part of Holland’s concern at the time – when working for and with Tony Benn – was to escape the polarity of planning and public ownership versus the free market, but not in the Third Way way. Rather, the AES proposed to deepen democracy within economic and state institutions – a way forward for a genuinely liberal democratic socialism which would actually, well, change stuff. It couldn’t be further from top down policy wonkery.

That was then, of course, and this is now, but Holland makes – in my view – a very interesting argument about the Keynes revival. He points out that a revived Keynesianism should be more than just demand management on one hand or investment in infrastructure to support private capital on the other. Perhaps those are necessary first steps as an emergency measure to cushion the deleterious effects of a global financial crisis, but I think his argument is worth consideration for social democrats with an eye to actually transformational ends.

So where does this leave us now, other than in its ruins? First, it is clear that borrowing to invest, as in the US New Deal, is the answer to countering a recession in both in the UK and Europe, but led by governments rather than relying on private sector institutions. European governments have begun to grasp this by increasing the capital base and lending of the European Investment Bank. Second, it is vital that the investments should not only be in advanced technology and aimed at competitiveness, but also social, in health, education, urban renewal and the environment, and aiming to rebalance the asymmetry between markets and societies. Third, we need to recognise that an aggregate increase in productivity from technical progress and innovation will not offset the tendency of Marx’s rising technical composition of capital to displace jobs except in entirely new sectors, such as environmental technology. A recovery programme must be green.

But more than this, we need to rethink growth and distribution in a globalised economy. The best way to secure economic recovery is by public investments shifted through the pockets of the poor, in both the developed and less developed economies. Redistribution should not depend on growth, but be its driver, as it was in the Scandinavian welfare states. We also need to rethink the relation between economic and social efficiency and therefore replace the assumption that only economic productivity should be the criterion of any success. An efficient market concerns economic criteria, competitive advantage and private gain. An efficient society concerns social criteria, mutual advantage and social gain. An efficient economy is concerned with market innovation. An efficient society is concerned with social innovation. For example, within a market cost-focused economic paradigm, efficient production in competitive markets reduces labour per unit of output rather than being labour intensive. In line with the recent rhetoric on downsizing, delayering, outsourcing and business re-engineering, it takes jobs out. But social efficiency does not.

An efficient society increases employment to assure social inclusion. It assures sufficient teachers and health workers to provide universal high quality and customised health and education, sufficient social workers to care well for the elderly when they do not have family support, or to relieve pressures on families from the entire burden of such support, as well as providing finance for investment and revenue to fund other high quality public services and to assure environmental protection.

High-quality teaching and health are labour intensive. No one judges a school or university to be better because it has more pupils or students per teacher, but the reverse. This means reducing ‘output’ per teacher and therefore reducing economic productivity, but increasing social productivity. Smaller class size is at a premium within private education, as is more personalised care in health, each with lower economic productivity in terms of pupils taught per teacher, or the longer time and higher cost allocated to a patient by a doctor or health worker. Parents and patients able to do so readily pay for this at a higher price, which compensates the institution, whether school, university, hospital or health centre for what in economic terms is lower productivity. But it is society itself that should invest in this, with both economic and social gains.

First, an efficient society should invert the standard economic assumption that more output per worker should be the sole criterion of efficiency in public services. Second, at a macroeconomic level, an efficient society will draw on gains in economic productivity and efficiency to employ more people rather than less, reducing unemployment and promoting social inclusion. Third, it thereby will generate and sustain demand within an economy through income, employment and taxes paid by more people in jobs rather than drawing benefits because they do not have them. Fourth, it will be more concerned than Keynes in his General Theory with both full and useful employment, with use value and fulfilment for people themselves, rather than the exchange value of doing a job only for the money

This means less concern with human capital than with human value in terms of creativity and innovation in both the market and social domains, such as was the innovation of the welfare state itself. It means less presumption that markets will maximise welfare than a realisation that welfare can generate markets. It means realising both that public spending does not drain, but sustains, the private sector, and investing in new and more plural forms of social ownership closer to people themselves, at regional and local level. It also means recovering the claim of Adam Smith that, in any competition, the welfare of society should cast the balance against all other motives.

Much of the mainstream debate on the causes of the crisis takes the form of an ‘accidents’ theory, explaining the debâcle as the result of contingent actions by, say, Greenspan’s Federal Reserve, the banks, the regulators or the rating agencies. We have argued against this, proposing rather that a relatively coherent structure which we have called the New Wall Street System should be understood as having generated the crisis. But in addition to the argument above, we should note another striking feature of the last twenty years: the extraordinary harmony between Wall Street operators and Washington regulators. Typically in American history there have been phases of great tension, not only between Wall Street and Congress but also between Wall Street and the executive branch. This was true, for example, in much of the 1970s and early 1980s. Yet there has been a clear convergence over the last quarter of a century, the sign of a rather well-integrated project. [30]

An alternative explanation, much favoured in social-democratic circles, argues that both Wall Street and Washington were gripped by a false ‘neo-liberal’ or ‘free-market’ ideology, which led them astray. An ingenious right-wing twist on this suggests that the problematic ideology was ‘laissez-faire’—that is, no regulation—while what is needed is ‘free-market thinking’, which implies some regulation. The consequence of either version is usually a rather rudderless discussion of ‘how much’ and ‘what kind’ of regulation would set matters straight. [31] The problem with this explanation is that, while the New Wall Street System was legitimated by free-market, laissez-faire or neo-liberal outlooks, these do not seem to have been operative ideologies for its practitioners, whether in Wall Street or in Washington. Philip Augar’s detailed study of the Wall Street investment banks, The Greed Merchants, cited above, argues that they have actually operated in large part as a conscious cartel—the opposite of a free market. It is evident that neither Greenspan nor the bank chiefs believed in the serious version of this creed: neo-classical financial economics. Greenspan has not argued that financial markets are efficient or transparent; he has fully accepted that they can tend towards bubbles and blow-outs. He and his colleagues have been well aware of the risk of serious financial crisis, in which the American state would have to throw huge amounts of tax-payers’ money into saving the system. They also grasped that all the various risk models used by the Wall Street banks were flawed, and were bound to be, since they presupposed a general context of financial market stability, within which one bank, in one market sector, might face a sudden threat; their solutions were in essence about diversification of risk across markets. The models therefore assumed away the systemic threat that Greenspan and others were well aware of: namely, a sudden negative turn across all markets. [32]

Greenspan’s two main claims were rather different. The first was that, between blow-outs, the best way for the financial sector to make large amounts of money is to sweep away restrictions on what private actors get up to; a heavily regulated sector will make far less. This claim is surely true. His second claim has been that, when bubbles burst and blow-outs occur, the banks, strongly aided by the actions of the state authorities, can cope with the consequences. As William White of the bis has pointed out, this was also an article of faith for Bernanke. [33]

The Government is “actively considering” a joint submission from the Adelaide exhaust system and shock absorber manufacturer Tenneco and the Australian Manufacturing Workers Union that it provide accredited training and also pay the wages of the company’s 600 workers for days the company is forced to halt production.

I think we’re seeing an increasingly corporatist trend in economic policy, and what’s rather intriguing is that the usual voices of neo-liberal orthodoxy aren’t running around the shop demanding “let the free market rip!” (unless I’m missing something). Perhaps that’s because these sort of moves appear widely supported by big business.

If the Tenneco plan goes ahead, it puts some flesh on the government’s rhetoric about the need to preserve skills through a downturn due to the underlying shortages in the labour market. It might also be argued that directing wage subsidies to those already in skilled full time employment is preferable to targeting retraining and labour market measures to those same workers if and when they’re on the dole.

But it’s also legitimate to raise a number of questions – about the viability of such businesses, and the bouyancy or otherwise of labour markets for workers with such skills, and probably more close to the actual point – whether these sort of schemes would only be available in manufacturing. I think that’s probably the case, and I think this has more to do with the Rudd government’s strong preference for support of the manufacturing industry than anything else.

I’m not sure it’s just about the unionised nature of such firms, either. I don’t think anything similar would be contemplated for unionised cleaners for instance, or child care workers, at the lower end of the private sector income food chain. It may be that a case could be made for this sort of program in the public interest, but ought it not to be made according to the actual reasons for selectivity, and the equity (as well as efficiency) justifications and implications set out?

The global financial crisis

The global financial crisis has dominated the headlines for months and has affected countries all around the world. Although national governments have stepped in to prevent the collapse of the financial system, the world is heading for a major recession. Australians nearing retirement have seen the value of their super fall dramatically while workers face the prospect of job losses and falling house prices as the financial crisis hits the rest of the economy. So, how did this happen and what can we do about it?

The most common reasons given for the current global financial crisis are:
1) US banks and mortgage brokers giving home loans to poor Americans who later defaulted on their debt;
2) the failure of the banks and investors to adequately assess the risk of investing in the financial assets that were based on these loans; and
3) these bad mortgages were sold to banks and investors around the world.

Although these factors are very important, there are deeper causes of the crisis. These include financial deregulation, and other ‘free-market’ policies, followed in Australia, and around the world, over the last three decades. Another factor is the over-consumption of people in rich countries on the back of a big increase in debt, and the exploitation of poor countries and the environment.

The economists, business lobby groups and politicians who pushed this ‘neo-liberal’ – or ‘economic rationalist’ – agenda argued that if governments ‘got out of the way’ and let the ‘free-market’ operate without interference, then we’d all be better off.

They called for ‘deregulation’, ‘privatisation’ and more ‘competition’. So, they removed protections for Australian industries, reduced regulation of banks and other finance companies, sold off public assets and attacked trade unions. They claimed that this would lead to a more efficient economy as well as higher economic growth.

The results have not lived up to the claims of those who pushed this agenda. Reducing regulation of banks has not led to more competition and a better deal for customers, but to fewer banks with bigger profits. It has also encouraged more financial speculation and less productive investment in the new infrastructure, social services and new industries we really need.

Removing protection for Australian industries and pursuing ‘free trade’ has not created new high-tech industries and quality jobs. Australians still pay far more for our imports and in interest payments on foreign debt than we receive for our exports. Rather than becoming a more diversified economy we have become even more dependent on mining and agriculture.

Privatisation has also reduced governments’ income without delivering the promised benefits to consumers. Governments and big business have also put a big effort into reducing the rights and conditions of Australian workers, most recently with the WorkChoices laws.

These policies have created more insecure jobs, greater inequality and lower rates of employment than during the 1950s and 1960s. Big corporations have earned massive profits while our healthcare, education, infrastructure and environment have been run down.

Financial deregulation led to both the ‘subprime crisis’ and the global financial crisis. In the US, badly regulated banks and mortgage brokers sold these ‘subprime’ loans to people with low incomes and poor credit histories. The loans were then packaged into derivatives that could be traded on markets. Private ratings agencies like Moody’s and Standard & Poor’s gave these financial assets high ratings and they were bought by banks and other investors all around the world.

When Americans started defaulting on their home loans in large numbers US house prices fell sharply. This caused the value of the financial assets based on these home loans to fall too, creating massive losses throughout the global financial system. These losses sent shockwaves of panic through global markets, made even worse by the complexity and lack of transparency of the financial system. Banks refused to lend to each other, huge companies went bust and governments around the world scrambled to stop the financial system from collapsing.

So, what should we do about it? The Rudd Government’s guarantee of all bank deposits, the cash payments targeted at low-income earners and his commitment to bring forward major infrastructure projects are welcome. However, it is clear that a lot more needs to be done to bring what the Prime Minister called ‘extreme capitalism’ under control. We need to think about how we can re-regulate the financial system to make sure it performs its proper role of financing productive investment and does not threaten the livelihoods of working Australians. To do this we need global cooperation, best achieved through the United Nations, to re-regulate global finance.

The free-market agenda of the last few decades has failed. The big financial firms failed to efficiently allocate financial resources and to adequately assess risk. When the financial sector imploded it fell to governments – and ultimately taxpayers – to bail out the banks and stop the whole system from collapsing.

What the current crisis makes clear is that the era of governments acting in the interests of big corporations and free-market economists must end. Australians must force their elected representatives to reject the failed policies of the last three decades and refocus on the basic needs of Australians. The need for a healthy environment, secure quality jobs and decent public health and education should be its top priorities.

This serious crisis is an opportunity for a shift in direction. Government has to lead now, and with popular support, it can make the urgent need to reduce greenhouse gas emissions the focus of its effort to protect jobs and rebuild our economy.