I’m going to start by breaking a rule of progressive politics devised for us by George Lakoff a decade and more ago, when he said 'Don’t think of an elephant'. You might remember, Lakoff’s argument was that progressives were like participants in a psychology experiment who, when asked not to think of an elephant thought of … an elephant. Lakoff’s point was that progressives are always thinking about economics using the frames set by the political right.
Today, I want to suggest we reframe the debate about economics—and do so by getting you to think about an elephant. I’m talking about the now rightly famous elephant chart, compiled by Branko Milanovic. As a former Treasurer, I’ve been exposed to a great many charts that purport to be powerful, but the elephant chart is truly one of the most powerful graphics I’ve seen in my political career.
Now, there’s no deeper economic meaning behind calling it the elephant chart. Much like the 'J-curve' or the 'V-shaped' recession, it’s called the elephant chart because it’s a chart that looks like an elephant. The elephant chart traces how total economic growth since 1988 has been distributed among the world’s population, from poorest to richest. For all groups, income and living standards have grown, but the experience of globalisation—or where you find yourself on the elephant—will be quite different depending on which part of the globe you’re from.
While the elephant chart says many things, its essential point is that the biggest losers of the past 30 years have been the Western low- and middle-income earners and the biggest winners in advanced economies have been the Western elite—the top 1 per cent. The Western middle class find themselves nestled in the trough of the elephant’s trunk, but they’re far from comfortable—their incomes have grown by just 1 per cent in 30 years. Ahead of them are the Western elite, where the elephant’s trunk trumpets upwards to signify that the incomes of the global top 1 per cent have increased by two-thirds in 30 years.
The growing inequality captured by the elephant chart was the focus of a Commission convened by the Centre for American Progress in 2015, of which I was a member. Our report warned that the primary challenge to Western liberal democracies today isn’t military or ideological, it’s economic. History tells us that democracy is fragile. That it is strongest when there is economic stability and economic justice. So it’s no surprise that 30 to 40 years of widening inequality is now placing democracy under strain, and that in some countries it is visibly cracking. What about in Australia?
Democracy has of course survived well enough in Australia, but it’s certainly not looking as healthy as it once did. Intolerance and demagoguery have been rearing their ugly heads – and the fortunes of our middle class may in part explain it. I’ve long argued that Australia has managed to avoid the worst of American-style inequality. Between 1995 and 2016, as median incomes in the United States flat-lined, median incomes in Australia increased by more than 50 per cent. But median incomes in Australia have started to stall in recent years.
The empirical work of the IMF shows conclusively that when the benefits of growth are concentrated, growth is weaker. When growth is more fairly shared, growth is stronger. Over thirty years Australia has been one of few countries that has done a better job of mixing strong growth with social equity. This has important ramifications for our politics. The difference between Australia having a Hanson in the Senate and the United States having a Trump in the White House is as simple as the difference between the US having thirty years of wage stagnation and Australia having thirty years of wage growth.
But in recent years it’s become clear we’re not immune to the sorts of economic trends which have brought other Western liberal democracies to the brink. The share of income going to employees is near its lowest level in almost sixty years, when records began.
Underemployment is near its highest rate in almost forty years, when records began. Private sector real wage growth is near its slowest rate in at least twenty years, when records began.
The devastating political consequences of the neoliberal model across the developed world are now evident for all to see. That is why the Turnbull government’s embrace of Trump-style trickledown is so dangerous for growth, living standards and political stability. It also flies in the face of what we ought to have learnt from the Global Financial Crisis and Great Recession.
Next month will mark the 10th anniversary of the collapse of Bear Stearns, the world’s fifth biggest investment bank. This was the first in a series of the seismic shocks which culminated in the rolling earthquake of the Great Recession. I know some people might be saying—this was all ten years ago, why is it relevant now? In September 1939, discussion of the Wall Street collapse of 1929 might have generated the same query. But events, namely World War II, soon provided the answer. Big economic shocks have big political consequences.
The fact is the aftershocks of the Great Recession haven’t yet reached a full stop. The turbulence remains to be traversed by policy makers with the correct policies. Policies that actually work, rather than just satisfy a neoliberal philosophy. And forgetting that is foolish and dangerous. It’s not as if we haven’t forgotten the lessons of economic crises before. In fact, one might say that the Great Recession began in 2008 because we foolishly and dangerously forgot the lessons of the Great Depression which began in 1929. This debate isn’t a ten-year-old debate, it’s an 80-year-old one that began with the Great Depression and the publication of Keynes’s General Theory. It is a debate about what role should government play in the economy to tackle a recession and what sort of society we want: an equal one or an unequal one.
That makes it a highly political debate. And for me a highly personal one. People tell me I’ve changed my economic tune in recent years. That I’ve moved to the left. Become a bleeding heart. I know what you’re expecting. You’re expecting me to say that I haven’t changed at all. That I’ve consistently held on to everything I once believed, just found new ways of expressing it.
But it’s true. I have changed. My approach to economics is different. What changed me was the GFC. It’s true indeed that I’ve been deeply concerned about unemployment and poverty for my entire adult life—and have the boring, worthy books, speeches and articles to prove it. But whereas previously I regarded tackling inequality primarily as social policy—damn good social policy, but social policy first and foremost—I now regard it as absolutely central to good economic policy. And I believe that viewing economics through the frame of inequality will give Australia a better economic result.
The GFC has taught us that rising inequality isn’t just an important moral challenge, something we tackle with the proceeds of growth once we can afford to, and trade-off for further economic growth. It is an economic challenge that determines how prosperous and stable our economy can be. And therefore of fundamental and central importance to the health of our democracy. A decade after the GFC, we can now see clearly that rising inequality isn’t just making our society less fair, it is making our economy less prosperous, less stable, more fragile and crisis-prone. And it is having similar effects on our politics. Aided by the brilliant scholarship of Thomas Piketty and others, we can now see in a much clearer way how widening inequality is an inevitable consequence of the last four decades of the dominant economic policy settings—the Washington consensus.
And here’s an important political point for us to grasp. Reducing inequality offers something to everyone. It’s not about dividing the pie. It’s about growing the pie. And that makes it a political program for victory. It’s about national renewal. It’s about the future. People on the political right have lots of superficial and dumb sayings. 'You can’t tax your way to prosperity.' 'You can’t make the wage earner richer by making the wage payer poorer.' And so on. You know them. Well, the last ten years have proved is that you can’t corporate tax dodge your way to prosperity. Or cut workers’ wages to prosperity. Or endlessly tighten your belt to prosperity. Or rent your way to prosperity instead of buying a house. You can’t make our economy richer by making more people individually poorer. Full stop.
Indeed, the most intelligent economic decision makers of Australia—and I’m not talking about the ones at the BCA, who just want business tax cuts—now argue that what our country desperately needs is rising wages. But we can’t assume that economic discontent will push support progressives’ way. We shouldn’t assume that Trump is a temporary blip or even a wake-up call. Without an adequate alternative agenda, his election might mark the beginning of a long-term right-wing supremacy.
We all know that inequality is poisoning our society and the power of big money is crowding out our democracy. What centre-left parties need to do is get on the front foot with a vigorous agenda, a clear alternative to neoliberal or trickledown economics. When centre-left parties run a tame and insipid economic agenda which lacks the vibrancy of a clear alternative in the key areas of inclusive growth, they get run over by right-wing populists who use race and gender politics to camouflage a wealth concentration agenda.
Against these politics of division, a forthright and full-voiced agenda of unity has a nearly unassailable advantage. Patriotism, for example, can be harnessed to bolster the case for inclusive prosperity, as history has shown. Roosevelt advanced the New Deal as a suite of policies that would benefit 'the nation', not just the poor. The Beveridge Report on Full Employment in Britain noted that providing a welfare state and a minimum income was an innately, 'peculiarly British' aspiration. And in Australia, the idea of the 'fair go' is etched into our national identity more deeply and permanently than any Southern Cross tattoo. From this patriotism arises a commitment to the welfare and wellbeing of our fellow citizens.
Our political task is consistently to elevate to the top of our discussions a platform that combats both economic and social inequality and delivers social mobility. We have to make the case that middle income consumers, not just rich people, are job creators. A strong middle class is a source growth, not a consequence of it. And Australian business does well when middle Australia does well.
In other places I’ve laid out the planks of a platform for progressive success: the resumption and maintenance of full employment; a stronger voice for working people; the curbing of market concentration and corporate excess; and the defence and redoubling of our progressive tax systems. I make this important point: weakening unions further is not the answer. It will make us all poorer. Let’s strengthen them!
Of course, responding to inequality involves deep organising and engagement. In the words of Brian Eno, it’s more than 'tweets and likes and swipes—or even conferences like this one. Popular movements even in recent years—from the Tea Party on one side of the political spectrum to the Bernie Sanders campaign on the other—provide fertile ground to understand how we can best forge a path forward and bring with us the people who have been otherwise left behind.
The current crisis of governance presents the perfect opportunity for the left to lead and engage—to set the economic agenda and to ruthlessly organise to implement it. Since 1980 in Australia, the Labor Party has governed at the federal level for half the time and at the state level for longer. Too regularly around the world over this period, as inequality has grown, social democratic parties have taken heavy electoral defeats. So there’s an urgent need for all of us to be a lot better and bolder. There is a vibrant alternative to trickledown economics that is popular, not populist.
Tackling inequality doesn’t require overcoming any immutable laws of nature. There is nothing 'natural' about the warped version of the free market we find ourselves participating in, with its rampant oligopolies, arbitrary and inequitable income distributions and generous concessions to capital. In the words of Karl Polanyi, 'laissez faire was planned'.The bad news is that the planners of this distorted laissez faire—big companies, industry groups, think tanks—won’t retreat before they’ve thrown their considerable resources behind a well-organised effort to convince voters that there is no alternative. Just look at how they viciously attacked Emma Alberici when she had the temerity to tell the truth about big business not paying its fair share of company tax.
We have to fight them. The good news is that on the left there is no shortage of intellectual firepower, of political talent, or of grassroots support for a progressive program, which when given a full voice, has massive popular appeal. Working people are looking for social democratic representatives who are unapologetic about whose side they are on and what they believe in. They’re looking for us to develop popular feeling about the current economic state of affairs into a well-thought-out social-democratic platform and then carry it through in government.
Today we require no less ambition or firmness of belief than that which forged the post-war Golden Age—where policymakers nurtured the mixed economy, where clear rules for the road were set forth, where excessive greed was frowned upon and where raising the prosperity of low- and middle-income earners was the goal, not something to be sacrificed. It’s time to assert the obvious: the right’s agenda has failed and our agenda’s time has come.
Wayne Swan MP was the Australian Treasurer from 2007 to 2013. This is the text of his speech to the conference, 'A Progressive Labor Agenda: Tackling Inequality', in Sydney on 24 February 2018.
Swan, Wayne, 'Where have we come from and where to next?', Evatt Journal, Vol.17, No. 1, May 2018.<https://evatt.org.au/where-have-we-come-from-and-where-to-next>